Analysis of Investments
CF Net Lease Portfolio 8
Cantor Fitzgerald Net Leased Portfolio 8 is an investment in 17 single tenant retail properties located in 5 different states. Each of the locations is operated by a Walgreens Co.
- Yr. 1 Cash-on-Cash 6.50%
- Initial Occupancy 100.00%
- Est. Time Horizon 10 years YEARS
- Current Cash Flow
- Yr. 1 Cap Rate to Investor 5.60%
- Investor Purchase Price $101,815,596
- Total Offering Size $42,598,000
The loan totals $59,217,596 and is from Cantor Commercial Real Estate Lending LP. There are two separate loans on the properties with the same terms. Each is for a term of 15 years with 10 years of interest only payments. The loan will enter hyper-amortization for the final 5 years of the hold term. The interest rate is fixed at 4.593% for the interest only period of the loan. When the loan enters the hyper-amortization phase the interest rate is 3% + the greater of 4.593% or the 10 years SWAP yield on the first business day after December 1, 2026.
- Yr. 1 DSCR 2.07
- Loan-to-Offering 58.16%
- Hold Period DSCR 2.12
Tenant Information & Lease Terms
"There are a total of 17 properties in this investment that are located in 5 different states. All are occupied and operated by Walgreens Co. Walgreens, an investment grade tenant with a credit rating of BBB from Standard and Poor's. Walgreens is one of the largest Pharmacy chains in the United States. There is a potential merger in discussion between Walgreens and Rite Aid that would result increase the amount of Walgreens locations to be greater than the total amount of CVS locations in the nation.
The leases are for a term of 15 years and expire in November of 2031. Rent escalations are scheduled in each 5 years of the initial lease term and during each extension option which total 12 consecutive 5 year terms."
Walgreens is an investment grade tenant which should decrease the potential risk of default on lease payments at each of the locations in this investment.
The remaining lease term is for 14.6 years and each lease has renewal options and rent escalations of 5% each 5 years of the term including a portion of the extension options.
The properties are spread across 5 different states which helps geographically diversify this investment and protect against regional disaster.
Key Risks to Consider
Walgreens has the right of first refusal on all properties in this portfolio, which may lead to a potential buyer to delay their process or even choose to not make an offer on the properties.
The loan enters a period of hyper-amortization during the final 5 years of the loan term. This will mean that the trust will not pay any distributions to the investors and rather use the cash flow from the property to pay down the hyper-amortization on the loan.
This investment has a relatively low breakeven cap rate (5.73%) which will make it more difficult for the trust to return all of the investors original capital at the time of sale.
The population numbers at 7 of the properties are below 50K in the 5-mile radius. This makes it likely that these locations will see less traffic and have a lower sales count. This affects the trust due to the fact that if Walgreens as a parent company decides to close these stores the trust may be negatively affected.
As the remaining lease term drops below 10 years, the sales value of the properties may diminish significantly due to the remaining amount of income guaranteed by the leases decreasing. However, the trust has the ability to sell the properties at any point should they feel it would maximize value.
There is a potential merger between Rite Aid and Walgreens that may affect the trust negatively should some of the properties that are located in local markets with a Rite Aid cease to operate. If more than 25% of the stores cease operations, the lender will enter a cash management sweep and will take all cash that is coming from the properties.
Investment Sponsor Information
According to the sponsor's website: "Cantor Fitzgerald is a leading global financial services firm, serving clients from over 30 offices around the world. Founded in 1945 as a securities brokerage and investment bank, the firm pioneered computer-based bond trading, built one of the broadest distribution networks in the industry and became the market's premier dealer of government securities.
Today, Cantor Fitzgerald is known for its strength across a diverse array of businesses, including equity and fixed income capital markets, investment banking, commercial real estate finance and services, prime brokerage, asset management and wealth management, and e-commerce and online ventures. In all its businesses, the firm is an acknowledged leader in developing advanced technologies to expand market access, and help clients achieve their most important financial and strategic objectives. This commitment to client-centered innovation has led to enduring relationships with many of the world's most demanding institutional investors and corporations."