Analysis of Investments

WG DST 5

Cantor Fitzgerald

Cantor Fitzgerald Walgreens DST 5 is an investment in 8 separate properties leased to Walgreens and located in 7 different states. 

Investment Highlights

  • Yr. 1 Cash-on-Cash 6.00%
  • Initial Occupancy 100.00%
  • Est. Time Horizon 8 years YEARS
  • Current Cash Flow 6.00%
  • Yr. 1 Cap Rate to Investor 5.09%
  • Investor Purchase Price $51,833,675
  • Total Offering Size $17,870,000

Loan Information

The loan totals $33,963,675 and is from KeyBank National Association. The term of the loan is for a total of 15 years with the first 10 years requiring interest only payments. The interest rate is fixed at a rate of 4.22% until December 31, 2024. After this date the loan enters hyper-amortization where the interest is 2% plus the greater of 4.22% or the 10 year treasury date on the first business day after December 31, 2024.

  • Yr. 1 DSCR 1.81
  • Loan-to-Offering 65.52%
  • Hold Period DSCR 1.68

Tenant Information & Lease Terms

Each of the 8 properties is occupied and operated by Walgreens Company. Walgreens has an investment grade credit rating of BBB from Standard and Poor's and Baa2 from Moody's. Walgreens is one of the largest medical retailers in the world and operates over 13,000 stores with more than 370,000 employees. 
The leases are all NNN and have scheduled renewal options for 12 terms of 5 years each and rent escalations of 5% each 5 years of the lease.

Key Positives

  • 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 13.2 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 7 different states which helps geographically diversify this investment and protect against regional disaster.

Key Risks to Consider

  • This investment is utilizing a high amount of leverage. The LTV is 65.52% to investors. However, with an investment grade tenant there is a decreased risk of default on their lease payments which is contracted to cover the debt service of the investment.

  • The properties must be sold together in a single sale which may limit the ability to sell the portfolio for the maximum possible return to investors.

  • 2 of the properties in the portfolio are located near Rite Aid stores, which may lead to increased competition or even store closure should the proposed merger between Walgreens and Rite Aid is completed.

  • Walgreens has a right of first refusal on the property which may make a sale more difficult. Potential buyers may not make an offer on the property or see a delay in an offer being accepted.

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

  • As the remaining lease term decreases the properties may become less attractive to potential buyers as there would not be guaranteed income left on the leases. However, the trust may sell the portfolio before their 10 year anticipated hold period in order to maximize value.

  • Should the properties be held after October 1, 2024 all cash generated by the leases will be held by the trust and not distributed to investors. This is due to hyper-amortization kicking in and the cash being needed in order to maintain the debt service payments.

Investment Sponsor Information

Cantor Fitzgerald

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."

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