Net Lease REITs Takeaways From Net Lease Update Call With JLL’s Coler Yoakam

Research evidence excerpt

Net Lease REITs Takeaways From Net Lease Update Call With JLL’s Coler Yoakam

oing acquisitions. These newer platforms are also more focused on sale-leasebacks.

• On tenant credit and underwriting, the industry is being disciplined, with credit being the

most frequent reason a deal doesn’t trade. That said, even in areas that have challenges,

there are mitigating factors. In casual dining, exemplified by Red Lobster, older sale-

leasebacks often feature low rents with high releasability, so even with closures, landlords

have been able to do well on new rents. Casual dining is typically underwritten at 2.5x

EBITDAR coverage. Among QSRs, franchisee quality varies and ownership changes

can help improve balance sheets; i.e., it was recently announced that Yum! Brands would

sell its Pizza Hut business.

• Most net lease investors have not been active with mattress stores for years; this was

timely due to the recent Sleep Number bankruptcy filing. The sector was in a high growth

mode years ago but saw significant competition and low margins that made the tenants

a risky proposition.

• Drugstores present a pricing challenge in the sales market given the gap between seller

and buyer expectations, though backfill options are improving as urgent care, outpatient

facilities, and corporate services like dispatch centers fill vacant spaces.

• Veterinary hospitals are highly favored for outstanding site-level performance, cash

business models, and tenant EBITDAR coverage of 5x or more, with strong survivability

in a reorganization and high marketability to competitors. Higher yielding assets in this

category are typically due to sponsor leverage, but given the strength of the individual

locations, JLL likes the idea of going for the higher yielding assets in the category as there