OFFERING MEMORANDUM PETCO - GROCERY OUTLET Retail Investment Opportunity in Stanwood, WA
PETCO - GROCERY OUTLET Table of Contents 01 Executive Summary The Opportunity Investment Highlights Property Summary Retail Aerials Site Plan 02 03 04 Financial Analysis Pricing Summary Income Rent Roll Lease Options Expenses Proposed New Financing Tenant Profiles Grocery Outlet Petco Location & Market Overview Location Overview Location Map Site Overview Demographics Contact Information Erik Swanson eswanson@kiddermathews.com 206.296.9628 Mike King mking@kiddermathews.com 206.296.9624 Rune Harkestad runeh@kiddermathews.com 425.450.1162 The information contained in the following Marketing Brochure is proprietary and strictly confidential. It is intended to be reviewed only by the party receiving it from Kidder Mathews and should not be made available to any other person or entity without the written consent of Kidder Mathews. This Marketing Brochure has been prepared to provide summary, unverified information to prospective purchasers, and to establish only a preliminary level of interest in the subject property. The information contained herein is not a substitute for a thorough due diligence investigation. Kidder Mathews has not made any investigation, and makes no warranty or representation, with respect to the income or expenses for the subject property, the future projected financial performance of the property, the size and square footage of the property and improvements, the presence or absence of contaminating substances, PCB s or asbestos, the compliance with State and Federal regulations, current or past tax payments, the physical condition of the improvements thereon, or the financial condition or business prospects of any tenant, or any tenant s plans or intentions to continue its occupancy of the subject property. The information contained in this Marketing Brochure has been obtained from sources we believe to be reliable; however, Kidder Mathews has not verified, and will not verify, any of the information contained herein, nor has Kidder Mathews conducted any investigation regarding these matters and makes no warranty or representation whatsoever regarding the accuracy or completeness of the information provided. All potential buyers must take appropriate measures to verify all of the information set forth herein. This information has been secured from sources we believe to be reliable. We make no representations or warranties, expressed or implied, as to the accuracy of the information. References to square footage or age are approximate. Recipient of this report must verify the information and bears all risk for any inaccuracies. kiddermathews.com
PETCO - GROCERY OUTLET 01 Executive Summary The Opportunity Investment Highlights Property Summary Retail Aerials Site Plan
The Opportunity Port Susan Marketplace is a 28,400+ square foot, two tenant retail center currently under construction in Stanwood, Washington. Stanwood is approximately 45 minutes north of Seattle. The center is situated fronting State Highway 532 and has excellent visibility to nearly 18,000 passing cars per day. Surrounding retailers include Autozone, QFC Grocery, Starbucks and Jack in the Box. This is an excellent opportunity for an investor seeking a newly constructed, hands-off investment leased to national tenants. Investment Summary Offering Price Current Cap Rate Occupancy Price per SF $8,350,000 6.25% 100% $294 The property is a build to suit for Grocery Outlet and Petco, who are scheduled to take occupancy in August and September 2016. Petco will occupy 11,250 square feet and has signed a 10 year lease that includes five, 5-year options. The lease escalates at a $1 per square foot years 6 and at each option exercised. Grocery Outlet will occupy approximately 17,200 square feet. They have signed a 10 year lease that includes three, 5-year options. The lease escalates at 15% beginning year six and 10% at each option. Year Built 2016 SITE WORK 12 MONTHS CONSTRUCTION 9 MONTHS + TENANT LEASES SIGNED 2014 2015 2016 OCT NOV DEC JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC JAN FEB MAR APR MAY JUN JUL AUG SEP DESIGN & ENTITLEMENT 8 MONTHS 2015 2016 OPENING DATE (EST) GROCERY OUTLET OPENING DATE (EST) PETCO KIDDER MATHEWS OFFERING MEMORANDUM 4
