This summer has been particularly good to dollar stores. Popular retailers like Family Dollar and Dollar General continue to open new stores. S&P even raised Dollar General’s credit rating BB+ in late July. Despite the stagnant economy (or because of it) dollar stores are thriving.

In order to continue capturing market share, the dollar store companies are relocating new stores in existing markets and opening new stores in new markets. These relocations and new stores offer real estate investors an opportunity to own hard assets with bond-like characteristics based on the long-term net leases signed by stable corporate tenants. The current capitalization rates (or yield) for these dollar store net lease assets are in the 8% - 9% range, depending on location, specific lease terms, and credit worthiness of the tenant. With Dollar Generals recent credit upgrade to BB+ Stable, the credit gap between Dollar General and Family Dollar (BBB- Stable) is shrinking.

Even with a lower credit rating, net lease real estate investors are currently paying lower cap rates for Dollar Generals than Family Dollar assets. On average, new Dollar General stores are trading at 8% - 8.50% cap rates, while Family Dollars are often 25 – 50 basis points higher. Both Family Dollar and Dollar General operate with net leases, which provide long-term and stable income streams for passive property owners. Given that Dollar General’s credit rating is improving and both companies operate out of similar locations, the difference in value is predominantly driven by slight variations in the corporate leases.