Limon Net Lease Group

Archives for March 2025

Rising Above Uncertainty: A Five-Year Perspective

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Looking Back, Looking Ahead: ​Commercial Real Estate Through Uncertainty​

Elevated Uncertainty Mirrors Early Pandemic Conditions​

  • The Economic Uncertainty Index is at its second-highest level on record​
  • Investors are contending with headlines about tariffs, deportations, government department cuts, and inflation risks​
  • The current climate echoes the volatility experienced in 2020, making short-term forecasting difficult​

Commercial Real Estate Performance Since 2020 Shows Resilience​

  • Retail, industrial, and multifamily have all seen strong rent and price gains since 2019​
  • Office experienced challenges, with higher vacancy, but still posted positive absorption in 2024​
  • Across most property types, commercial real estate values and fundamentals improved despite volatility​

Long-Term Perspective Remains Key Amid Today’s Risks​

  • Many investors who bought during peak uncertainty in 2020 have seen strong returns since​
  • Despite the noise, declining construction, favorable demographics, and U.S. economic strength support a long-term investment outlook​

Includes sales $1 million and greater​
Sources: Marcus & Millichap Research Services, CoStar Group, Inc., Real Capital Analytics​

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Family Dollar to Be Sold

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Dollar Tree Announces Family Dollar Sale / Mixed 4Q Results

Analyst Highlights

  • Agrees to sell Family Dollar for $1.01 billion to PE firms (details below)
  • Family Dollar 4Q and FY24 Results reported as discontinued operations
  • Dollar Tree 4Q comps rise 2% on +0.7% transaction volume and +1.3% average ticket
  • Operating Income down 12% and 220 bps on a margin basis.

Store Highlights

  • Opened 33 stores, converted four and closed 24 in 4Q.
  • Opened 525 stores, converted 12 and closed 71 in FY24.
  • Finished FY24 with approximately 2,900 Dollar Tree 3.0 multi-price format stores, including 2,600 conversions and
    300 new stores.​

Sale of Family Dollar

After a comprehensive review of strategic alternatives, on March 25, 2025, Dollar Tree entered into a definitive agreement to sell the Family Dollar business to Brigade Capital Management (previous investments in Guitar Center) and Macellum Capital Management (previous investments in Kohl’s, SpartanNash, Big Lots, etc.) for $1.01 billion, subject to adjustments for working capital and net indebtedness. Dollar Tree acquired Family Dollar for more than$8 billion in 2015. The transaction is expected to close in approximately 90 days (2Q25) subject to satisfying customary conditions, including the receipt of US antitrust approval. Dollar Tree estimates net proceeds from the sale to be approximately $804 million. The Company forecasts economic tax benefits from the losses on the sale to total approximately $350 million. The Family Dollar business will remain headquartered in Chesapeake, Virginia.

During 4Q24, Dollar Tree determined that the assets of the Family Dollar business met the criteria for classification as “held for sale.” Consequently, the Family Dollar business has been presented as discontinued operations within the consolidated financial statements for 4Q24. Results from prior periods have also been adjusted to align with this current presentation. Dollar Tree CEO Mike Creedon commented, “This is a major milestone in our multi-year transformation journey to help us fully achieve our potential. We will continue to grow and optimize our Dollar Tree business to maximize value for Dollar Tree associates, customers, and shareholders with an enhanced focus on compelling initiatives, including our expanded assortment, significant planned new store openings across the United States, and transactions that advance our growth strategy.”

Mr. Creedon continued, “Under the experienced, dynamic leadership of Family Dollar President Jason Nordin, and with the financial support of Brigade and Macellum, Family Dollar will be well-positioned for growth as a private company.

CEO and Partner of Macellum Jonathan Duskin commented, “This transaction presented a unique opportunity to play a key role in reinvigorating an iconic business. Throughout this process we have met an exceptional group of executives that are dedicated to the Company and its customers. We look forward to executing the strategic plan we have developed together. In particular, we are excited that Duncan MacNaughton (former Family Dollar President) will be joining the company as Chairman, where his insights as a former President and Chief Operating Officer of the company, and broader industry experience, will be invaluable.”

4Q24 Operational Results (Dollar Tree)

During 4Q24, Dollar Tree determined that the assets of the Family Dollar business met the criteria for classification as “held for sale.” Consequently, in its 4Q financial results, the Family Dollar business has been presented as discontinued operations within the consolidated financial statements. Results from prior periods have also been adjusted to align with this current presentation. Though very early in the process, we expect Dollar Tree to benefit from the sale of Family Dollar. Family Dollar has long been a struggling asset, primarily due to its limited scale and lack of a distinct product assortment.

For 4Q24, Dollar Tree reported a slight sales increase of 0.7% to $5.0 billion. Same-store sales rose 2.0%, driven by a 0.7% increase in transaction volume and a 1.3% increase in average ticket. Gross margin contracted due to a combination of lower leverage from the extra sales week in 2023, higher costs (including mark-on, shrink, distribution, and markdowns), while selling, general, and administrative expenses rose, driven by software impairments related to the Family Dollar sale and increased operating costs. Ultimately, operating income and operating margin fell by 12% and 220 bps, respectively. During the quarter, 33 stores were opened while 24 stores were closed and four were re-bannered. The Company ended the quarter with 8,881 stores in total. In FY24, management repurchased $3.3 million of common stock, leaving $952 million in authorization for future repurchases. Managment provided guidance below.

