Bank of America Tenant Overview
Pros
- Investment grade tenant
- Leases afford rental increases throughout the primary term, many with annual rental increases
- Generally well located, either as out parcel to grocery anchored shopping center or urban city center
Cons
- Retail banking industry outlook on necessity of physical locations is evolving
- When located as a part of a shopping center, some use restrictions may apply
Earnings Highlights
- Net income rose 19% to $7.4 billion, or $0.88 per diluted share, compared to $6.2 billion, or $0.73 per diluted share for Q2-22
- Revenue, net of interest expense, increased 11% to $25.2 billion – Net interest income (NII) up $1.7 billion, or 14%, to $14.2 billion ($14.3 billion FTE)(C), driven primarily by benefits from higher interest rates and loan growth
Tenant Description
Bank of America (NYSE: BAC) is an American multinational banking and financial services corporation headquartered in Charlotte, North Carolina. As the second-largest bank in the United States by assets, holding $2.35 trillion, Bank of America boasts a formidable presence in the financial sector. With operations in 35 countries and relationships with 99% of the U.S. Fortune 500 companies and 83% of the Fortune Global 500, the bank is a cornerstone of the global financial landscape.
Strength and Stability
Despite facing challenges during the banking crisis and the Great Recession, Bank of America has maintained its strength through substantial deposits and dominant market share. Its highly visible locations in both urban and suburban settings have made it a preferred choice among net lease investors. These sites are generally situated on one-acre plots with building improvements ranging from 4,000 to 6,000 square feet, typically sold as unsubordinated ground leases to net lease investors.
Attractive Lease Terms
Bank of America's ground leases are particularly appealing to investors due to their stability and passive nature. In a ground lease, the investor/landlord owns the land, and the tenant constructs the building, usually costing around $1.3 million. The tenant retains ownership of the building until lease termination, at which point the building becomes the property of the investor/landlord. These leases are extremely passive investments and generally sell at 50 to 125 basis points below the average cap rate for NNN "fee simple" ownership of ground and structure transactions leased by the same tenant.
Typical Bank of America ground leases have an initial term of 15 to 20 years, with up to five, five-year renewal options. These leases also provide rent increases of 10-12% every five years, making them a highly attractive and profitable investment option for net lease investors.
Extensive Reach and Market Presence
Bank of America's extensive reach within the U.S. is evidenced by its approximately 66 million customers and small businesses served through 4,300 retail banking offices and around 16,300 ATMs. Additionally, the bank's online banking platform supports 36 million active users, including over 26 million mobile app users. The company’s membership in the Federal Deposit Insurance Corporation (FDIC) and its inclusion in both the S&P 500 Index and the Dow Jones Industrial Average further bolster its credibility and stability.
| Average Sale Price | $3,374,087 |
| NOI | $189,838 |
| $/Square Foot | $562 - $844 |
| Building SF | 4,000 - 6,000 |
| Lot Size | 1.00 Acres |
| Lease Term | 15 - 20 Years |
| Escalations | 10-12% Every 5 Years |
| Stock Symbol | BAC |
| COlorado Springs, CO | 5.00% |
| Surprise, AZ | 6.00% |
| Salisbury, NC | 6.05% |
