Kansas, OH Medical Office, DST

Kansas, OH

ASSET CLASS:  Medical Office
OFFERING SIZE:  $16,482,175
LEVERAGE:  54.03%
YEAR BUILT:  2001, renovations 2005, 2009, and 2012
HOLD PERIOD:  7-10 Years

The lease covers the 10-year projected hold period and contains annual escalations during its term (albeit after a decline for Year 2), contributing to the likelihood that Investors will receive projected returns. NOI growth is supported by increases in base rent from the lease, which total 11.7% during the hold period. The loan begins to amortize principal at the end of Year 5, which is unlike financing in many other net-leased offerings reviewed. Investment-grade guaranty. The lease is guaranteed by The University of Kansas Hospital Authority (the tenant’s parent company), which has a credit rating of AA- by Standard & Poor’s (last affirmed on January 30, 2019.)

According to independent data from S&P Global Market Intelligence, demographics within one-, three-, and five-mile radii of the Property suggest that the local area is characterized by low-income demographics and declining population growth. Highlights from the demographic data include the following:

For 2019, projected median household incomes within one mile ($44,681) and three miles ($44,049) of the Property are less than the national average ($63,174).

The projected median home value within one mile ($104,633) and three miles ($98,049) of the Property are significantly lower than the national median ($226,495). Through 2024, the annual population is projected to decline within one-mile (−0.46%) and three- mile (−0.46%) radii of the Property compared with the positive growth projected for national average (0.70%). According to the appraisal, average home prices within one-, three-, and five-mile radii of the Property are $110,950, $104,314, and $107,898, respectively. The immediate five-mile radius around the Property has experienced negative population growth over the past several years, which is expected to continue for the next five years.

The population of senior citizens currently comprises 16.4% of the population (slightly above the national average of approximately 14%). The senior population is expected to increase by approximately 8% over the next five years despite the overall projected population decline in this area. The Property is located in a rural area in central Kansas. The immediate neighborhood includes vacant land, medical office buildings, and a church. The Property is located on a corner with access and exposure from two neighborhood streets. The Property is clearly visible in both directions along the street and has good visibility compared to competitive properties.

The Property, located in Great Bend, Kansas, is not within in a metropolitan statistical area (MSA). The Wichita MSA is the closest major metro area to the Property and, therefore, considered for this analysis. Although the Wichita MSA is the second largest in the state, the city of Wichita is actually the largest city in Kansas (most of Kansas City is located in the neighboring state of Missouri). The Wichita MSA accounted for 22.2% of the total Kansas population (2,909,523).

The Wichita MSA, with a 2017 total population of 646,164, is experiencing population growth that is in line with state population growth (0.3%), but well below the national average growth rate (0.8%).The median household income ($54,463 for 2017) was 2.9% lower than the United States median household income ($56,114).The 2017 median age for the Wichita MSA was 35.54, which was 6.52% younger than the United States median age of 37.86 for 2017. The Wichita MSA had an unemployment rate of 4.1% during 2017, compared with 3.6% for the state of Kansas and 4.4% for the United States.

Prior DST Syndication: 8
Leadership Team Experience: 75 Years
Total Leadership Sales Volume: $20 Billion

Remaining Lease Term: 14.4 years
Tenant Website

The UKHS–Great Bend Medical Campus is a 33-bed short-term acute care facility offering an emergency room, imaging and laboratory services, a medical-surgical intensive care unit, nutritional care, obstetrics, pain management, respiratory and cardiac care, and surgical services. The University of Kansas Hospital Authority (the Guarantor), an independent legal entity organized by the state of Kansas, provided a guaranty of the tenant’s obligations under the lease. The Guarantor operates The University of Kansas Health System, which has 8,361 employees in Kansas and more than 80 locations in the Kansas City metropolitan area. As of March 20, 2019, the Guarantor has a credit rating of AA- by Standard & Poor’s, which was last affirmed on January 30, 2019.

1st-Year Cash-on-Cash: 5.80%
Projected Cash Range: 5.80% - 6.43%
Projected Cash Average: 5.95%
Projected IRR: 5.81%

All-In Price: $36,035,000
Purchase Price: $32,450,000
Appraised Value: $32,450,000
Loan Amount: $19,470,000
Equity Raise: $16,565,000
Reserves: $381,000
Reserves to All-In Price: 1.01%
Net Load: $3,204,000
Net load to Equity: 19.44%
Net Load to All-In Ratio: 8.89%
Appraised Net Load: $3,204,000
Appraised Net Load to Equity: 19.44%
Appraised Net Load to All-In Price: 8.89%

Net Operating Income: $2,096,180
Purchase Cap Rate: 6.52%
All-In Cap Rate: 5.87%
Cap Rate Spread: 65 bps
Breakeven Exit Cap: 6.62%
Breakeven Exit Cap Rate Spread: 10 bps
Appraised Cap: 6.46%
Appraised Cap Rate Spread: 16 bps

Loan Amount: $19,470,000
Term: 10 Years Fixed
Interest Only Period: 5 Years
Amortization Period: 30 Years
Interest Rate: 5.125%
Prepayment: None
Lender: Coastal Federal Credit Union
LTV:. 54.00%
Non-Recourse: Yes to Investor

DST Due Diligence & Advisory Services

(415) 336-9225

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