Q2
2018
THE NET LEASE DOLLAR STORE REPORT
DOLLAR STORE PROPERTIES
MARKET OVERVIEW
MEDIAN ASKING CAP RATES
Q2 2017 Q2 2018 Basis Point Cap rates within the single tenant net lease dollar store sector increased
Tenant (Previous) (Current) Change
by 35 basis points from the second quarter of 2017 to the second quarter
Dollar General 6.75% 7.05% +30 of 2018 to a 7.10% cap rate. The dollar store sector, for the purpose
of this report, is defined as free standing Dollar General, Dollar Tree
Family Dollar 6.70% 7.31% +61
and Family Dollar properties, as these tenants represent the largest
Dollar Tree 6.90% 7.02% +12 presence within the sector. Cap rates for Family Dollar assets increased
most significantly by 61 basis points while Dollar General and Dollar Tree
experienced increases of 30 and 12 basis point each, respectively. The
MEDIAN ASKING PRICE reason for the more significant cap rate uptick experienced by Family
Dollar properties was related to lease term remaining. In the second
Median Median Price quarter of 2018, the median remaining lease term for the Family Dollar
Tenant Asking Price Per Foot
properties sector declined by 27% from the prior year.
Dollar General $1,225,316 $136
The greatest contributing factor for the significant increase in cap
Family Dollar $1,281,896 $147 rates for the net lease dollar store sector is the supply of product in the
marketplace. The majority of supply is concentrated in new construction
Dollar Tree $1,592,500 $175
stores. The dollar store sector in the second quarter of 2018 experienced
a 12% increase in supply when compared to the prior year. Dollar store
MEDIAN ASKING CAP RATE tenants are still expanding at a substantial pace. Historically, dollar store
BY LEASE TERM REMAINING developers were able to sell large pools of properties to institutional
owners, however in recent years these institutional owners are looking
Years Dollar Family Dollar for pricing that is below what developers are willing to accept or their
Remaining General Dollar Tree
tenant concentration for dollar store tenants is at its threshold. Without an
12-15 Years 6.90% 6.80% -- institutional investor acquiring dollar store properties in large increments
the supply must be absorbed by 1031 and private investors in individual
9-11 Years 7.12% 7.42% 6.95% transactions or small portfolios.
6-8 Years 7.65% 8.00% 7.40%
After years of major expansion, the concentration of new construction
3-5 Years 8.05% 8.35% 7.85%
of dollar stores exists in tertiary markets. As many net lease participants
believe we are in the late stages of this real estate cycle, investors have
Under 3 Years 8.75% 8.62% -- demanded additional yield to invest in these small markets. In the second
quarter of 2018, dollar store properties were priced at a 90 basis point
MEDIAN NATIONAL CLOSED discount to the net lease retail market compared to 52 basis points one
year ago.
CAP RATE SPREAD
Spread The net lease dollar store sector will remain active as investors are
Tenant Closed Ask (bps) attracted to the higher yields this asset class generates when compared
to other net lease sectors with low absolute price points. With a strong
Dollar General 7.17% 7.05% 12
development pipeline due to dollar store expansion plans, supply will
Family Dollar 7.50% 7.31% 19 remain saturated with long term leased properties. The expectation is that
the majority of demand for this asset class will remain in new construction
Dollar Tree 7.19% 7.02% 17 assets as investors look to take advantage of the full lease term.
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Q2
2018
THE NET LEASE DOLLAR STORE REPORT
PERCENTAGE OF DOLLAR STORES DOLLAR STORE VS RETAIL NET
ON THE MARKET BY TENANT LEASE MARKET CAP RATES
Percentage Q2 2017 Q2 2018
Tenant of Market Tenant (Previous) (Current)
Dollar General 75% Dollar Store 6.75% 7.10%
Family Dollar 21% Market 6.23% 6.20%
Dollar Tree 4% Dollar Store Discount (bps) 52 90
DOLLAR STORE MEDIAN ASKING CAP RATE BY REGION
6.40%
7.12%
6.50%
7.35% 6.75%
6.35%
7.02% 6.80%
7.00%
S T
E A
WEST H
R T
MIDWEST NO
MOUNTAIN
SOUTH
6.80%
6.90% 7.10%
6.40% 7.40%
7.05%
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Q2
2018
THE NET LEASE DOLLAR STORE REPORT
COMPANY AND LEASE OVERVIEW
Dollar General Family Dollar Dollar Tree
Credit Rating BBB (Stable) -- BBB- (Stable)
Stock Symbol DG -- DLTR
Market Cap $26 billion -- $20 billion
Revenue $22 billion -- $22 billion
Number of Stores 14,761 8,200 14,800*
Typical New Lease Type Triple Net Triple Net Double Net
Typical New Lease Term 15 years primary term with twenty 10 or 15 years primary term with 7 or 10 years primary term
years of options twenty to thirty years of options with ten years of options
Typical Rent Increases None in primary term; 10% each 10% in year 11 and/or each $0.50 per square foot every
option period option period five years
*Includes Family Dollar locations
FOR MORE INFORMATION
CONTRIBUTORS
AUTHOR Randy Blankstein | President Jimmy Goodman | Partner
John Feeney | Senior Vice President [email protected] [email protected]
[email protected]
Scott Harris | Senior Analyst Jeff Weil | Analyst
[email protected] [email protected]
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