Analysis of Investments

Net-Leased Portfolio 18

ExchangeRight

ExchangeRight Net Leased Portfolio 18 is an investment in 17 single tenant retail properties located in 7 states and occupied by a total of 8 different tenants.

Investment Highlights

  • Yr. 1 Cash-on-Cash 6.62%
  • Initial Occupancy 100.00%
  • Est. Time Horizon None YEARS
  • Current Cash Flow 6.64%
  • Yr. 1 Cap Rate to Investor 5.64%
  • Investor Purchase Price $62,176,294
  • Total Offering Size $28,735,000

Loan Information

The total loan is for $33,441,294 and is from Bank of America National Association. The term is for a total of 10 years with all 10 years being interest only. The loan is non-recourse to investors and have a fixed interest rate of 4.088%.

  • Yr. 1 DSCR 2.48
  • Loan-to-Offering 53.78%
  • Hold Period DSCR 2.52

Tenant Information & Lease Terms

There are a total of 17 properties occupied by 8 different tenants. These tenants are discussed below:

Walgreens - Investment grade rating of BBB from Standard and Poor's. Operates one of the largest retail medical chains in America.
Dollar General - Investment grade rating of BBB- from Standard and Poor's.
Advanced Auto Parts - Investment grade rating of BBB- from Standard and Poor's.
Hobby Lobby Stores - Non-Investment grade as they are not a public company and have no long term debt
Tractor Supply Co - Non-Investment grade company. Operates over 1,200 stores across the United States
NAPA Auto Parts - Non-Investment grade tenant however is guaranteed by their parent corporation.
Fresenius Medical Care - Investment Grade rating of BBB- from Standard and Poor's
CVS - Investment grade credit rating of BBB+ from Standard and Poor's.

There are 11 NN leases and 6 NNN leases with options to extend and rent escalations contracted on an individual basis.

Key Positives

  • Rent escalation are contracted into the leases and will occur during the original lease as well as the potential options that are available to each tenant.

  • The remaining average lease term is for 12.2 years and there are options to extend this lease for each tenant.

  • Of the 17 total properties, 13 of them are occupied by a company with an investment grade or have a parent corporation with an investment grade.

  • The properties are located in 7 different states and there are 8 different tenants which provides a level of geographic and tenant diversification that mitigates geographic risks.

Key Risks to Consider

  • The loan on the portfolio is interest only for the entire term of the loan which means it may be more difficult to sell the properties for a price that will allow investors to get a return after the loan is payed off.

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

  • The cap rate to investors is low (5.64%) and the breakeven cap rate is (5.52%). Due to this, it is possible that the sales price of the property may not be able to recoup the costs of syndication.

  • Executing a sale at a profitable value may be difficult as the remaining lease term decreases below 10 years. Tenants may choose to not renew their leases which will make it more difficult to sell should there be no tenant in place when ExchangeRight looks to sell the properties.

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."

  PAST Investments