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THE NET LEASE AUTO PARTS STORE REPORT MARCH 2014 AUTO PARTS STORE PROPERTIES MEDIAN ASKING CAP RATES

MARKET OVERVIEW

Q4 2012 (Previous)

Q4 2013 (Current)

Basis Point Change

Advance Auto Parts

7.25%

7.20%

-5

O'Reilly Auto Parts

6.55%

6.00%

-55

AutoZone

6.50%

6.00%

-50

Tenant

MEDIAN

ASKING PRICE

Tenant

Median Asking Price

Median Price Per Foot

Advance Auto Parts

$1,509,000

$216

O'Reilly Auto Parts

$1,743,000

$245

AutoZone

$1,750,000

$256

PERCENTAGE OF AUTO PARTS STORES ON THE MARKET BY TENANT Percentage of Market

Tenant Advance Auto Parts

57.4%

O'Reilly Auto Parts

22.1%

AutoZone

20.5%

AUTO PARTS STORE PROPERTIES VS. RETAIL NET LEASE MARKET

Q4 2012 (Previous)

Q4 2013 (Current)

Auto Parts

6.53%

6.22%

Market

7.25%

6.85%

72

63

Sector

Auto Parts Premium (bps)

Cap rates for the single tenant net leased auto parts store sector compressed from the fourth quarter of 2012 to the fourth quarter of 2013 by 31 basis points. The auto parts sector, for the purpose of this report, is defined as Advance Auto Parts, AutoZone and O’Reilly Auto Parts as they account for the highest percentage of transactions within the auto parts sector. The cap rate compression was derived by the limited supply of investment grade assets priced below $2 million, which is the value of most properties tenanted by these retailers. For assets priced below $2 million, there are more private and 1031 exchange buyers that are able to pay a premium over institutional buyers. Despite the combined auto parts sector’s 500 new store openings in 2013, the supply of auto stores decreased in the net lease market by 5% from the fourth quarter of 2012 to the fourth quarter of 2013. This can best be attributed to the fact that the companies own an increasingly higher percentage of their locations. While cap rates for the entire net leased auto parts sector decreased by 31 basis points from the fourth quarter of 2012 to the fourth quarter of 2013, cap rates for Advance Auto Parts remained near levels from the previous year. AutoZone and O’Reilly Auto Parts experienced the greatest cap rate compression, 50 and 55 basis points respectively. These tenants have more desirable lease structures for investors as AutoZone and O’Reilly Auto Parts typically sign 20 year leases as opposed to Advance Auto which typically signs 10 or 15 year leases. A significant event in the auto parts sector occurred after the conclusion of the fourth quarter of 2013. In January 2014, Advance Auto Parts closed on its $2 billion acquisition of General Parts International, which includes the CARQUEST and WORLDPAC brands. This acquisition makes Advance Auto Parts the largest supplier of automotive aftermarket parts and the largest distributor of import automotive parts in North America. This acquisition balances the Do-It-Yourself (DIY) and Do-It For-Me (DIFM) markets for Advance Auto Parts, a strategic move as the DIFM market is experiencing two times the growth of the DIY segment. Transaction volume in the auto parts sector remains heavily concentrated in recently constructed properties with long term leases. Auto parts store properties with shorter lease terms located in areas with strong real estate fundamentals also remain in high demand. The single tenant net lease auto parts sector will continue to remain active as private investors and 1031 exchange buyers seek properties with long term leases, investment grade tenants and attractive price points.

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THE NET LEASE AUTO PARTS STORE REPORT MARCH 2014 MEDIAN ASKING CAP RATE BY LEASE TERM REMAINING

Years Remaining

Advance Auto Parts

O’Reilly Auto Parts

AutoZone

18-20

N/A

6.00%

5.90%

15-17

6.41%

6.25%

5.96%

10-14

6.64%

6.75%

6.20%

6-9

7.23%

7.00%

6.31%

Under 5

7.82%

N/A

6.84%

SELECTED SINGLE TENANT AUTO PARTS STORE SALES COMPARABLES

Sale Date

Tenant

City

State

Price

Price SF

Cap Rate

Lease Term

Dec-13

Advance Auto Parts

Fort Lauderdale

FL

$2,899,930

$406

6.72%

11

Nov-13

O'Reilly Auto Parts

Phoenix

AZ

$2,650,000

$221

6.56%

5

Sep-13

AutoZone

Las Vegas

NV

$2,575,000

$348

6.38%

9

Jun-13

AutoZone

Palm Springs

CA

$2,335,000

$432

6.28%

10

Sep-13

Advance Auto Parts

Lawrenceville

GA

$2,272,972

$325

7.40%

9

Dec-13

Advance Auto Parts

Cumming

GA

$1,905,000

$276

6.35%

15

Sep-13

Advance Auto Parts

Cameron

NC

$1,850,000

$268

6.45%

15

Oct-13

O'Reilly Auto Parts

Princeton

WV

$1,480,000

$205

6.28%

20

Jun-13

AutoZone

Paradise

CA

$1,475,000

$225

7.21%

4

Aug-13

O'Reilly Auto Parts

Colorado Springs

CO

$1,310,000

$187

7.19%

7

Nov-13

O'Reilly Auto Parts

Tucson

AZ

$1,130,000

$161

8.83%

2

Jul-13

AutoZone (GL)

Olive Branch

MS

$1,075,000

N/A

6.63%

6

Jun-13

Advance Auto Parts

Clinton

IN

$1,032,000

$147

8.43%

5

Oct-13

AutoZone (GL)

Milwaukee

WI

$925,000

N/A

5.95%

11

Jul-13

AutoZone

Yorkville

IL

$1,900,000

$257

6.99%

14

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THE NET LEASE AUTO PARTS STORE REPORT MARCH 2014 AUTO PARTS STORE MEDIAN ASKING CAP RATES

6.53% 6.75% 6.75%

T S A E TH R NO

WEST MOUNTAIN

MIDWEST

SOUTH 6.25% 6.52%

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THE NET LEASE AUTO PARTS STORE REPORT MARCH 2014 COMPANY COMPARISON Advance Auto Parts

O’Reilly Auto Parts

AutoZone

Credit Rating

BBB- (Stable)

BBB (Stable)

BBB (Stable)

Market Cap

$9 billion

$10 billion

$18 billion

Revenue

$6 billion

$6 billion

$9 billion

2013 Stores Opened

242

239

181

Number of Stores

3,696

4,135

5,210

Typical Lease Term

10 or 15 year primary term with fifteen years of options

20 year primary term with fifteen years 20 year primary term with of options twenty years of options

Typical Rent Increases

Not in primary 7.50% increases in option periods

10% in lease year 11 and each option period

Not in primary 10% increases in option periods

FOR MORE INFORMATION AUTHOR John Feeney | Research Director john@bouldergroup.com CONTRIBUTORS Randy Blankstein | President rblank@bouldergroup.com

Jimmy Goodman | Partner jimmy@bouldergroup.com

Zach Wright | Research Analyst zach@bouldergroup.com

Š 2014. The Boulder Group. Information herein has been obtained from databases owned and maintained by The Boulder Group as well as third party sources. We have not verified the information and we make no guarantee, warranty or representation about it. This information is provided for general illustrative purposes and not for any specific recommendation or purpose nor under any circumstances shall any of the above information be deemed legal advice or counsel. Reliance on this information is at the risk of the reader and The Boulder Group expressly disclaims any liability arising from the use of such information. This information is designed exclusively for use by The Boulder Group clients and cannot be reproduced, retransmitted or distributed without the express written consent of The Boulder Group.

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net lease auto parts store report | The Boulder Group