INVESTMENT HIGHLIGHTS OCCUPANCY 100% CAP RATE 6.25% WEST ELEVATION - STORE FRONT TENANTS New 10 Year Petco and Grocery Outlet Leases Petco and Grocery Outlet have new 10 year leases providing long term and stability to the offering. Excellent Visibility and Access Port Susan Marketplace benefits from excellent exposure on State Route 532 the major east-west highway servicing all of Stanwood and Camano Island and connecting to the I-5 corridor. Strong Retail Trade Area The property is located across the street from a busy QFC and neighboring tenants including Autozone, Starbucks, Rite Aid and Jack in the Box. Credit Tenant Petco is currently a strong privately held company with over 1,400 locations and a B credit rating from Standard & Poor s. The strength of tenant allows investors to secure favorable financing terms if desired. Ease Of Management Petco and Grocery outlet have signed 10 year, NN leases in a brand new building, providing ease of management for the investor. Brand New, Top Quality Construction Construction is due to be completed in June 2016 providing new, quality construction and excellent curb appeal. No Debt Port Susan Marketplace is offered without any obligation to assume debt. Strong Snohomish County Economy Snohomish County has experienced exceptional economic growth over the past decade and has become nationally recognized as a strong, stable and expanding economy. Boeing and the US Navy are the largest employers in the area. Organizations such as Premera Blue Cross, the Tulalip Tribe, Intermec and many other local companies add to the county s diversified employment. KIDDER MATHEWS OFFERING MEMORANDUM 5
PROPERTY OVERVIEW 9030 271st St NW Stanwood, WA 98292 BUILDING Type Year Built Box Retail 2016 estimated Gross Leasable Area (GLA) 28,409 Stories Construction Parking Single Masonry 179 stalls Parking Ratio 4.25/1,000 Frontage 400' on SR 532 SITE Land Acres 105,054 SF Parcel (APN) 320419-003041-00 Zoning County UB Snohomish 2015 Property Tax Amount TBD Assessed Value TBD Representative Photo KIDDER MATHEWS OFFERING MEMORANDUM 6
Washington Federal Savings PETCO GROCERY OUTLET Lien St NW 92nd Ave NW 271 st St NW FUEL 92nd Avenue NW FUTURE PAD BUILDING 28,000+ COMBINED ADT 268th Street NW 268th St NW 15,000 CPD TO KIDDER MATHEWS OFFERING MEMORANDUM 7
SITE PLAN QFC FUEL CENTER 92nd Avenue NW FUTURE PAD BUILDING (Not included) 268th Street NW 15,000 CPD KIDDER MATHEWS OFFERING MEMORANDUM 8
PETCO - GROCERY OUTLET 02 Financial Analysis Pricing Summary Income Rent Roll Lease Options Expenses Proposed New Financing Representative Photo
PRICE $8,350,000 CAP RATE 6.25% PRICE / SF $294 OCCUPANCY 100% RENT ROLL TENANT SUITE SIZE % RSF MONTHLY RENT ANNUAL RENT ANNUAL RENT/SF LEASE TYPE LEASE START LEASE EXP COMMENTS Petco 1 11,250 39.60% $17,344 $208,125 $18.50 NNN 11/01/16 01/31/27 5.4% Increase Year 6 Grocery Outlet 2 17,159 60.40% $26,167 $314,004 $18.30 NNN 06/01/16 05/31/26 15% Increase Year 6 TOTAL 28,409 $43,511 $522,129 ACTUAL NET OPERATING INCOME PER SF COMMENTS Scheduled Rent $522,129 $18.38 Expense Recapture $138,074 $4.86 Scheduled Gross Income $660,203 $23.24 Vacancy & Credit Loss $0 $0.00 New 10 Year Leases Effective Gross Income $660,203 $23.24 Operating Expenses $138,074 -$4.86 NET OPERATING INCOME $522,129 $18.38 OFFERING PRICE $8,350,000 CAP RATE 6.25% BUILDING PRICE/SF $293.92 KIDDER MATHEWS OFFERING MEMORANDUM 10
