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.
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THE NET LEASE DOLLAR STORE REPORT SEPTEMBER 2014 PERCENTAGE OF DOLLAR STORES ON THE MARKET BY TENANT Tenant Dollar General
Percentage of Market 53%
Family Dollar Dollar Tree
DOLLAR STORE VS RETAIL NET LEASE MARKET CAP RATE
Sector Dollar Store
Q3 2013 (Previous) 7.75%
Q2 2014 (Current) 7.00%
40%
Market
7.02%
6.50%
7%
Dollar Store Difference (bps)
-73
-50
DOLLAR STORE MEDIAN ASKING CAP RATE BY REGION 6.00%
7.58%
6.75%
6.69%
7.83%
6.50%
7.20%
7.14%
5.88%
ST A HE T R O N
WEST MOUNTAIN
MIDWEST
SOUTH
6.70%
6.50%
7.50%
7.17%
8.25%
6.98%
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THE NET LEASE DOLLAR STORE REPORT SEPTEMBER 2014
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
$19 billion
$9 billion
$11 billion
Revenue
$18 billion
$10 billion
$8 billion
2014 Stores Planned*
700
525
360
Number of Stores
11,000
8,100
5,080
New Lease Type
Triple Net
Double Net
Double Net
Typical Lease Term
15 years primary term with twenty years of options
10 or 15 years primary term with twenty-five years of options
7 or 10 years primary term with ten years of options
Typical Rent Increases
None in primary term; 10% each option period
None in primary term; 10% each option period
$0.50 per sqaure foot every five years
*Estimates
FOR MORE INFORMATION AUTHOR John Feeney | Vice President john@bouldergroup.com CONTRIBUTORS Randy Blankstein | President randy@bouldergroup.com
Jimmy Goodman | Partner jimmy@bouldergroup.com
Jordan Kaufman | Vice President jordan@bouldergroup.com
Zach Wright | Research Analyst zach@bouldergroup.com
Š 2014. 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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