by Dan Rafter
Dollar General and Family Dollar continue to dominate the dollar store business, according to the latest research by the Boulder Group.
The Boulder Group’s second-quarter Net Lease Dollar Store Report analyzes the performance of the dollar store business’ three biggest retailers, Dollar General, Family Dollar and Dollar Tree. Dollar General makes up 51 percent of these three-store market, while Family Dollar accounts for 41 percent. Dollar Tree accounted for just 8 percent of this market.
Cap rates among this sector compressed by 50 basis points in the second quarter of this year when compared to the same quarter in 2014, falling to 6.5 percent. That number, though, is a bit misleading. Family Dollar properties saw their cap rates compress by 100 basis points from the second quarter of 2014 to the same quarter this year. Cap rates for Dollar General and Dollar Tree, though, only saw a slight compression of 25 basis points and 10 basis points.
The Boulder Group pointed to changes in Family Dollar’s lease structure as the reason for its big fall in cap rates. According to the report, the leases attached to newly built Family Dollar stores were 10 years, double net and did not contain rental escalations in the primary term. The new standard leases for newly built Family Dollar stores are now 15 years, triple net and contain rental escalations every three years or in the 11th lease year in the primary term of the lease.
A big shakeup in the dollar store business took place in July of this year. That’s when the merger of Dollar Tree and Family Dollar officially closed. As part of the merger, 330 Family Dollar stores will be sold to private equity firm Sycamore Partners. The Boulder Group says that a merger of this size is causing worry for some investors who own a Family Dollar near a Dollar Tree. But, the report says, Dollar Tree has consistently said that the stores do not create an overlap in business lines. Whether this is true remains to be seen.