EXPENSES PER SF % OF EXPENSES % OF RENT INCOME SOURCE Property Taxes $70,000.00 $2.46 50.70% 10.60% 2016 Estimate Insurance $7,500.00 $0.26 5.43% 1.14% 2016 Estimate Admin Fee $4,574.09 $0.16 3.31% 0.69% 2016 Estimate Common Area Maintenance (CAM) $56,000.00 $1.97 40.56% 8.48% 2016 Estimate TOTAL OPERATING EXPENSES $138,074.09 $4.86 EXPENSE RECAPTURE TENANT TOTAL SIZE % RSF PRO RATA TAXES PRO RATA INSURANCE PRO RATA CAM ADMIN COLLECTED ADMIN % OF CAMS Petco $54,640.25 11,250 39.60% $27,720.09 $2,970.01 $22,176.07 $1,774.09 8% Grocery Outlet $83,433.83 17,159 60.40% $42,279.91 $4,529.99 $33,823.93 $2,800.00 5% Scheduled Recapture $138,074.09 28,409 $70,000.00 $7,500.00 $56,000.00 $4,574.09 PETCO NOTES: Estimated CAMs not to exceed $2/sf year 1 Administration capped at 8% of CAMs (exclusive of Tax, Insurance) GROCERY OUTLET NOTES: Administration capped at 5% of CAMs (exclusive of Tax, Insurance) KIDDER MATHEWS OFFERING MEMORANDUM 11
GROCERY OUTLET LEASE ABSTRACT TENANT START END MONTHLY RENT ANNUAL RENT ANNUAL RENT/SF % INCREASE COMMENTS Grocery Outlet 08/01/16 07/31/21 $26,167 $314,004 $18.30 08/01/21 07/31/26 $30,099 $361,188 $21.05 15.03% Firm Term Contracted Increase 08/01/26 07/31/31 $33,110 $397,320 $23.16 10.00% First Option 08/01/31 07/31/36 $36,421 $437,052 $25.47 10.00% Second Option 08/01/36 07/31/41 $40,063 $480,756 $28.02 10.00% Third Option GROCERY OUTLET LEASE SUMMARY Tenant/Guarantor Grocery Outlet Inc. Lease Type Triple Net (NNN) Roof & Structure Landlord Responsibility HVAC Tenant Responsibility (Landlord warrants for first 5 years) Insurance Tenant Responsibility (Landlord carries building insurance which is reimbursed by tenant) Utilities Tenant Pays Direct Property Taxes Tenant Responsibility (Landlord recaptures pro-rata) Parking & CAM Tenant Responsibility (Landlord recaptures pro-rata) Lease Term 10 Years Annual Base Rent (Current) $208,128 Annual Rent / SF $18.50 Security Deposit N/A Lease Commencement 8/1/2016 Current Term Expiration 7/31/2026 Term Remaining on Lease 10 Years Renewal Options 5-5 Year Options Right of First Refusal Tenant Does Not Have A ROFR Estoppels Tenant to provide within 20 days KIDDER MATHEWS OFFERING MEMORANDUM 12
PETCO LEASE ABSTRACT TENANT START END MONTHLY RENT ANNUAL RENT ANNUAL RENT/SF % INCREASE COMMENTS Petco 11/01/16 10/31/21 $17,344 $208,128 $18.50 11/01/21 01/31/27 $18,281 $219,375 $19.50 5.40% Firm Term Contracted Increase 02/01/27 01/31/32 $19,219 $230,625 $20.50 5.13% First Option 02/01/32 01/31/37 $20,156 $241,875 $21.50 4.88% Second Option 02/01/37 01/31/42 $21,094 $253,125 $22.50 4.65% Third Option 02/01/42 01/31/47 $22,031 $264,375 $23.50 4.44% Fourth Option 02/01/47 01/31/52 $22,969 $275,625 $24.50 4.26% Fifth Option PETCO LEASE SUMMARY Tenant/Guarantor Petco Animal Supplies Stores, Inc. Lease Type Triple Net (NNN) Roof & Structure Landlord Responsibility HVAC Tenant Responsibility (Landlord warrants for first 5 years) Insurance Tenant Responsibility (Landlord carries building insurance which is reimbursed by tenant) Utilities Tenant Pays Direct Property Taxes Tenant Responsibility (Landlord recaptures pro-rata) Parking & CAM Tenant Responsibility (Landlord recaptures pro-rata) Lease Term 10.5 Years Annual Base Rent (Current) $208,128 Annual Rent / SF $18.50 Security Deposit N/A Lease Commencement 11/1/2016 Current Term Expiration 1/3/2017 Term Remaining on Lease 10.5 Years Renewal Options 5-5 Year Options Right of First Refusal Tenant Does Not Have A ROFR Estoppels Tenant to provide within 30 days KIDDER MATHEWS OFFERING MEMORANDUM 13
PROPOSED FINANCING POTENTIAL LOAN TERMS BANK LIFE INS CO Loan to Value 70% LTV 65% LTV Amortization 15-30 Years 25 Years Term 5-10 Years 10 Years Rate Range 4.60% - 5.50% 4.25% - 5.25% Recourse Full Full to Partial Holdbacks Leasing Fees None PROPOSED FINANCING Price $8,350,000 Down Payment $2,087,500 Loan To Value (LTV) 75% New Loan Amount $6,262,500 Interest Rate 4.25% Amortization 30 Debt Coverage Ratio 1.41 Current Net Operating Income $522,129 Annual Debt Service ($369,693) Cash Flow After Debt Service $152,436 LEVERAGED CASH ON CASH RETURN 7.30% PRICING SNAPSHOT Offering Price CAP Rate Net Operating Income Bulding Price/SF $8,350,000 6.25% $522,129 $294 Principal Reduction $105,577 Return with Principal Reduction $258,014 TOTAL RETURN ON EQUITY 12.36% Representative Photo KIDDER MATHEWS OFFERING MEMORANDUM 14
