Analysis of Investments

Net-Leased Portfolio 25

ExchangeRight

This offering will purchase twenty-one freestanding properties located across ten states and tenanted on net lease terms by seven companies. The properties are in Wisconsin, Minnesota, Louisiana, South Dakota, Ohio, Florida, Virginia, Texas, Indiana, and Missouri. The tenants are Walgreens, Tractor Supply Company, Hy-Vee, Hobby Lobby, Family Dollar, Dollar General, and Bio-Life.

Investment Highlights

  • Yr. 1 Cash-on-Cash 6.15%
  • Initial Occupancy 100.00%
  • Est. Time Horizon None YEARS
  • Current Cash Flow 6.15%
  • Yr. 1 Cap Rate to Investor 5.64%
  • Investor Purchase Price $95,071,500
  • Total Offering Size $42,790,000

Loan Information

The loan is a 10-year term, all interest-only and set at 4.63% rate. 

The lender included a cash sweep provision if the debt service coverage ratio drops below 1.45. During the cash sweep period, the lender will take all excess cash (defined in the loan documents) on each payment date. For the cash sweep to cease, the debt service coverage ratio must exceed 1.55 for two consecutive quarters.

  • Yr. 1 DSCR 2.16
  • Loan-to-Offering 54.99%
  • Hold Period DSCR 2.19

Tenant Information & Lease Terms

The average lease term (weighted by NOI) for the twenty-one properties in this portfolio is 15.2 years. All the properties are on net lease terms: fifteen are triple-net (NNN), and six are double-net (NN). The tenants are Walgreens, Tractor Supply Company, Hy-Vee, Hobby Lobby, Family Dollar, Dollar General, and Bio-Life. Four of the tenants (who occupy sixteen of the twenty-one properties) are investment grade rated, and Tractor Supply, Hobby Lobby, and Hy-Vee have no publicly rated debt but have strong financials.

Key Positives

  • This offering provides significant diversification with properties in 10-states and 7-tenants.

  • Sixteen of the twenty-one properties are leased to tenants who are either investment grade or with the lease-backed by investment grade tenants.

  • Scheduled rent increases during the hold and option periods.

  • The average lease term has an 11.7-year weighted average.

Key Risks to Consider

  • Low CAP rate (5.64%) which is near the breakeven CAP rate (5.57%). With a traditional sale, annual rent increases may no make up the load. ExchangeRight plans to implement a portfolio aggregation across their offering to capture the best value for their investor through a REIT sale, merger, or listing.

  • The sale price of each property will reduce as leases terms fall below ten years remaining. There is no guarantee that tenants will renew their lease at the end of the term. The risk is mitigated by a potential sale of the offering before the 10-year mark.

  • The loan is interest-only for the entire term. (Interest-only debt payments are typically preferred by REIT buyers, which may help facilitate ExchangeRight’s exit strategy.)

  • Four of the property’s lease terms expire before the 10-year mark which would negatively affect the sales price of the property.

  • The properties in this offering are in multiple states, which may require investors to file multiple state tax returns.

  • There is a potential conflict of interest because some partners of the Sponsor are also principals of Lighthouse Capital Group.

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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