Analysis of Investments

Net-Leased Portfolio 20

ExchangeRight

ExchangeRight's latest Net Leased Portfolio has 16 retail properties. These properties are located in 8 different states and have 9 different tenants. These tenants provide discount grocery, auto care, specialty healthcare, farming supplies, and pharmacy. These properties are 100% net leased with contracted rents for the investments hold period.

Investment Highlights

  • Yr. 1 Cash-on-Cash 6.50%
  • Initial Occupancy 100.00%
  • Est. Time Horizon None YEARS
  • Current Cash Flow 6.50%
  • Yr. 1 Cap Rate to Investor 5.61%
  • Investor Purchase Price $71,007,000
  • Total Offering Size $32,550,000

Loan Information

The loan on the portfolio is from Societe Generale and has a term of 10 years. The fixed interest rate is 4.202% and there will be interest only payments for the entire 10 year term on the loan. The total loan amounts to $38,457,000.

  • Yr. 1 DSCR 2.38
  • Loan-to-Offering 54.16%
  • Hold Period DSCR 2.43

Tenant Information & Lease Terms

The portfolio has a total of 16 properties with 9 different tenants. These tenants include:

Advance Auto Parts - This entity has a credit rating of BBB- from S&P. There are a total of 3 Advance Auto Parts in the portfolio 
BioLife Plasma Services - This entity has a credit rating of Baa3 from Moody's. There is only 1 BioLife in the portfolio and the remaining lease term is for 15 years.
Dollar General - This entity has a credit rating of BBB from S&P. There are a total of 4 Dollar General's in the portfolio.
Fresenius Medical Care - This entity has a credit rating of BBB- from S&P. There is only 1 Fresenius in the portfolio and the remaining lease term is for 14.7 years
Napa Auto Parts - This entity does not have a credit rating from S&P or Moody's. There is only 1 Napa in the portfolio and the remaining lease term is for 19.9 years.
Pick 'N Save - This entity is owned by Kroger, Inc. which has a rating of BBB from S&P. There is only 1 Pick 'N Save in the portfolio and the remaining lease term is for 11.8 years.
Tractor Supply Company - This entity does not have a credit rating from S&P or Moody's. There are a total of 2 Tractor Supply Co's in the portfolio
Verizon Wireless - This entity has a credit rating of BBB+ from S&P. There is only 1 Verizon in the portfolio and the remaining lease term is for 9.6 years
Walgreens - This entity has a credit rating of BBB from S&P. There are a total of 2 Walgreens in the portfolio.

In total there are 16 properties, 13 of which have an Investment Grade credit rating from either S&P or Moody's. Across all 16 properties the average lease term is 13 years. There are 9 triple net leases and 7 double net leases.

Key Positives

  • Average remaining lease term of 13 years which exceed the projected hold period of 10 years.

  • Tenants are diversified across 8 different states and the portfolio has 9 different tenants allowing for mitigated risk should a geographic area be subject to natural disaster.

  • Contracted rent escalations during the 10 year hold period allow for increases in cash flow throughout the term.

  • 13 of 16 (81.25%) tenants have an investment grade credit rating from either S&P or Moody's.

Key Risks to Consider

  • The Cap Rate to investors is low (5.61%) and the breakeven cap rate is (5.57%).

  • Contracted annual rental increases may not be sufficient to recoup upfront costs of syndication.

  • There is no guarantee that tenants will renew or extend their leases after the current term expires. This may make this portfolio less attractive to buyers as there may be a limited number of years of guaranteed rent under the current leases.

  • The loan is Interest Only for the entire term which leaves a large amount of principle to pay upon sale. This will make it critical to sell the portfolio for more than the purchase price to return original capital to investors.

  • Due to the geographic diversification, investors may have to file multiple state tax returns.

Investment Sponsor Information

ExchangeRight

According to the sponsor's website: "ExchangeRight Real Estate, founded in 2012, is a private real estate investment firm focused on the acquisition and management of single-tenant properties throughout the United States. With over $1.2 billion in assets under management diversified across 425 properties in 28 states, we focus on investment-grade, necessity-based retail and Class B/B+ value-added multifamily.

We believe that investors deserve an investment strategy that provides them with stable cash flow, capital preservation, and value-added return potential in the face of uncertain economic and financial conditions. We have implemented a strategy designed to directly address this so that we can preserve our investors' capital and provide attractive income on their capital until the timing is right to execute a strategic exit to maximize their returns."

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