Net Leased Investments

http://nnnbrokersusa.com

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]


NNN Leased Investments

• What are Net Leases?• Determinants of Value• Investment Thesis


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


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


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


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


Value of the Real Estate


Value of the Real EstateLocation, Location, Location


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.


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


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


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


The Brokers USA Team

Brokers USA

1160 Mission StreetSuite 812

San Francisco, CA 94103

Tel: (415) 968-6065

Fax: (415) 520-6589


Gregory GarverPresident (415) [email protected]

Net Leased Investments

Business

Transcript of Net Leased Investments