THE NET LEASE DOLLAR STORE REPORT SEPTEMBER 2014 DOLLAR STORE PROPERTIES MEDIAN ASKING CAP RATES
MARKET OVERVIEW
Tenant Dollar General
Q3 2013 (Previous) 7.26%
Q2 2014 (Current) 6.75%
Basis Point Change -51
Family Dollar
8.00%
7.50%
-50
Dollar Tree
7.75%
7.00%
-75
MEDIAN ASKING CAP RATE BY LEASE TERM REMAINING Years Remaining Dollar General Family Dollar 12-15
6.50%
9-11 6-8
Dollar Tree
5.75%
N/A
7.50%
7.15%
6.80%
7.75%
7.85%
7.37%
3-5
8.42%
8.25%
8.25%
0-2
8.90%
8.80%
8.90%
New construction dollar stores remain at the forefront of investor demand as evidenced by the 50 basis point premium over the entire net lease dollar store sector. In the third quarter of 2014, new construction dollar stores made up 45% of the entire sector. As the dollar store sector continues to expand, with over 1,000 stores planned in 2014, new construction dollar stores with long term leases are more readily available than other net sectors.
MEDIAN ASKING PRICE Tenant Dollar General
Median Asking Price $1,138,462
Median Price Per Foot $125
Family Dollar
$1,250,000
$139
Dollar Tree
$1,556,110
$154
Cap rates within the single tenant net lease dollar store sector compressed from the third quarter of 2013 to the second quarter of 2014 by 75 basis points to a 7.0% 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. Cap rates for Dollar General represented the lowest overall cap rates in the sector (6.75%) due to the abundance of newly constructed locations. Additionally, typical leases for Dollar General are 15 year and triple net as opposed to the typical ten year double net leases for Family Dollar and seven or ten year double net leases for Dollar Tree. However, recently Family Dollar has rewarded certain developers with fifteen year triple net leases with rental escalations in the primary term. Family Dollar properties with fifteen year leases and rental escalations make up approximately 20% of the Family Dollar properties on the market and have asking cap rates of 5.75%. The 75 basis point cap rate premium associated with these Family Dollar leases when compared to fifteen year Dollar General leases can be attributed to the greater rental escalations.
MEDIAN NATIONAL CLOSED CAP RATE SPREAD Tenant Dollar General
Closed 7.34%
Ask 7.08%
Spread (bps) 26
Family Dollar
7.77%
7.55%
22
Dollar Tree
7.50%
7.25%
25
A significant event in the dollar store sector occurred in August 2014 when Dollar Tree announced a bid to acquire Family Dollar for $8.5 billion. Shortly thereafter, Dollar General announced a competing offer, however the bidding is ongoing. The immediate effect of the potential acquisition is unknown in the marketplace. In the meantime, some investors will stay on the sidelines waiting for the effect (store closure announcements, credit rating changes, etc.) of the potential transaction to play out. The supply for new construction dollar stores will continue to increase as over 1,000 stores were projected to be built in 2014. The single tenant net lease dollar store sector will remain active as these properties generally offer long term leases, investment grade tenants and attractive price points. However, until the Family Dollar acquisition concludes, some investors will focus their attention on other net lease sectors.
www.bouldergroup.com