net leased investments
DESCRIPTION
An explanation and analysis of net lease, 1031 investment, net leased property, NNN lease, 1031 property, NNN properties, nnn lease property, NNN leased properties, single tenant, single tenant net leased, investment property, single tenant net leased properties, investment property, investment real estate, free standing retail property, commercial net-lease, free standing retail properties, retail real estate, triple net lease, triple net leased, triple-net leased properties, triple-net lease, triple-net leases, net, net property, net, net, net properties, credit retail properties, credit retail property, credit investment property, credit tenant property, credit tenant properties, and retail credit tenant net leased property.TRANSCRIPT
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Brokers USA Sells Triple Net Lease NNN Properties & 1031 Exchange Property
NET LEASED INVESTMENTS
Gregory Garver – PresidentBrokers USA
1160 Mission St, Suite 812San Francisco, CA 94103
Tel: (415) 968-6065 Fax: (415) [email protected]
http://nnnbrokersusa.com
NNN Leased Investments
• What are Net Leases?• Determinants of Value• Investment Thesis
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Single Tenant Net Lease Types
N- Property Taxes
N- Insurance
N- Maintenance
• Developer/Landlord Negotiates Lease Terms with Tenant
• Tenants can be private companies, franchisees, investment or non-investment grade national corporations, etc.
NN- Tenant is responsible for property taxes and insurance
NNN- Tenant is responsible for property taxes, insurance and maintenance
NNN Advantage = Passive Investment/Cash Flow
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Value Determinants• Value of the Real Estate
• Land Value, Building Value (Age of Building and Type of Construction)• Location & Barriers of Entry to the Market • Demographics and economic structure of the community • Is it Truly a Single Tenant, or Multiple Tenants Wrapped into a Single Tenant Net Lease
Structure
• Value of the Credit Tenant• Current Credit Rating• Expected future financial performance• Past Financial Results
• Value of the Lease Itself• Landlord Responsibility for Expenses (NNN vs. NN vs. N)• Length of the Lease• Options to Renew • Rental Increases in the Lease• Current Market Rents
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Value DeterminantsTenant credit, locations & fundamentals
AutoZone 4,200 stores in the US, Puerto Rico, and Mexico, founded in 1979Advanced Auto 3,400+ stores in 39 continental states, Puerto Rico and the Virgin Islands
O'Reilly's 3,421 stores in 38 states, founded in 1957, went public in 1993
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Not All CVS Pharmacies are Created Equal:• Age and Quality of the Construction• Development Planned in the Surrounding Area• Current and Future Demographic
Trends of the Location• Hours of Operation
Example: CVS in Ft. Myers, FL– Good Demographics– Excellent Site– Drive-Thru– Sold by the Developer– Brand New Construction
Value of the Real Estate
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Value of the Real Estate
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Value of the Real EstateLocation, Location, Location
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Market Update
Walgreens Starbucks CVS AutozoneDollar
GeneralS&P Credit Rating A+ A- BBB+ BBB BB
Cap Rate at Purchase 6.75 7.25 7.3 7.25 8.35Initial Lease Term (Yrs) 20 10 20 20 15
Rent Bumps No Yes No No YesCap rate at sale 6.75 8.5 7.3 7.25 8.5
Pre-Tax Internal Rate of Return 8.3% 9.0% 10.0% 9.9% 11.0%
Projected returns based on the following:
•10 year investment horizon
•0% property appreciation for all leases greater than 15 years and sales prices at current cap rates for those under 15 years
•30% initial equity down payment for investment grade tenants and 40% for non investment grade.
•Market lending rates as of 10/15/10
A sample of prevailing market conditions and projected returns.
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Investment Thesis
Cap Rate Spreads
• Vs. Cost of Capital
Borrowing rates are near historic lows and the proper use of leverage can lead investment grade tenants with long term leases to have as much as 580 bps of greater annual returns over comparable bond yields.
• Vs. 10 Year Treasury Bonds
Treasury bond yields are near historic lows. Investment grade tenants offer superior risk adjusted returns.
Spread to 10 Yr.
Treasury Bond
Spread to
Comparable 10 Yr.
Corporate BondWalgreens 5.7% 4.8%Starbucks 6.4% 5.1%
CVS 7.4% 5.8%Autozone 7.3% 5.3%
Dollar General 8.4% 4.1%
Growth of a $1 Million Dollar Investment
$1,000,000
$1,200,000
$1,400,000
$1,600,000
$1,800,000
$2,000,000
$2,200,000
$2,400,000
$2,600,000
$2,800,000
$3,000,000
1 2 3 4 5 6 7 8 9 10
Years
Walgreens
Starbucks
CVS
Autozone
Dollar General
10 Yr. Treasury
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Investment ThesisContinued Case for NNN Properties
• Inflation Hedge
Hard assets tend to outperform during inflationary periods
• Ideal for 1031 Exchanges
• Stable/Predictable cash flows
Steady cash flows without paying the current premium placed on the bond sector
• Portfolio Diversification
Real Estate traditionally has a low correlation to the equity markets.
• Corporate Default Rates
Moody’s estimates that corporate default rates will fall to 3% (1% for investment grade corporations).
• Passive Investment
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COMPANY S&P CREDIT
Citibank A+
Walgreens A+
Bank of America A
AT&T A
McDonalds A
7-Eleven A
Home Depot BBB+
COMPANY S&P CREDIT
CVS BBB+
Starbucks BBB+
AutoZone BBB
Advance Auto BB+
Burger King BB-
Rite Aid B-
Applebee’s NR
CVS/pharmacy
Major Single Tenants and Credit Ratings
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The Brokers USA Team
Brokers USA
1160 Mission StreetSuite 812
San Francisco, CA 94103
Tel: (415) 968-6065
Fax: (415) 520-6589
http://nnnbrokersusa.com
Gregory GarverPresident (415) [email protected]