Dollar Store Report – March 2019

DOLLAR STORE INDUSTRY OVERVIEW
The Dollar & Variety store sectors have grown by 2.8% to reach revenue of $77 billion in 2018. In the same time-frame, the number of businesses has grown by 2.3% with an increase of 3.5% in employment growth. By 2021, the number of Dollar stores in the U.S. is expected to grow to about 38,000. Over the past ten years, the industry has experienced steady store count growth, averaging upwards of 700 new stores annually in recent years. The market is dominated by Dollar General, Dollar Tree and Family Dollar accounting for more than 75% of the market share. Notably, Dollar Tree acquired Family Dollar in 2015. Locations take advantage of demographics in smaller communities typically too small for larger retailers.

The industry has historically targeted exclusively low-income earners, this consumer pool has expanded in recent years, shrinking the gap between middle-class shoppers and even some high-income earners. Bargain shopping has become an increasing point of pride for many wealthy consumers, and this trend has drastically increased the industry’s customer base. Despite top-line revenue growth, both companies are struggling with contracting gross margins. Both companies are working towards operating efficiencies and are still experiencing positive operating income growth in the last quarter. A real estate review of the market indicates a saturation of properties with lower NOIs. Better performing locations are still available with incomes above six-figures with wide swings geographically.
(see Median Asking Cap Rate and Price by Region).

DOLLAR GENERAL
Since 1939, Dollar General has grown to more than 15,227 neighborhood general stores across 44 states employing over 129,000. In 2019, Dollar General plans to open 975 additional stores. Cap rates for Dollar General increased 9 basis points in 2018 to 7.03%. Third quarter 2018 net sales increased 8.7% and same store sales experienced a 2.8% increase, with an overall cash-flow increase of 32.5% to $1.5B. Dollar General reported its highest two-year same store sales in 11 quarters, despite recovery from two devastating hurricanes. Additionally, Dollar General isn’t burdened by a weak subsidiary like Family Dollar.

In 2018, the company invested a total of $551M in capital expenditures including approximately: $228M for improvements, upgrades, remodels and relocations of existing stores, $106M for new leased stores, primarily for leasehold improvements, fixtures and equipment. During the 3rd quarter 39 week period, the company opened 750 new stores, remodeled 925 stores and relocated 92 stores.

Real Estate & Company Highlights
• 420 Investment Assets Currently on Market Nationally
• Median Asking Cap Rate 6.75%
• Average Store Size on Market 9,100 SF
• Median Asking Price $1,323,711 | $148.14 PSF
• Median NOI $89,506
• 10.9 Years Average Remaining on Lease
• Locations Primarily in Southern, Southwestern, Midwestern and Eastern U.S.
• In 2017, 101 stores were closed
• Approximately 68% of stores are freestanding, 32% in strip shopping centers
• Typical 15 Year Lease Term with Multiple Renewal Options; subject to Built-to-Suit
• Some Stores Subject to Shorter Term Leases with Renewal Options

FAMILY DOLLAR
Family Dollar was founded in 1959 and has grown to over 8,000 stores across 47 states. In 2015, Dollar Tree acquired Family Dollar and assumed $1 billion in debt. As a condition of sale, several stores were required to be sold off as Dollar Express and were reacquired in 2017. In some locations, some Family Dollar stores have opened in the same plazas as Dollar Tree. (see Dollar Tree for combined company financials). Three years into the acquisition, Family Dollar has continued to drag Dollar Tree’s comp sales growth. In the 4th Quarter, Dollar Tree has taken a $2.3 billion loss against its Family Dollar business. It is slated to close up to 390 stores in 2019, while renovating 1,000 other locations.

From 2017 to 2018, cap rates dropped 81 basis points on sold single tenant sites. Current asking rates are up to 7.50% (up 110 basis points). This can be attributed to stronger property values and higher NOI in the Northeast.

Real Estate & Company Highlights
• 130 Investment Assets Currently on Market Nationally
• Median Asking Cap Rate 7.50%
• Average Store Size on Market 8,320 SF
• Median Asking Price $1,213,500 | $138.82 PSF
• Median NOI $87,971
• 7.3 Years Average Remaining on Lease
• Recently Offering Sales Leaseback with 15 Year NNN Leases
• Build-to Suit Programs Structured as 15 Year Absolute NNN with 10% Increases in year 10
or every (5) Years.
• Smaller Footprint 6,000 – 8,000 SF Allows Company to Open New Stores in Rural Areas
and Small Towns.
• Most Stores are Operated in Leased Facilities

DOLLAR TREE
Dollar Tree operates more than 15,073 stores across 48 states employing over 176,000. Tenant carries a higher cap rate at 7.38%, a 39 basis point increase in 2018. 2018 3rd Quarter Financials indicated consolidated sales increased 4.2% to $5.54B, with same store sales increasing 1.0%. Gross profit increased .4% to $1.67B from year prior. In 2019, Dollar Tree plans to open 350 new locations and re-banner 200 Family Dollar stores to Dollar Tree.

Real Estate & Company Highlights
• 42 Investment Freestanding Assets Currently on Market Nationally
• Median Asking Cap Rate 7.00%
• Median Asking Price $1,388,152| $144.93 PSF
• Median NOI $99,840
• 7.8 Years Average Remaining on Lease
• Vast Majority of Stores are Leased
• Typical Initial Lease Terms 5, in Some Cases 7 to 15 Years with Options to Extend.
• Has Presence in 48 states, D.C. and 5 provinces in Canada.
• First Half of 2018, Opened 150 New Stores and Closed 5 Locations
• Dollar Tree acquired Family Dollar in 2015 for $8.5B.
• Since 2015, the Company Has Reduced Outstanding Debt by Approximately $3.5B;
Investment Grade Ratings Were Upgraded in March 2018

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