Auto Parts Retail Industry Report February 2018

Auto Parts Retail Industry Report February 2018

Auto Parts Retail Industry

The Auto Parts retail industry is a $58B industry, which has historically experienced single digit growth year over year. Online auto part sales accounted for $8.89 billion of this revenue in 2017, posting a 16% increase over 2016. The top market share is led by AutoZone, Advance Auto Parts and O'Reilly Auto Parts. The industry has low barriers of entry, few restrictive regulations, and an easily trainable workforce. Despite low barriers, high levels of competition exist making it difficult for new operators to succeed. The market is attractive with consistent growth over the years as more vehicles continue to age and car owners are keeping their vehicles vs. purchasing new.

Brick and mortar auto part retailers have been traditionally focused on two types of customer: "Do it Yourself" (DIY) and "Do it For Me" (DIFM Professional Providers). The top three companies have had competitive advantages from the threat of disruptive online retailers primarily through relationship networks with professional DIFM providers, and efficiencies with fully scaled nationwide same-day delivery. This segment has been able to capitalize on larger profits on auto parts by up-selling different warranties on aftermarket parts.

Over the years, stores have had consistent growth, however last year reported flat earnings. The DIY segment is the most vulnerable for retailers. Nearly three-quarters of AutoZone's revenue comes from do it yourself clients. Advance Auto Parts and O'Reilly Auto Parts have no more than half of their revenue exposed to this segment. Amazon has been targeting this market with an aggressive pricing strategy with prices 22% lower than these retailers. They have also started rolling out same-day delivery in several major cities. Long term, Amazon has the ability and capital to get closer to customers and expand into the traditional retail customer sector as it navigates to solve quick on-time parts delivery.

Chad M. Firsel President 312.269.0220 cfirsel@

Daniel Waszak Senior Vice President 312.269.0550 dwaszak@

Jason Caplan Senior Vice President 312.533.2347 jcaplan@

Zack Hilgendorf Vice President 312.533.2348 zhilgendorf@

Jack Farritor Vice President 312.683.9924 jfarritor@

Quantum Real Estate Advisors, Inc. | 125 S. Wacker Dr., Suite 1590, Chicago, IL 60606 |

Auto Parts Retail Industry Report February 2018

AutoZone AutoZone operates 6,023 stores, across 49 states. Total revenues $11,010.0 (MM), +2.7% total revenue growth and employs 87,000. Cap rates for AutoZone increased 23 basis points in 2017 to 5.79%. In 2017, the company opened 168 stores in the U.S and added 15 net stores in Q1 2018. AutoZone owns approximately 48% of its stores and in recent years has moved from build-to-suit leases to ground leases and land purchases.

? 35 Investment Assets Currently on Market Nationally ? Median Asking Cap Rate 5.25% ? Median Asking Price $1,828,570 | $249.35/SF

Advance Auto Parts Advance Auto Parts operates 5,230 stores in 49 states. Total revenues $9,419.77 (MM), -1.07% total revenue growth and employs 74,000. Cap rates for Advance Auto Parts decreased 2 basis points in 2017 to 6.64%. Advance Auto Parts leases 4,373 locations and opened 47 new stores in the first three quarters of 2017, closed 18 and consolidated 15 stores. It also converted 132 Carquest stores to Advance Auto Parts stores. New stores range from 6,000 SF ? 8,500 SF.

? 72 Investment Assets Currently on Market Nationally ? Median Asking Cap Rate 7.25, ? Median Asking Price $1,385,776 | $196.16/SF

O'Reilly Auto Parts O'Reilly Auto Parts operates 5,019 stores across 47 states with total revenues $8,593.1 (MM), +7.9% total revenue growth and employs 74,715. Cap rates for O'Reilly Auto Parts increased 7 basis points in 2017 to 5.93%. O'Reilly Auto Parts opened 198 stores and closed 8 stores in 2017. O'Reilly Auto Parts owns 1,912 stores and leased 2,842.

