NNN Tenant of the Quarter – Dollar General Stores

Jun 27, 2019

Dollar General as a NNN Investment

Increased loyalty from a variety of shoppers who love the convenience, price, selection, reliability, and flexibility, and a winning growth formula continue to fuel the expansion of Dollar General (DG). The company has a multibillion-dollar market capitalization, or value, as ranked by Standard & Poors (S&P) and continues to flourish with forward-thinking strategy and customer satisfaction that is nearly unheard of in today’s retail climate. That’s why Dollar General, a very stable business and low-risk NNN corporate tenant, gets our nod as our Tenant of the Quarter recommendation.

Chief Executive Officer of Dollar General, Todd Vasos, told Forbes, “We operate in the most attractive sector of retail. Our core consumers continue to come in more often and spend more. We are (also) attracting the higher-end consumer. Those who make a little more money than the chain’s average low-income shoppers represent the fastest-growing customer segment for Dollar General.”

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Why Lease to Dollar General?

As a NNN investor, you want a passive, income-producing investment with little-to-no responsibility. You want a long-term lease and a solid rate of return from a reliable tenant who takes care of the property and sends rent every month like clockwork. Dollar General stores fit these criteria and many more, providing a near-perfect NNN investment opportunity.

DG stores are always in strategic locations that match their target customers, enjoy up to 15-year leases, have approximately 10% rent increases every 5 years and a 6-7% cap rate. New and existing stores are affordable investments with no landlord responsibility, so they are a great option for the first-time investor, a seasoned landlord, or someone who wants many locations throughout the country.

Dollar General net leases are backed by an investment-grade corporate guarantee and offer stability through consistent growth and favorable sales records, a high rate of return, and needs-based, recession-protected consumer staples. DG property owners sit back and collect monthly rent while their investments grow without day-to-day involvement.

10 Reasons Dollar General is a Great NNN Opportunity

  1. Most are absolute NNN leases for passive, stable monthly income.
  2. Typically sell between $1-2 million.
  3. Average 12-month cap rate is 6-7%.
  4. Proof of strong, reliable sales and growth per location and companywide.
  5. High corporate credit and investment-grade ranking.
  6. The 15-year lease on new builds and build-to-suit options; 10-15 years on existing stores.
  7. Approximately 10% of the rent increases every 5 years.
  8. Strategically placed in highly visible, convenient locations near other community necessities like banks, pharmacies, gas stations.
  9. More locations being built, updated and relocated as they increase retail market share.
  10. Offer affordable needs-based consumables and services for strength in any economic climate.

If you’re wondering about the stability of the retail sector and the growth opportunity for more dollar stores, continue reading for answers to these and other questions and erase your concerns. Dollar General has been around since 1939 − we feel safe saying they aren’t going away anytime soon.

75% of the US population is now within five minutes of a Dollar General store. − GlobalData Retail

Positive 2019 First Quarter Report

According to the Dollar General Corporation’s (NYSE: DG) 2019 first-quarter report, they opened 240 new stores, remodeled 330 stores and relocated 27 stores in the first 13 weeks of the year, ending May 3, 2019. DG reported:

  • Increased net sales by 8.3%; same-store sales 3.8%
  • Increased operating profit of 4.5% to $512.2 million
  • Diluted Earnings Per Share (“EPS”) of $1.48
  • Increased cash flows from operations 4.7% to $574 million
  • Net income of $385 million for Q1 ($365 million in Q1 of 2018)

Moody’s Rating Review

Moody’s announced completion of a periodic ratings review of Dollar General Corporation June 12, 2019: Dollar General’s Baa2 rating reflects its strong market position as a leading dollar-store chain in the U.S., its solid credit metrics, and our view that the dollar store sector is well positioned relative to other retail channels given its low price points and relative resistance to economic cycles albeit still very highly competitive operating environment. The credit profile also reflects Dollar General’s balanced and prudent financial policy and the company’s good liquidity profile supported by healthy free cash flow generation and its adequate cash balances.

Looking Forward

According to Vasos, “Looking forward, we have a wide variety of initiatives and projects that we believe can help extend our growth trajectory over both the near and longer term. During 2019, we will enter our 80th year of serving others, and we remain dedicated to bringing innovation to our retail channel and delivering on our commitment of value and convenience to our customers. We are excited about our future and believe we are creating long-term value for our shareholders.”

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To Wrap it Up – Why DG is a Golden NNN Opportunity

If you’ve been following our blog, you are aware that NNN lease properties are a low-risk, passive, stable, income-producing investment class. To be what Westwood Net Lease Advisors considers a strong tenant with a reliable future and a stress-free investment for you, several factors must be present. As noted, Dollar General properties fulfill those criteria and exceed our NNN investment benchmarks.

If you’re interested in buying a Dollar General property, be aware they can be difficult to locate. Quite often, these stores never make it on the open market; the only way to find one is to work with a reputable Westwood Net Lease Advisor who knows the national market and is well-known in the marketplace. We have decades of experience and will help you find just what you’re looking for – at no charge to you. Contact us today for your no-obligation consultation. 314-997-5227

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