Realty Income Corp. has acquired 454 single-tenant retail properties from CIM Real Estate Finance Trust, a non-listed REIT that is part of CIM Group, for about $1.25B in cash. The deal is expected to close later this year.
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The sale illustrates investor eagerness for retail properties occupied by certain types of retailers, especially dollar stores — which represent almost a quarter of the portfolio's rent revenue — and convenience stores, which total nearly a fifth of its rent revenue.
All together, 220 of the properties are leased to dollar stores and 73 to convenience stores. Also well-represented among the portfolio's tenants are drugstores, casual dining restaurants and grocery stores.
According to a recent report by The Boulder Group, private and 1031 exchange investors are keen for single-tenant dollar store assets because they offer long-term leases to investment-grade tenants. They also offer yields above the net lease retail sector average of 6.23%, with cap rates within the dollar store subsector at 7.1% in the second quarter of 2019.
Sale volume in the net lease dollar store subsector will remain active in the foreseeable future, the Boulder Group predicts, especially since the pipeline for development remains strong. For its part, Dollar General is busy adding 1,000 new stores this year, with demand for its stores especially high in rural and low-income urban areas.
The CIM portfolio totals about 5.1M SF, with its properties currently leased to 59 different tenants across 20 industries. Texas and California represent the top two states by projected rental revenue.
The portfolio carries an average remaining lease term of 9.7 years and generates 58% of its total rental revenue from investment-grade companies, according to Realty Income.
As a REIT, Realty Income says it owns more single-tenant assets than anyone else. "We believe this portfolio acquisition demonstrates the importance of size and scale as a competitive advantage in the net lease industry," Realty Income President and CEO Sumit Roy said in a statement.
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