PETCO - GROCERY OUTLET 03 Tenant Profiles Grocery Outlet Petco Representative Photo
Tenant Profiles Grocery Outlet Grocery Outlet, originally opened in 1946 under the name Cannery Sales. Currently headquartered in Emeryville, California, Grocery Outlet encompasses more than 210 independently operated stores in Arizona, California, Idaho, Nevada, Oregon, Pennsylvania, and Washington and employs about 450 people. The Outlet offers brand name products at up to 50% off conventional retail prices. The store provides shoppers with groceries, frozen, deli & refrigerated, produce, fresh meat, general merchandise seasonal products, housewares, toys, and gifts health & beauty, and a most impressive inventory of beer & wine. Grocery Outlet has over $1 billion in annual sales. Source: https://en.wikipedia.org/wiki/grocery_outlet Locations 210+ Annual Revenue $1 Billion Representative Photo KIDDER MATHEWS OFFERING MEMORANDUM 16
Tenant Profiles Petco Petco Animal Supplies is a privately held pet retailer in the United States with corporate offices in San Diego and San Antonio, that sells pets as well as pet products and services. Petco sells or holds for adoption fish, reptiles, small birds, hamsters, guinea pigs, and mice. Pet services include grooming and dog training. As of 2014, the company operates more than 1,300 locations across the United States, Mexico, and Puerto Rico, including more than 100 Unleashed by Petco locations, a smaller format neighborhood brand launched in 2009; nine Pooch Hotel locations for pet daycare, boarding, and spa services; and an online shopping destination at petco.com. Source: https://en.wikipedia.org/wiki/petco Locations 1,400 Annual Revenue $4 Billion Representative Photo KIDDER MATHEWS OFFERING MEMORANDUM 17
PETCO - GROCERY OUTLET 04 Location & Market Overview Location Overview Location Map Site Overview Demographics Representative Photo
Location Overview PETCO - GROCERY OUTLET CAMANO ISLAND 22,000+ full time residents PORT SUSAN The Petco Grocery Outlet center is located at the signalized intersection of State Route 532 and 92nd Avenue NW in Stanwood, Washington. State Route 532 is the main connector to Interstate 5 and the only road connecting 20,000+ residents on Camano Islands to the retail services in Stanwood. Nearby retailers include QFC, Jack in the Box, Starbucks, Autozone, Dairy Queen and Rite Aid. KIDDER MATHEWS OFFERING MEMORANDUM 19
Location Overview Snohomish County The Northern Snohomish County is the manufacturing center of Washington State. Twenty-five percent of our workforce is associated with manufacturing; twice the State average. The assembly of commercial aircraft is significant in our local economy, including both The Boeing Company and the associated supply chain. This supply chain, representing both products and services, is not limited to The Boeing Company. Many are doing business with Airbus while looking for opportunities with the growing list of single-aisle airframe manufacturers. Additionally, these suppliers have diversified to serve multiple markets including shipbuilding, defense, energy generation, etc. Stanwood / Camano Island Stanwood is the town center serving a diverse rural, suburban and urban population of 33,000 people spread across two counties in what is generally identified as Greater Stanwood Camano. Many residents outside the City come into Stanwood for business, community events and park and recreation services. Southern Snohomish County, with its proximity to Seattle, has a concentration of knowledgeable workers and life science companies. T-Mobile has an engineering technology center with a staff of 600 and Google is planning to open a facility in Bothell that is designed to house 800 workers. On the life science side, we have a cluster of