Clean Energy Industrial, DST

Columbus, Indiana

ASSET CLASS:  Class A Industrial
OFFERING SIZE:  $18,820,000
LEVERAGE:  57.9%
SQUARE  FEET:  393,817
HOLD PERIOD:  10 Years

The tenant is part of the broader group that develops and produces innovative solutions to drive mobility and industry toward zero emissions. Its solutions for air quality, energy efficiency, acoustic performance and powertrain electrification address the needs of all types of vehicles manufacturers, industrial and high horsepower engine applications as well as cities and fleet operators. Per the Parent’s 2017 financial report, the clean mobility segment represented 37.1% of total sales, and 39.3% of operating income.

The assumptions generally fall within the customary ranges for similar investment programs. The breakeven exit cap rate to fully return Investor capital (7.81%), is higher than the typical range for other single-tenant net-lease programs skewed by single-tenant net-lease retail properties (specifically retail pharmacies). There is a 45 basis point spread between the exit cap and the purchase cap allowing for cap rate expansion during the hold. The lease is guaranteed by parent whose majority stockholder is one of the world’s leading automotive equipment suppliers in three vehicle businesses: automotive seating, interiors, and clean mobility.

The Property is located in Columbus, Indiana and within the Woodside Northwest Industrial Park. The Property is approximately 50 miles southeast of the city of Indianapolis, 40 miles east of Bloomington, Indiana, and 60 miles west of Cincinnati, Ohio. Land use in the immediate area is a mix between commercial and industrial, with the Woodside Business Center, Woodside Northwest Industrial Park and the Walesboro Airport Industrial Park all within the neighborhood. The Property is conveniently located near Interstate 65, which provides access to Indianapolis to the north, and Louisville to the south.

The Property is located between three major MSA’s: the Indianapolis-Carmel-Anderson, IN MSA with a population of 2.02 million as of 2017; the Cincinnati, OH-KY-IN MSA with a population of 2.18 million as of 2017; and the Louisville/Jefferson County, KY-IN MSA with a population of 1.29 million as of 2017.

According to the third quarter 2018 Net Leased Market Report completed by The Boulder Group, cap rates during the quarter for single tenant net leased retail product increased by five basis points, however, were up 18 basis points from their historic low of 6.07% set during the fourth quarter of 2017. Cap rates in the net leased office sector increased by five basis points while cap rates for the net leased industrial sector declined by two basis points.

The increase within the net leased retail sector represents the third consecutive quarter of increases for that sector. While the demand for net leased assets remains strong, upward pressure on interest rates is creating upward pressure on cap rates. In the third quarter, the 10-year treasury yield peaked at 3.10%, the second highest level since 2014. The rising cap rate environment has the greatest impact on properties with no rental escalation, weak credit properties, or those in secondary/tertiary markets. In addition, assets priced above $12 million that are typically sold to institutional buyers experienced significant cap rate increases. Institutional buyers are more sensitive to the volatility of financing markets as they struggle to meet internal fixed-yield targets.

Although the supply of net leased properties increased slightly during the third quarter, there is a reported lack of new construction assets with long-term leases. Cap rates for recently constructed properties with strong credit tenants experienced little or no cap rate movement. We note that the net lease market is expected to remain active during the balance of 2018, as both institutional and fund investors attempt to reach acquisition allocations by year-end. The majority of net leased participants expect cap rates to remain in a similar range as the past few years

Targeted 1st-Year Cash-on-Cash: 6.50%
Targeted Cash Range: 6.50% - 7.99%
Targeted Cash Average: 6.93%
Projected IRR: 7.82%

All-In Price: $44,755,000
Purchase Price: $39,000,000
Appraised Value: $40,000,000
Loan Amount: $25,935,000
Equity Raise: $18,820,000
Reserves: $5,755,000
Reserves to All-In Price: 2.98%
Net Load: $4,419,332
Net load to equity: 23.48%
Net Load to All-In Ratio: 9.87%
Appraised Net Load: $3,419,332
Appraised Net Load to Equity: 18.17%
Appraised Net Load to All-In Price: 7.64%
All-In $/Ft.: $113.64

Net Operating Income: $2,868,796
Purchase Cap Rate: 7.36%
All-In Cap Rate: 6.41%
Cap Rate Spread: 95 bps
Breakeven Exit Cap: 7.81%
Breakeven Exit Cap Rate Spread: 45 bps
Appraised Cap: 7.17%
Appraised Cap Rate Spread: 64 bps

Loan Amount: $25,935,000
Term: 10 Years Fixed
Interest Only Period: 2 Years
Amortization Period: 30 Years
Interest Rate: 5.357%
Prepayment: 1%
Lender: JP Morgan Chase
LTV:. 66.50%
Non-Recourse: Yes

DST Due Diligence & Advisory Services

(415) 336-9225

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Securities offered through Emerson Equity LLC Member: FINRA/SIPC. Only available in states where Emerson Equity LLC is registered. Emerson Equity LLC, and the issuer are not affiliated.