(Exclusive Aerial Video) A Closer Look at the Pharmacy Net Lease 65 DST in Downtown Encinitas, CA

By Dwight Kay, Founder and CEO of Kay Properties & Investments

One of current Delaware Statutory Trust offerings available for 1031 exchange as well as direct cash investment, is the Pharmacy Net Lease 65 DST, a Regulation D Rule 506 (c) offering in downtown Encinitas, CA.

The Pharmacy Net Lease 65 was purchased as an all-cash, 100% debt-free acquisition as a purposeful strategy to mitigate risk associated with potential lender foreclosure or cash flow sweeps. In addition, Kay Properties believes the best DST investments are debt free for a variety of reasons which include:

• Debt-Free Real Estate Creates Greater Flexibility for Investors
Debt-free DSTs real estate provides greater flexibility for investors to hold through potential market downturns, credit crunches, or recessions.
• Debt-Free Real Estate Helps Investors Avoid Cross Collateralization
One of the things lenders will often insist on from investors is the need to use multiple assets as collateral to secure a single loan. Called cross collateralization, this action allows the lender to lay claim to all the collateralized properties in the case of default.
• Debt-Free DST Real Estate Offerings Can Potentially Provide Higher Cash Flow One of the things that Kay Properties is seeing in today's higher interest environment is that some of debt-free real estate offerings have a higher projected cash flow than leveraged DST investments because there is no monthly debt service that needs to be paid to a lender.
• Debt-Free Real Estate Offerings Have No Balloon Mortgage Maturity Payment Most leveraged DST properties have a balloon mortgage maturity attached with the loan. The balloon mortgage is a hard maturity date. That means if you don't sell the property by that date or pay back the loan, then the lender will seek to take back the property through a foreclosure or other mechanism. Debt-free DST properties don't have balloon mortgage maturity payment risks associated them.

The Pharmacy 65 DST was acquired with a long-term absolute NNN lease in place with Walgreens. An absolute NNN (Triple Net) lease is one where the tenant assumes the responsibility for all expenses associated with the property on top of paying rent. These expenses typically include property taxes, insurance, and maintenance costs, leaving the DST investor and sponsor landlord with minimal to no ongoing financial obligations related to the property.

When the Pharmacy Net Lease 65 DST asset was acquired, the tenant, Walgreens had recently signed a 15-year lease extension with 5% increases every five years. This represents two potentially important points. One, because the tenant has been at this location for several years before extending their lease for another 15-years, and has a corporate lease guarantee with Walgreens Corporate, we feel these are good indicators the tenant has a strong commitment to the area. Second, the recently signed long-term net lease agreement with 5% increases every five years has the potential to act as a buoy investment and hedge against inflation which will help grow the Net Operating Income on the property.

The Pharmacy Net Lease 65 DST is leased to an essential business and essential retailer. While past performance doesn’t guarantee future results, Walgreens has performed well from the Great Financial Crisis to COVID-19 pandemic. Being an essential business, they remained open and paying rent when other companies were either forced to close, or unable to pay rent.

Kay Properties considers the Pharmacy Net Lease 65 a trophy asset in its portfolio because of the intrinsic value its location – Encinitas, CA.

Encinitas is a beach city in the North County area of San Diego County. Located within Southern California, it is approximately 25 miles (40 km) north of San Diego, between Solana Beach and Carlsbad, and about 95 miles (153 km) south of Los Angeles. This Delaware Statutory Trust asset is one of the top performing sites for Walgreens chain of stores and is located in one of San Diego County’s dense commercial thoroughfare on the coast. The property neighbors several major regional retail centers including Encinitas Marketplace, Encinitas Village Shopping Center, and Camino Real Shopping Center.