medical device companies with a specific focus in ultrasound diagnostics. Philips Healthcare and Sonosite have a combined workforce of 3000. On the pharmaceutical side and smaller in scale, CMC Biologics has 200 scientists researching and producing pharmaceuticals on a contract basis. Source: Economic Alliance of Snohomish County Stanwood is geographically separated from the other urban areas of Snohomish County and is surrounded by unincorporated forested land, farm land, multiple sloughs, and the Stillaguamish Estuary, This setting affords a variety of both public and private recreational opportunities for the population. The proximity of the large population on Camano Island creates additional demand for services that is not accounted for in the typical economic analysis. KIDDER MATHEWS OFFERING MEMORANDUM 20
Site Overview SITE CHARACTERISTICS Large, level 2.4 acre site near signalized intersection High Traffic location with combined traffic counts over 15,000 cars per day on a major arterial Petco and Grocery Outlet anchor phased development site with additional pad sites PETCO GROCERY OUTLET 28,000+ COMBINED ADT KIDDER MATHEWS OFFERING MEMORANDUM 21
LOCATION MAP BELLINGHAM 42 MINS PETCO - GROCERY OUTLET SKAGIT BAY Camano Island PORT SUSAN Stanwood SEATTLE 55 MINS Whidbey Island POSSESSION SOUND Marysville Everett KIDDER MATHEWS OFFERING MEMORANDUM 22
DEMOGRAPHICS 1 MILE 3 MILES 5 MILES Population Estimated Population (2015) 3,095 8,523 15,412 Projected Population (2020) 3,294 9,077 16,406 Census Population (2010) 2,854 7,934 14,527 Projected Annual Growth (2015-2020) 199 (1.3%) 554 (1.3%) 994 (1.3%) Historical Annual Growth (2010-2015) 241 (1.7%) 589 (1.5%) 885 (1.2%) Population by Race White 2,728 (88.1%) 7,605 (89.2%) 13,956 (90.6%) Black or African American 37 (1.2%) 85 (1.0%) 145 (0.9%) American Indian or Alaska Native 30 (2.1%) 67 (0.8%) 120 (0.8%) Asian 64 (2.1%) 178 (2.1%) 282 (1.8%) Hawaiian or Pacific Islander 6 (0.2%) 20 (0.2%) 26 (0.2%) Other Race 111 (3.6%) 242 (2.8%) 347 (2.3%) Two or More Races 120 (3.9%) 325 (3.8%) 535 (3.5%) Households Estimated Average Household Income (2015) $56,471 $67,689 $76,467 Projected Average Household Income (2020) $59,699 $71,550 $80,824 Census Average Household Income (2010) $59,496 $68,926 $73,492 Projected Annual Change (2015-2020) $3,228 (1.1%) $3,861(1.1%) $4,357 (1.1%) Historical Annual Change (2000-2015) $6,700 (0.9%) $13,582 (1.7%) $17,637 (2.0%) Housing Units Owner-Occupied (2015) 675 (55.3%) 2,187 (66.1%) 4,330 (72.0%) Housing Units Renter-Occupied (2015) 545 (44.7%) 1,124 (33.9%) 1,681 (28.0%) Estimated Median Household Income (2015) $52,122 $61,447 $67,402 Projected Median Household Income (2020) $53,885 $63,927 $70,514 Estimated Per Capita Income (2015) $22,592 $26,438 $29,942 Census Per Capita Income (2010) $23,103 $26,426 $28,345 Households by Income distribution HH Income $200,000 or More 1 (0.1%) 44 (1.3%) 177 (2.9%) HH Income $150,000 to $199,999 78 (6.4%) 291 (8.8%) 531 (8.8%) HH Income $125,000 to $149,999 49 (4.0%) 188 (5.7%) 437 (7.3%) HH Income $100,000 to $124,999 56 (4.6%) 249 (7.5%) 597 (9.9%) HH Income $75,000 to $99,999 232 (19.0%) 589 (17.8%) 994 (16.5%) HH Income $50,000 to $74,999 147 (12.1%) 445 (13.4%) 848 (14.1%) HH Income $35,000 to $49,999 165 (13.6%) 374 (11.3%) 721 (12.0%) HH Income $25,000 to $34,999 134 (11.0%) 309 (9.3%) 503 (8.4%) HH Income $15,000 to $24,999 82 (6.7%) 230 (6.9%) 465 (7.7%) HH Income $10,000 to $14,999 76 (6.3%) 180 (5.4%) 209 (3.5%) 5-MILE TRADE AREA DEMOGRAPHICS Population (2015) Average Household Income Estimated Population (2020) PETCO - GROCERY OUTLET 5 MILES 3 MILES 1 MILE 15,412 $76,467 Stanwood 16,406 KIDDER MATHEWS OFFERING MEMORANDUM 23
Contact Information Erik Swanson eswanson@kiddermathews.com 206.296.9628 Mike King mking@kiddermathews.com 206.296.9624 Rune Harkestad runeh@kiddermathews.com 425.450.1162 Kidder Mathews 601 Union Street, Suite 4720 Seattle, WA 98101 kiddermathews.com