net lease research report for dollar stores

1. THE NET LEASE
DOLLAR STORE REPORT
DECEMBER 2013
DOLLAR STORE PROPERTIES
MEDIAN ASKING CAP RATES
MARKET OVERVIEW
Tenant
Dollar General
Q3 2012
(Previous)
8.25%
Q3 2013
(Current)
7.26%
Basis Point
Change
-99
Family Dollar
8.28%
8.00%
-28
Dollar Tree
8.10%
7.75%
-35
MEDIAN ASKING CAP RATE
BY LEASE TERM REMAINING
Years Remaining Dollar General Family Dollar Dollar General
12-15
6.60%
N/A
N/A
9-11
7.36%
7.50%
7.46%
6-8
8.25%
7.70%
8.00%
3-5
8.50%
8.50%
8.60%
0-2
9.76%
9.00%
8.89%
Median Asking
Price
$1,027,623
Median Price
Per Foot
$113
Family Dollar
$1,080,710
$120
Dollar Tree
$1,375,000
Dollar General properties experienced the greatest cap rate compression
as Dollar General typically signs leases of fifteen years with no landlord
responsibilities, making them a desirable option for a 1031 exchange
investor. A key difference between Dollar General and Family Dollar,
despite their investment grade rating, is that Family Dollar signs 10 year
double net leases. Dollar Tree signs seven or ten year double net leases
and has the lowest supply of the three tenants within the sector.
Dollar stores remain a popular option for investors as they primarily offer
long term leases to strong credit tenants at an attractive price point.
Additionally, with rapid expansion plans, the supply available within
this sector when compared to other net lease tenants is abundant.
Dollar General, Dollar Tree and Family Dollar properties have a median
asking price of $1,095,000 equating to a median price of $103 per
square foot. Strong investor demand is evidenced by the narrowing of
the asking versus closed cap rate spread. In the third quarter of 2013,
this spread compressed to 19 and 18 basis points for Dollar General
and Family Dollar respectively. Although there is increased demand for
the entire sector, newly constructed dollar store properties are in the
highest demand. Dollar store properties built after 2012 are priced at a
100 basis point premium over the entire dollar store market.
MEDIAN ASKING PRICE
Tenant
Dollar General
Cap rates within the single tenant net leased dollar store sector
compressed from the third quarter of 2012 to the third quarter of 2013
by 50 basis points. The dollar store sector, for the purpose of this report,
is defined as Dollar General, Dollar Tree and Family Dollar as these
tenants represent the largest presence within the sector. During the
period from third quarter of 2012 to the third quarter of 2013, properties
tenanted by Dollar General, Dollar Tree and Family Dollar experienced
cap rate compression of 99, 35 and 28 basis points respectively.
Despite the significant cap rate compression, the sector was still valued
at a 73 basis point discount to the entire net lease retail market. This
is primarily due to dollar store’s tendency to operate in secondary and
tertiary markets.
$133
MEDIAN NATIONAL CLOSED
CAP RATE SPREAD
Tenant
Dollar General
Closed
7.81%
Ask
7.62%
Spread (bps)
19
Family Dollar
7.99%
7.81%
18
Dollar Tree
8.20%
7.92%
28
The supply for new construction dollar stores will continue to increase
as over 1,400 stores are projected to be built by the end of 2013. The
single tenant net lease dollar store sector will continue to remain active
as private investors seek properties with long term leases, investment
grade tenants and attractive price points. However, as the economy
slowly improves, there is some investor concern about the oversaturation
of dollar stores given their rapid expansion in recent years.
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2. THE NET LEASE
DOLLAR STORE REPORT
DECEMBER 2013
PERCENTAGE OF DOLLAR STORES
ON THE MARKET BY TENANT
Tenant
Dollar General
Percentage
of Market
60%
Family Dollar
Dollar Tree
DOLLAR STORE VS RETAIL NET
LEASE MARKET CAP RATE
Sector
Dollar Store
Q3 2012
(Previous)
8.25%
Q3 2013
(Current)
7.75%
35%
Market
7.50%
7.02%
5%
Dollar Store Discount (bps)
-75
-73
DOLLAR STORE MEDIAN ASKING CAP RATE BY REGION
6.05%
N/A
N/A
7.63%
8.50%
7.00%
8.00%
7.25%
7.10%
T
AS
E
TH
OR
N
WEST
MOUNTAIN
MIDWEST
SOUTH
6.65%
7.50%
7.50%
7.15%
8.00%
7.06%
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3. THE NET LEASE
DOLLAR STORE REPORT
DECEMBER 2013
COMPANY AND LEASE OVERVIEW
Dollar General
Family Dollar
Dollar Tree
Credit Rating (S&P)
BBB- (Stable)
BBB- (Stable)
Not Rated
Stock Symbol
DG
FDO
DLTR
Market Cap
$18 billion
$8 billion
$13 billion
Revenue
$16 billion
$10 billion
$7 billion
2013 Stores Planned*
650
500
340
Number of Stores
11,000
8,000
4,700
New Lease Type
Triple Net
Double Net
Double Net
Typical Lease Term
15 years primary term with
twenty years of options
10 year primary term with six twenty
five years of options
7 or 10 year primary term with
ten years of options
Typical Rent Increases
3% in lease year 11; 10% each
option period
None in primary term; 10% each
option periods
$0.50 per square foot every five
years
*Estimates
FOR MORE INFORMATION
AUTHOR
John Feeney | Research Director
john@bouldergroup.com
CONTRIBUTORS
Randy Blankstein | President
rblank@bouldergroup.com
Jimmy Goodman | Partner
jimmy@bouldergroup.com
Zach Wright | Research Analyst
zach@bouldergroup.com
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