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DaVita NNN For Sale

Founded in 1999, DaVita is the leading provider of kidney care in the United States. It is a Fortune 500 company that’s headquartered in Denver, Colorado, and its name is Italian for “giving life” – a translation that goes right along with the organization’s healthcare mission.

At DaVita locations, patients can access in-center offerings like hemodialysis, nocturnal dialysis, peritoneal dialysis, vascular access management, renal diet assistance, and chronic kidney disease education. Poised in a growing sector of the already-booming medical industry, DaVita is widely recognized as an attractive option for net lease investors.

The company is growing fast, too. DaVita Kidney Care operates or provides administrative services at over 2,600 outpatient clinics in the U.S. alone. The company also operates more than 240 outpatient dialysis centers outside of the United States and serves about 203,000 patients to help with kidney care and treatment.

Tenant Overview

DaVita locations are typically located in suburban areas along major roadways and near hospitals or medical offices. The company prefers locations with ample parking, high visibility, and easy ingress and egress. Although these sites are often built-to-fit real estate that’s tailored to the medical industry, the growth of the kidney care industry is quite promising.

The U.S. population continues to grow older, and the prevalence of chronic kidney disease has been rising in tandem. According to a report published in American Journal of Kidney Disease, the rate of adults over 30 with chronic kidney disease is projected to increase from 13.2% today to 16.7% by 2030. Clearly, the demand for dialysis centers isn’t going anywhere.

Due to this enviable positioning in a high-need sector of the medical industry, DaVita net leases are considered to be relatively low-risk and to have marketable value. Plus, they’re backed by a strong corporate guarantee from the parent company. If you’re considering a DaVita NNN lease, you may want to consider some of the factors outlined in the table below.

DaVita NNN Overview
Average sale price $3,793,000
Average NOI (net operating income) $206,400 monthly
Average square feet 6,000 - 12,500
Average lot size 1.0 - 2.5 acres
Typical lease term 15 years
Escalators 2% - 3% annually, or 10% every 5 years
Typical location Suburban areas near hospitals or medical office parks
Ticker symbol NYSE: DVA

DaVita Lease Structure

DaVita clinics typically sign net leases with 15-year initial terms, during which the rent prices will rise 2% to 3% annually. Most DaVita locations use NNN leases, which are considered the preferable option for investors as they remove most responsibilities from the landlord, passing costs like insurance, maintenance, landscaping, and more onto tenants.

The average cap rate, also called the “capitalization rate,” for a DaVita net lease is 4.89%. Cap rates are metrics that assess real estate investments in terms of their profitability and return potential. Those that land between 5% and 10% are generally considered good. Lower rates, like DaVita’s, usually signal that an investment is lower-risk.

Why Choose a Net Lease Over a Gross Lease When Investing in Commercial Real Estate?

If you are investing in commercial real estate, there are many benefits associated with choosing a net lease over a gross lease. These two types of leases are essentially opposites. With a gross lease, a tenant pays a decided-upon amount in order to rent a space. That amount doesn’t change depending on operating expenses, as with gross leases, landlords cover operating costs. On the flip side, net leases let landlords pass operating expenses over to their tenants, making them attractive from an investment perspective.

You can find net leases in single, double, and triple forms. These tiers are also called N, NN, and NNN leases. As the number of N’s rises, the lease will allow landlords to hand more and more expenses off to the tenant, absolving themselves of additional risk as the tiers increase.

Single-net leases, or N leases, will render the tenant responsible for property taxes in addition to rent, but the landlord will still be on the hook for insurance, maintenance, repairs, and utilities. Single-net leases are less common for commercial real estate. Double net leases, or NN leases, and triple net leases, or NNN leases, are much more frequently used.

What Types of Net Leases Does DaVita Operate Under?

Most DaVita locations have NNN leases with 15-year initial terms. NNN leases are generally seen as optimal for commercial real estate investors due to the minimal landlord responsibilities that they entail. NNN leases hold tenants accountable for all of the property’s operating expenses, including insurance, taxes, and structural maintenance or repair costs.

When an NNN lease is in play, tenants like DaVita will typically pay a lower base rent. That is because they are the responsible party for other operating costs. But even with reduced base rent, NNN leases are still the most attractive option for investment properties because they reduce the property management burden by way of passing most responsibilities to tenants.

How to Evaluate a DaVita Net Lease

When looking at NNN lease properties, it is imperative to review both property value and tenant strength, as each of these factors will play into long-term success. This is especially important when reviewing single-tenant properties, like the ones DaVita typically prefers, as your tenant concentration can be only 100% or 0%. In other words, you will gain 100% of your potential cash flow with the property if it’s occupied or none if it is not.

To set yourself up for success with a DaVita NNN lease, you will need to ensure that the site matches DaVita’s preferred qualifications. If you recall, that means locations in suburban areas along major roadways. DaVita also looks for sites near hospitals or medical offices and requires ample parking, high visibility, and easy entrance and exit from the lot.

Ensuring your location meets these criteria is especially necessary because of the unique nature of these properties. DaVita sites are often built-to-fit and are tailored specifically to the medical industry, so these buildings can be difficult to fill if DaVita should move out. But choosing an optimal site can make that occurrence much less likely.

That said, NNN lease tenants like DaVita tend to be larger companies with strong balance sheets. The company’s financials might seem like a relatively small consideration, but choosing a highly qualified tenant is the first step toward getting paid on time each month. You don’t want to have to waste your time tracking down low-tier tenants when rent is due.

What Makes DaVita an Attractive NNN Tenant?

While DaVita has taken on a lot of debt, that shouldn’t scare you away from this tenant. Most of the company’s debt comes from repurchasing its publicly traded shares. From 2018 to 2021, DaVita repurchased more shares than its free cash flow earnings, which increased its net debt. So why is that a good thing?

Well, general knowledge of the markets tells us that when a company repurchases their own shares, they’re confident about growth in the future. It looks like the corporation’s leadership is optimistic about DaVita’s projections in the years to come. Plus, the current numbers are nothing to sneeze at. In fiscal 2022, DaVita’s annual gross profit clocked in at $3.4 billion.

In terms of the company’s credit score, S&P Global Ratings awarded DaVita an investment-grade rating of BB. Moody’s gave the company a long-term rating of Ba2. Both of these values are promising and indicate that the company is likely on the upswing as the demand for kidney care treatments and dialysis continues to rise.

Overall, DaVita is a high-quality, investment-grade tenant with an accessible price point that makes it an attractive option for any net lease investor.

Other NNN Lease Investment Tenants to Consider:

Burger King
Dollar General
Home Depot