? 32 Investment Assets Currently on Market Nationally ? Median Asking Cap Rate 5.75% ? Median Asking Price $1,908,150 | $241.63/SF

Chad M. Firsel President 312.269.0220 cfirsel@

Daniel Waszak Senior Vice President 312.269.0550 dwaszak@

Jason Caplan Senior Vice President 312.533.2347 jcaplan@

Zack Hilgendorf Vice President 312.533.2348 zhilgendorf@

Jack Farritor Vice President 312.683.9924 jfarritor@

Quantum Real Estate Advisors, Inc. | 125 S. Wacker Dr., Suite 1590, Chicago, IL 60606 |

Auto Parts Retail Industry Report February 2018

Company Comparison

Avg CAP Rate Avg $ Sale NOI $/SF Building SF Lot Size Lease Term Escalations Credit Rating

AutoZone

5.25% (12 mo avg w/ 10+ yr Lease Term)

$2,281,500

$119,779

$280

7,000

0.5 - 1.5 Acres

15 Years

10% Every 5 Years & Options

S&P Moody's

BBB Baa1

Advance Auto Parts

O'Reilly Auto Parts

5.96% (12 mo avg w/ 10+ yr Lease Term) 6.15% (12 mo avg w/ 10+ yr Lease Term)

$2,104,535

$1,768,535

$125,430

$108,765

$250-$350

$230-$250

6,000-8,000

7,000-7,500

0.70 - 1.00 Acres

0.5 - 1.5 Acres

5-15 Years

20 Years

Varies

S&P Moody's

BBBBaa2

6-10% Every 5 Years

S&P Moody's

BBB+ Baa1

Chad M. Firsel President 312.269.0220 cfirsel@

Daniel Waszak Senior Vice President 312.269.0550 dwaszak@

Jason Caplan Senior Vice President 312.533.2347 jcaplan@

Zack Hilgendorf Vice President 312.533.2348 zhilgendorf@

Jack Farritor Vice President 312.683.9924 jfarritor@

Quantum Real Estate Advisors, Inc. | 125 S. Wacker Dr., Suite 1590, Chicago, IL 60606 |

Auto Parts Retail Industry Report February 2018

Chad M. Firsel President 312.269.0220 cfirsel@

Daniel Waszak Senior Vice President 312.269.0550 dwaszak@

Jason Caplan Senior Vice President 312.533.2347 jcaplan@

Zack Hilgendorf Vice President 312.533.2348 zhilgendorf@

Jack Farritor Vice President 312.683.9924 jfarritor@

Quantum Real Estate Advisors, Inc. | 125 S. Wacker Dr., Suite 1590, Chicago, IL 60606 |

Auto Parts Retail Industry Report February 2018

Sale Date Aug-17 Sep-17 Jul-17 Oct-17 May-17 Jul-18 Feb-17 Sep-17 Feb-17 Sep-17 Nov-17 Jan-17 Feb-17 May-17 Jan-17 Oct-17 Feb-17 Jul-17 Feb-17 Apr-17 Sep-17 Jun-17 Mar-17 Jun-17 Jan-17 Aug-17 May-17 Feb-17 Jan-17 Feb-17 Feb-17 Mar-17 Sep-17 Aug-17 Apr-18 Feb-17

AVERAGE MEDIAN

AUTO PARTS RETAIL REAL ESTATE SNAPSHOT

Select Real Estate Sales Comps 2017 - Current

Tenant

City

State SF Sale Price PSF Cap Rate Notes

Advance Auto Parts Mobile

AL 19,800 $3,667,548 $185.23 5.45%

Advance Auto Parts Phoenix

AZ 19,200 $2,660,000 $138.54 6.35% 1031 Exchange

Advance Auto Parts Vero Beach

FL 6,831 $2,254,540 $330.05 5.50%

Advance Auto Parts Fort Myers

FL 6,889 $2,250,000 $326.61 5.75%

Advance Auto Parts Oakland Park

FL 7,969 $1,665,000 $208.93 6.11%

Advance Auto Parts Bogart

GA 8,928 $2,200,000 $246.42 5.65%

Advance Auto Parts Norcross Advance Auto Parts Council Bluffs Advance Auto Parts Sioux Advance Auto Parts Aurora Advance Auto Parts Chicago Advance Auto Parts Harvard Advance Auto Parts Mokena Advance Auto Parts Normal