Management Comment

CEO Mike Creedon commented, “In the fourth quarter, our team was focused on successfully closing out the year, bringing the strategic review to a favorable conclusion, and setting Dollar Tree on a path to realize its full potential to create long-term
value for our associates, customers, and shareholders. We finished 2024 on a high note with strong execution at Dollar Tree as growing customer acceptance of our expanded assortment drove sales momentum. With the sale of Family Dollar set to close later this year, we will be able to fully dedicate ourselves to Dollar Tree’s long-term growth, profitability, and returns on capital.”

Guidance

Dollar Tree provided the following guidance for 1Q25 and FY25 outlook:

1Q25
Sales of $4.50 billion to $4.60 billion, up from $4.17 billion in 1Q24
Comps growth in the range of 3% to 5%, up from 1.7% in 1Q24

FY25
Sales of $18.50 to 19.10 billion, up from $17.58 billion in FY24
Comps growth in the range of 3% to 5%, up from 1.8% in FY24

Courtesy: retailstat.com

The Forces Driving Long-Term Rental Housing Demand

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Demographic Trends and Housing Costs Sustain Rental Demand​

Millennials Are Reshaping Rental Housing Demand​

  • There are 73 million millennials, now in their late 20s to early 40s, that are coming into key life stages like marriage and family formation​
  • Apartment lease renewal rates have climbed to 55% as fewer renters move into homeownership​
  • Enhanced amenities, modern designs, and better services have made rental housing more attractive​

Affordability Challenges Are Reshaping Housing Decisions​

  • Home prices have surged, rising 6.1% in the past year and nearly 50% since early 2020​
  • The monthly cost of owning a median-priced home is about $3,100, compared to $1,830 for an apartment​
  • The median first-time homebuyer age has risen from 30 in 2010 to 38 in 2024​

Limited Housing Supply Keeps Pressure on Rentals​

  • New single-family home construction remains low, keeping home prices elevated​
  • Mortgage rates show no signs of significant declines, reinforcing the affordability gap​
  • With fewer homes being built, rental vacancy rates could tighten, supporting rent growth​

As of 2024
Sources: Marcus & Millichap Research Services, U.S. Census Bureau, National Association of Realtors​

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High-Speed Cycles Require Long-Term Thinking

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Beyond Market Volatility: ​Demographics Drive Long-Term Medical Office Growth​​

Rapidly Changing Economic Conditions Challenge Investors​

  • Market data is becoming outdated faster than usual, making it harder to rely on traditional indicators​
  • The latest economic forecasts for 2025 are already shifting, with major firms revising their projections.​
  • Inflation data lags real-time changes, missing key cost increases like the 30% rise in steel prices​

Aging Population Is Driving Medical Office Demand​

  • 11,000 people turn 65 every day, leading to a surge in healthcare service usage​
  • Seniors visit the doctor 7.1 times per year on average, nearly double the rate of younger adults​

Medical Office Construction Is Slowing Amid Growing Demand​

  • Only 8 million square feet of new medical office space was built in 2024, down from 14 million in 2023​
  • Construction starts have declined sharply; rising labor and material costs could limit new development further​

​From 1Q 2025 through 4Q 2029​
Sources: Marcus & Millichap Research Services, U.S. Census Bureau, Moody’s Analytics ​

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Economic Uncertainty to Favor Commercial Real Estate

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Trade Policy Shifts and Economic Uncertainty​

The United States has escalated its Tariff Policies​

  • Mexico, China, and Canada are the U.S.’s three biggest trade partners accounting for 41.5% of goods imports in 2024​
  • U.S. President Donald Trump’s new 25% tariffs on imports from Mexico and Canada took effect on March 2, 2025​
  • President Trump also issued a new Executive Order on March 3, 2025, to increase the 10% tariff on all imports from China to 20% on March 4, 2025​

The United States faces economic risks​

  • The Atlanta Federal Reserve Bank has updated its GDP forecast for Q1 2025 from a -1.5% contraction to a -2.8% contraction, but noted that this is a modeled estimate ​
  • The implementation of tariffs pose could slow economic growth and increase inflationary pressure​

The Economic Policy Uncertainty Index has risen to its second highest level in history, but does create some…​

  • Heightened uncertainty creates a variety of challenges, including indecisiveness from businesses and volatility in the financial market​
  • As uncertainty rises, investors may continue reallocating capital toward hard assets such as real estate, seeking stability​

​Sources: Marcus & Millichap Research Services, U.S. Census Bureau ​

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Is Economy Slowing?

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Navigating Economic Uncertainty: Breaking Down the Data​​

Economic Growth Outlook Faces Headwinds​

  • The Atlanta Federal Reserve Bank GDP forecast for Q1 2025 predicts a -1.5% contraction, triggering concerns​
  • Businesses stockpiled goods ahead of potential tariffs, which is weighing on economic growth​
  • Despite the negative Q1 outlook, economic growth could rebound in Q2, potentially reaching 4%, as trade normalizes​

Uncertainty Surges to Its Highest Level Since the Pandemic​

  • Economic uncertainty has spiked, reflecting concerns over negative GDP growth, government downsizing, and Federal policy shifts.​
  • Driven by political divide, consumer sentiment fell sharply from 71.1 to 64.7 in February, its lowest reading since November 2023​

Consumers and Businesses Adjust to Policy Shifts​

  • Consumers are spending less and saving more, with the savings rate rising from 3.5% in December to 4.6% in January​
  • Retailers and manufacturers rushed to import goods before tariffs take effect, distorting economic data for early 2025​

*Through February 2025​
The Economic Policy Uncertainty Index is a measure of policy-related economic uncertainty, derived from the ​frequency of news articles discussing economic policy uncertainty in leading U.S. newspapers. Higher values indicate greater uncertainty​ Sources: Marcus & Millichap Research Services, , Scott R. Baker, Nicholas Bloom, and Steven J. Davis.​

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