Analysis of Investments

Net-Leased Portfolio 14

ExchangeRight

ExchangeRight Net Leased Portfolio 14 is an investment into 17 retail net leased properties located in 7 different states with a total of 8 tenants. These tenants provide auto parts, healthcare, discount grocery, and pharmacy services. 

Investment Highlights

  • Yr. 1 Cash-on-Cash 6.57%
  • Initial Occupancy 100.00%
  • Est. Time Horizon None YEARS
  • Current Cash Flow 6.60%
  • Yr. 1 Cap Rate to Investor 5.55%
  • Investor Purchase Price $55,230,000
  • Total Offering Size $27,120,000

Loan Information

The total loan on this portfolio is $28,110,000 from Bank of America National Association. The term is for a total of 10 years with the entire term being interest only. The Debt Service Coverage Ratio is 2.62 in year 1 and averages 2.71 during the hold period. The interest rate is a fixed rate of 4.061%.

  • Yr. 1 DSCR 2.62
  • Loan-to-Offering 50.90%
  • Hold Period DSCR 2.71

Tenant Information & Lease Terms

There are a total of eight tenants in the portfolio of 17 properties. The tenants are discussed below:

Advance Auto Parts - Investment grade credit rating of BBB- from S&P
Dollar General - Investment Grade credit rating of BBB-from S&P
O'Reilly Auto Parts - Investment Grade credit rating of BBB+ from S&P
NAPA Auto Parts - Non-Investment grade with no rating from any credit rating agency. 
Walgreens Co - Investment Grade credit rating of BBB from S&P
Fresenius Medical Care - Investment Grade credit rating of BBB- from S&P
Medspring UrgentCare - Investment Grade credit rating of BBB- from S&P
Athletico - Non-Investment grade credit rating with no rating from any credit rating agency.

Non-Investment grade tenants have a proven track record and have proven to have ability to cover lease payments.

There are a total of 10 NN leases and 7 NNN leases in the portfolio and the average remaining lease term is 13.4 years.

Key Positives

  • Due to the geographic and tenant diversification across the portfolio, investors will mitigate some risk associated with local market downturn or natural disaster.

  • The remaining lease term on a weighted average basis is for a total of 13.4 years . This is longer than the anticipated hold period of 10 years.

  • Rent escalations are contracted into individual leases for the tenants during the primary and extension terms.

  • Of the 17 properties in the portfolio, 14 of them are occupied and operated by investment grade tenants. This reduces the risk of default on rent payments.

Key Risks to Consider

  • The Cap Rate to investors is low (5.55%) and the breakeven cap rate is (5.68%).

  • 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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