Analysis of Investments
Diversified Healthcare 20 DST
KB Exchange Trust
This offering is for six retail/medical properties in Pennsylvania, Kentucky, South Carolina, Tennessee, and Wisconsin. The tenants Walgreens and Fresenius Medical Care (which occupy 5 of 6 properties) have investment-grade credit ratings; the third tenant is DaVita Dialysis. The leases are Double (NN) Net or Triple (NNN) Net terms.
Investment Highlights
- Yr. 1 Cash-on-Cash 5.50%
- Initial Occupancy 100.00%
- Est. Time Horizon None YEARS
- Current Cash Flow
- Yr. 1 Cap Rate to Investor 5.30%
- Investor Purchase Price $25,850,000
- Total Offering Size $12,850,000
Loan Information
The properties are cross-collateralized on a 10-year loan term (5-years Interest-Only) on a 30-year amortization schedule. A cash sweep event will be triggered under these conditions: a default on the lease, if the lease guarantor's credit is downgraded, if the lease is up, or if a tenant ceases business at the property.
- Yr. 1 DSCR 2.19
- Loan-to-Offering 50.29%
- Hold Period DSCR 2.01
Tenant Information & Lease Terms
There are six properties in this portfolio. Five of the properties are NN, and one is NNN; the weighted average remaining lease term is 14.1 years with the first lease expiring 1/31/2032.
The initial term for the Walgreens property is 75 years (although they have the option to terminate the lease every five years, starting in year-25 of the lease). The lease has a no rent escalation clause, and it is NNN.
Four of the properties will be NN leased to Fresenius; the trust will be responsible for the roof and structure. There are three renewal options of 5-years, each with a rent escalation.
The DaVita property is also NN leased and has two renewal options each 5-months and have 10% rent escalations.
Key Positives
The leases are long-term (weighted average of 14.1 years).
Except for Walgreens, the leases include rent escalations. The average escalation for the portfolio is around 1% per year.
The offering is well diversified by tenant and geography.
All six of the properties have leases backed by strong parent companies.
Key Risks to Consider
There is no master tenant in place.
The CAP rate is low for investors: 5.30%.
Only one of the six properties is a NNN lease; the others are NN leases. (*Note: the NN leases were all built within the last three years. This reduces the risk that major structure or roof repairs will be needed.)
The Sponsor included capitalized reserves for management fees, bank fees, and entity cost to the EGR. If the reserves are removed from the EGR, it decreases the Year 1 NOI and CAP to 5.22%.
There is a history of financial issues with the Sponsor’s CEO: Chapter 7 bankruptcy, tax liens, and an investor lawsuit.
The properties are all cross-collateralized.
The Walgreens property is in a Flood-zone AE (100-year floodplain), and there is no evidence that Walgreens has obtained tenant insurance.
Year 6 in the proforma shows a jump in expenditures from $20,400 to $84,026. This could be related to the NN lease tenants.
There are several utility, access, and maintenance easements associated with the properties.
The Fresenius property in Darlington, SC has a low population within a 5-mile radius. (*Note: If you extend the radius to 10-miles, the population increases to 92,829.)
The offering allows general solicitation as a 506(c).
The analysis is missing third-party reports, loan documents, or lease documents, which are yet to be provided by the sponsor.
Investment Sponsor Information
KB Exchange Trust
Kingsbarn Realty Capital acquires commercial real estate assets throughout the United States. We offer both direct and indirect real estate investments and provide our clients with the opportunity to invest in our various structured real estate private placements. Kingsbarn's management team has extensive experience developing, managing, and sponsoring a diverse array of stabilized core properties and income-driven investment funds.