RALEIGH-DURHAM STNL RETAIL REPORT Q4 2016

NATIONAL CAP RATE PERCENTAGES | Q4 2016

AVERAGE CAP RATE

LOW CAP RATE

HIGH CAP RATE

AVG LEASE YEARS

SAMPLE SIZE

AVG CAP RATE (BPS)

LEASE YEARS (REM)

SECTORS Automotive 6.7% 4.3% 9.0% 10.2 33 19.5 (0.5)

Bank 5.6% 4.4% 7.9% 10.5 15 11.8 2.6

Big-Box 7.1% 4.9% 9.1% 9.8 13 83.3 0.2

Causual Dining 6.2% 4.1% 12.0% 13.7 36 21.2 0.8

C-Store 6.1% 4.5% 9.2% 12.1 16 102.5 (1.4)

Dollar Store 7.1% 5.5% 10.0% 10.9 51 7.4 (0.9)

Educational 6.9% 6.5% 7.7% 7.8 3 -110.5 (6.2)

Medical 6.6% 5.6% 7.9% 12.4 4 6.7 (0.6)

Pharmacy 5.9% 4.7% 10.0% 16.0 36 -24.3 2.1

QSR 5.9% 3.3% 11.0% 12.9 84 20.6 (0.3)

Other Retail 6.6% 4.7% 8.7% 11.9 24 18.2 0.3

AVERAGE 6.4% 11.7 17.9 (0.3)TOTAL SAMPLE SIZE 315 107,997 24,582

Key Takeaways > At the close of 2016, both interest rates and cap rates increased while cap rates increased by 18 bps in the fourth quarter. This represents

the first increase in Single Tenant Net Lease rates since the fourth quarter of 2015.

> The C-Store sector experienced the largest cap rate expansion, reporting 102.5 bps. This large increase in cap rates is a result of an increase in short-term deal flow with less than ten years remaining. Many NNN leased C-Stores that traded in the fourth quarter did not have a high investment grade creating the increase in the overall cap rate.

> Average cap rates for Dollar Store, Pharmacy, QSR and Casual Dining Sectors remained consistent during the fourth quarter, changing less than 25 bps.

> Investor demand remained strong in 2016 with no signs of slowing down as we head into 2017.

Raleigh-Durham Market Overview > As of November 2016, Wake County added 2,795 jobs (16 new and 29 expanding companies) creating a total investment of $224M. The

unemployment rate remained low, reporting at 4.2% as of the end of December 2016. Raleigh was recently named #3 Best City for Jobs and the #2 Hottest Spot for Tech Jobs in September’s Forbes magazine. Raleigh is home to over 500 startup companies and in the last three years alone, startups in Raleigh have raised over $300 million in venture capital investment.

National Asking Cap RatesBy Asset Class

Q3 2016

Q4 2016

Basis Point

Change

Retail 6.10% 6.19% 9.0

Office 7.08% 7.08% 0.0

Industrial 7.14% 7.17% 3.0

2 Raleigh-Durham Research | Q4 2016 | STNL | Colliers International

MILOS RADOJKOVICVICE PRESIDENT | RETAIL INVESTMENT SERVICES919 582 3118milos.rad@colliers.com

With over 15 years of office, industrial, and retail investment sales experience, David Divine has a proven track record of maximizing values and returns for his clients. His clients include individual property owners, institutional owners, developers, banks, REIT’s, and special services.

DAVID DIVINESENIOR VICE PRESIDENT919 582 3114david.divine@colliers.com

A multi-lingual broker with a more than a decade of experience in both international finance and real estate. Milos has been continuously involved in real estate, creating unique financing strategies for several condo development projects in downtown Belgrade (Serbia).

The Team

Quarter over Quarter Change in Average Cap Rates

Q3 2016CAP RATE

Q4 2016 CAP RATE

CHANGE IN AVG CAP RATE (BPS)

TENANTS Applebee's 5.2% 5.4% 25.0

Arby's 6.3% 6.3% 0.5

Burger King 5.6% 5.8% 16.8

KFC 5.9% 5.4% (57.0)

McDonald's 4.2% 3.8% (33.7)

Starbuck's 4.6% 5.2% 59.0

Taco Bell 4.6% 5.2% 65.3

Wawa 4.5% 4.5% (1.2)

Wendy's 5.9% 6.2% 27.3

SELECT RALEIGH-DURHAM NNN TRANSACTIONS | Q4 2016TENANT LEASE TERM SUBMARKET SIZE (SF) SALES PRICE PRICE / SF CAP RATE

Advanced Auto Parts 15 year Johnston County 8,064 $2,051,322 $254.38 5.75%

Walgreen's 20 year Orange County 15,000 $8,876,312 $591.75 5.10%

AutoZone N/A Orange County 7,381 $4,800,000 $650.32 4.75%

*Arby's N/A Northeast Wake County 3,702 $4,300,000 $648.18 6.60%

CVS 18 year Cary 14,000 $4,045,000 $288.93 4.50%

Firestone N/A RTP | I-40 7,654 $3,869,000 $505.49 5.16%

Applebee's 15.5 year 6 Forks Falls of Neuse 5,528 $3,800,000 $687.41 6.26%

Advanced Auto Parts 15 year Johnston County 8,064 $2,051,322 $254.38 5.75%

* Part of a portfolio sale.