THE NET LEASE DOLLAR STORE REPORT Q2 2015 DOLLAR STORE PROPERTIES MEDIAN ASKING CAP RATES
MARKET OVERVIEW
Q2 2014 (Previous)
Q2 2015 (Current)
Basis Point Change
Dollar General
6.75%
6.50%
-25
Family Dollar
7.50%
6.50%
-100
Dollar Tree
7.00%
6.90%
-10
Tenant
MEDIAN ASKING PRICE
Median Asking Price
Median Price Per Foot
Dollar General
$1,232,677
$135
Family Dollar
$1,521,600
$182
Dollar Tree
$1,490,000
$174
Tenant
MEDIAN ASKING CAP RATE BY LEASE TERM REMAINING Years Remaining
Dollar General
Family Dollar
Dollar Tree
12-15
6.40%
6.00%
N/A
9-11
6.98%
7.00%
6.75%
6-8
7.65%
8.00%
7.25%
3-5
8.25%
8.35%
7.54%
Under 3
8.40%
8.45%
8.35%
MEDIAN NATIONAL CLOSED CAP RATE SPREAD Tenant
Closed
Ask
Dollar General
6.55%
6.50%
Spread (bps) 5
Family Dollar
6.91%
6.75%
16
Dollar Tree
7.25%
7.00%
25
Cap rates within the single tenant net lease dollar store sector compressed by 50 basis points from the second quarter of 2014 to the second quarter of 2015 to a 6.5% cap rate. The dollar store sector, for the purpose of this report, is defined as free standing Dollar General, Dollar Tree and Family Dollar properties, as these tenants represent the largest presence within the sector. While the entire sector experienced 50 basis points of cap rate compression, Dollar General and Dollar Tree experienced only slight compression of 25 and 10 basis points respectively. Cap rates for Family Dollar properties compressed significantly by 100 basis points during the same time period. This can be attributed to Family Dollar’s recent lease structure change. Formerly, new construction Family Dollar leases were 10 years, double net and did not contain rental escalations in the primary term. The new standard lease for new construction Family Dollar properties is 15 years, triple net and contains rental escalations every three years or in the eleventh lease year in the primary term of the lease. Dollar General and Family Dollar continue to make up the majority of the supply in the single tenant dollar store sector. Dollar Tree stores only made up 8% of the total supply in the second quarter as Dollar Tree stores are more commonly located within strip centers. The cumulative expansion plans of all three tenants have created a market with a consistent and steady supply of new construction assets. A significant event in the dollar store sector occurred in July 2015 when the Dollar Tree and Family Dollar merger officially closed. As part of the merger, 330 Family Dollar stores will be sold to Sycamore Partners, a private equity firm. While a large scale merger of this sort concerns some investors who own a Family Dollar near a Dollar Tree or vice versa, Dollar Tree has consistently stated that the stores do not create an overlap in business lines. Family Dollar is now a subsidiary of Dollar Tree and Family Dollar is no longer an investment grade rated company. Dollar stores will continue to garnish demand from all investor classes as they remain one of the only viable alternatives to QSR restaurants with long term triple net leases priced below $2 million. However, demand will be saturated in new construction assets with long term leases as the tenant’s cumulative expansion plans create a steady supply of long term assets.
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THE NET LEASE DOLLAR STORE REPORT Q2 2015 PERCENTAGE OF DOLLAR STORES ON THE MARKET BY TENANT Percentage of Market
Tenant
DOLLAR STORE VS RETAIL NET LEASE MARKET CAP RATES Tenant
Q2 2014 (Previous)
Q2 2015 (Current)
Dollar General
51%
Dollar Store
7.00%
6.50%
Family Dollar
41%
Market
6.50%
6.40%
Dollar Tree
8%
Dollar Store Discount (bps)
50
10
DOLLAR STORE MEDIAN ASKING CAP RATE BY REGION 6.00% 6.00%
7.50%
6.02%
7.75%
7.75% 6.10%
7.50%
6.25%
T S A E TH R NO
WEST MOUNTAIN
MIDWEST
SOUTH 6.08% 6.05%
6.50%
7.00%
6.90% 6.25%
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THE NET LEASE DOLLAR STORE REPORT Q2 2015 COMPANY AND LEASE OVERVIEW Dollar General
Family Dollar
Dollar Tree
Credit Rating
BBB- (Stable)
N/A*
BB (Stable)
Stock Symbol
DG
N/A*
DLTR
Market Cap
$23 billion
N/A*
$18 billion
Revenue
$19 billion
N/A*
$8 billion
Typical New Lease Type
Triple Net
Triple Net
Double Net
Typical New Lease Term
15 year primary term with twenty years of options
15 year primary term with thirty years of options
7 or 10 year primary term with ten years of options
None in primary term; 10% each option period
Either every three years in primary term or 10% in year 11
$0.50 per square foot every five years
Typical Rent Increases
* Family Dollar is a subsidiary of Dollar Tree as of July 2015.
FOR MORE INFORMATION AUTHOR John Feeney | Vice President john@bouldergroup.com
CONTRIBUTORS Randy Blankstein | President
Jimmy Goodman | Partner
Zach Wright | Analyst
Scott Harris | Analyst
randy@bouldergroup.com
jimmy@bouldergroup.com
zach@bouldergroup.com
scott@bouldergroup.com
Š 2015. The Boulder Group. Information herein has been obtained from databases owned and maintained by The Boulder Group as well as third party sources. We have not verified the information and we make no guarantee, warranty or representation about it. This information is provided for general illustrative purposes and not for any specific recommendation or purpose nor under any circumstances shall any of the above information be deemed legal advice or counsel. Reliance on this information is at the risk of the reader and The Boulder Group expressly disclaims any liability arising from the use of such information. This information is designed exclusively for use by The Boulder Group clients and cannot be reproduced, retransmitted or distributed without the express written consent of The Boulder Group.
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