GA 7,000 $2,083,970 $297.71 IA 11,905 $1,365,000 $114.66 IA 6,889 $1,757,000 $255.04 IL 7,440 $2,150,000 $288.98 IL 61,245 $2,037,195 $332.66 IL 7,000 $1,428,375 $204.05 IL 6,831 $2,247,500 $329.01 IL 7,000 $1,200,000 $171.43

6.55% 6.22% 6.54% 7.50% 5.65% 8.32% 6.10%

-

1031 Exchange 1031 Exchange

Advance Auto Parts Louisville

KY 5,525 $567,000 $102.62 7.00%

Advance Auto Parts Paducah

KY 7,478 $892,788 $119.39 6.60%

Advance Auto Parts Alexandra

LA 6,972 $1,500,000 $215.15 -

Advance Auto Parts Jenison Advance Auto Parts Elk River Advance Auto Parts Saint Louis Advance Auto Parts Fayetteville Advance Auto Parts Williamstown Advance Auto Parts Albuquerque Advance Auto Parts Valley Stream Advance Auto Parts Cincinnati

MI 7,000 $1,885,000 $269.29 MN 4,840 $1,640,000 $338.84 MO 7,600 $820,000 $107.89 NC 8,658 $1,274,000 $147.15 NJ 6,895 $2,260,000 $327.77 NM 6,889 $2,635,000 $382.49 NY 10,000 $4,600,000 $460.00 OH 6,720 $1,810,000 $269.35

6.15% 6.70% 6.50% 6.75% 5.95% 4.59% 7.57% 7.42%

Advance Auto Parts Dayton

OH 8,000 $1,450,000 $181.25 6.94%

Advance Auto Parts Tulsa

OK 6,928 $1,917,280 $276.74 7.50% 1031 Exchange

Advance Auto Parts Lionville

PA 6,889 $3,336,198 $484.25 - Bulk/Portfolio Sale

Advance Auto Parts Advance Auto Parts Advance Auto Parts Advance Auto Parts Advance Auto Parts Advance Auto Parts Advance Auto Parts Advance Auto Parts

Mount Pleasant Smyrna Austin Dallas Quinton Aylett Auburn Sheboygan

SC 8,064 $2,557,460 $317.15 TN 7,000 $1,500,000 $214.29 TX 6,694 $2,450,000 $366.00 TX 6,800 $2,957,130 $434.87 VA 6,889 $2,092,508 $303.75 VA 6,889 $1,975,250 $286.73 WA 6,889 $2,683,183 $389.49 WI 11,000 $1,975,000 $179.55

5.75% -

6.32% 5.40% 6.10% 6.00% 4.95% 6.00%

1031 Exchange/Portfolio Sale 1031 Exchange 1031 Exchange

1031 Exchange

8,393 $1,959,021 $257.74 6.64%

7,000 $1,933,640 $244.97 6.49%

Sale Date Feb-18 Jun-17 Oct-17 Oct-17 Jun-17 Nov-17 Aug-17 Sep-17

Tenant AutoZone AutoZone AutoZone AutoZone AutoZone AutoZone AutoZone AutoZone

City Phoenix Goodyear Sacramento Citrus Heights Tamarac Atlanta Sioux City Gardner

State SF Sale Price PSF Cap Rate Notes AZ 7,250 $1,350,000 $186.21 5.00% AZ 6,172 $1,592,000 $257.94 4.75% Ground Lease / Leasehold CA 9,800 $2,259,000 $230.51 6.78% CA 3,750 $1,200,000 $320.00 6.10% 1031 Exchange FL 6,890 $1,675,000 $243.11 6.00% 1031 Exchange GA 10,908 $2,800,000 $256.69 5.20% IA 7,000 $1,560,000 $222.86 6.35% 1031 Exchange KS 6,840 $1,960,000 $286.55 5.64%

Chad M. Firsel President 312.269.0220 cfirsel@

Daniel Waszak Senior Vice President 312.269.0550 dwaszak@

Jason Caplan Senior Vice President 312.533.2347 jcaplan@

Zack Hilgendorf Vice President 312.533.2348 zhilgendorf@

Jack Farritor Vice President 312.683.9924 jfarritor@

Quantum Real Estate Advisors, Inc. | 125 S. Wacker Dr., Suite 1590, Chicago, IL 60606 |

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