Dallas Fort Worth Industrial PROPERTY TAX BENCHMARK REPORT

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1 Dallas Fort Worth Industrial PROPERTY TAX BENCHMARK REPORT altusgroup.com

2 DISCLAIMER This publication, or any part thereof, may not be reproduced or transmitted in any form by any means without the express written permission of Altus Group in each specific instance. The material in this document has been prepared by Altus Group based on its data and experience. This information is believed to be accurate at the time of its preparation; however, no responsibility can be taken for errors or omissions. Any advice contained herein is of a general nature and should not be relied upon unless confirmed with Altus Group. Altus Group makes no representation about the accuracy, completeness or suitability of the material represented herein for the particular purpose of any reader.

3 PROPERTY TAX BENCHMARK REPORT Table of CONTENTS Industrial Overview...4 Dallas Fort Worth Tax Rates-What s in a rate?...5 Trend Analysis...6 Map of Regions...8 Recommendations & Conclusion

4 DALLAS FORT WORTH INDUSTRIAL Industrial OVERVIEW The Dallas-Fort Worth (DFW) industrial real estate sector has seen tremendous growth over the past few years and has been touted as one of the best in the nation for industrial development and investment. As a result, the market has seen record purchase prices, compression of capitalization rates, rental rate increases and vacancy rates that remain historically low. From a trade perspective, DFW encompasses attractive attributes such as; proximity to major gulf ports, DFW intermodal hubs, Dallas Fort Worth International Airport, Alliance Airport, and major highways connecting the metropolitan area to numerous population centers. The overall fundamentals of the area have attracted a national audience and enticed numerous national companies to relocate their headquarters. According to the Federal Reserve Bank of Dallas and the Bureau of Labor Statistics, the Dallas-Fort Worth economy saw rapid expansion in The region welcomed nearly 400 new residents daily and added more than 100,000 new jobs, bringing employment up 2.8%. Impressively, 22% of those jobs can be attributed to the industrial sector. Population growth, corporate relocations, an evolving retail landscape and changing consumer behavior bode well for the industrial sector. The South Dallas and North Fort Worth markets have seen record development in recent years with a favorable forecast of continued growth. The metro area s bright future and strong economy is great news for the area with the exception of one major detail the economic growth inevitably means higher property taxes for commercial property. JOB GROWTH RATE FOR 12 LARGEST METROS 3.0% 2.8% 2.5% 2.0% 1.5% 1.4% 1.5% 1.6% 1.7% 2.0% 2.1% 2.2% 2.2% 1.0% 0.5% 0.6% 0.8% 0.9% 1.0% 0.0% U.S. Chicago Los Angeles New York Philadelphia Washington D.C. Houston San Francisco Miami Atlanta Boston Phoenix Dallas 2017 Job Growth Rate 4

5 PROPERTY TAX BENCHMARK REPORT Dallas Fort Worth Tax Rates- WHAT S IN A RATE? Property taxes are the product of the assessed value assigned to a specific property multiplied by the total tax rate adopted for that year. In its most simplistic form a typical tax rate in Texas consists of a county, city, and school district rate. These rates are combined to create a total tax rate. Property taxes are used to fund local government activity. It is the job of the local appraisal district to appraise property in their county, finalize a tax roll, and submit these tax rolls to the appropriate jurisdictions. Jurisdictions then take the tax roll (a total of all assessed property in a jurisdiction) create a budget for the following year and arrive at the tax rate needed to fund the budget. In a perfect world if a district has a total net increase across the board on properties assessed in that area, these jurisdictions would apply a lower tax rate to collect the same amount of tax dollars to fund the budgets as the prior year. However, taxing jurisdictions have been slow to respond and lower their tax rates even with noticeable increases in assessed value. The following graphs illustrate historical tax rates in the Dallas Fort Worth Metropolitan area. DFW TOTAL AVERAGE TAX RATE 2.75% 2.70% T AX RATE 2.65% 2.60% 2.55% 2.50% Tax Year DFW AVERAGE TAX RATES 2% 1.5% 1% 0.5% 0% County Average City Average School Average The total tax rate is the sum of three components The school district portion of the tax rate has been the driver in the increase of the overall tax rate in Dallas and Tarrant County. From 2013 to 2017 there was an average increase of 3.37% in the school district rate, while the county and city portions remained relatively unchanged. 5

6 DALLAS FORT WORTH INDUSTRIAL Trend ANALYSIS DFW Industrial Assessed Value and Tax Trends Altus Group tracks a large sample of industrial properties across Dallas and Tarrant County and breaks down geographic regions into submarkets. These submarkets represent clusters of similar properties in which we are able to develop trends as it relates to tax rates and assessed valuations. Altus Group keeps record of areas where there are concentrations of institutional quality industrial assets DFW INDUSTRIAL ASSESSED VALUE PSF.00 North Fort Worth South Fort Worth DFW Airport Great Southwest North Stemmons South Stemmons South Dallas Northeast/East Dallas 2017 ASSESSED VALUE PSF $ South Fort Worth Great Southwest South Stemmons North Fort Worth Northeast/East Dallas North Stemmons South Dallas DFW Airport Overall, the ongoing trend of increasing assessed valuations continued through 2017 with no change predicted for the foreseeable future. The trend reflects the positive fundamentals in the Dallas Fort Worth industrial market. The DFW Airport submarket assessed values are noticeably higher than others due to the concentration of newer, flex style buildings which command higher rental rates and primarily consist of higher quality interior finishes. 6

7 PROPERTY TAX BENCHMARK REPORT DFW INDUSTRIAL TAX PSF $0.50 North Fort Worth South Fort Worth DFW Airport Great Southwest North Stemmons South Stemmons South Dallas Northeast/East Dallas Tax PSF $0.50 South Fort Worth Great Southwest South Stemmons 2017 TAX PSF North Fort Worth Northeast/East Dallas North Stemmons South Dallas DFW Airport Tax Per Square Foot (PSF) assessed on industrial properties across the metropolitan area reflect a combined increase in assessed valuations as well as an average increase in tax rates. The average tax rate between Tarrant and Dallas County in 2013 was 2.65% and in 2017 the average was 2.70%. This represents a 1.88% increase over the five year period. The combination of rising values for industrial properties and relatively stable tax rates has resulted in a rise in property taxes from of 23.15%. x = Property Tax Rate Property Assessment Value Total Property Tax Bill 7

8 DALLAS FORT WORTH INDUSTRIAL Dallas-Fort Worth MAP OF REGIONS NORTH FORT WORTH INDUSTRIAL SOUTH FORT WORTH INDUSTRIAL $33.98 $33.13 $ $0.98 $0.96 $0.91 $0.89 $0.88 $29.15 $26.49 $23.34 $23.59 $23.60 $0.81 $0.75 $0.66 $0.67 $0.68 Value PSF Tax PSF Value PSF Tax PSF 8

9 PROPERTY TAX BENCHMARK REPORT DFW AIRPORT INDUSTRIAL $44.69 $ $41.35 $39.66 $1.13 $1.11 $1.03 $1.04 Value PSF Tax PSF GREAT SOUTHWEST INDUSTRIAL $31.25 $29.63 $28.10 $27.97 $27.86 $0.83 $0.76 $0.76 $0.77 Value PSF Tax PSF NORTH STEMMONS INDUSTRIAL SOUTH STEMMONS INDUSTRIAL $38.09 $ $31.31 $32.72 $1.02 $1.05 $0.95 $0.89 $0.86 Value PSF Tax PSF $32.86 $31.32 $29.36 $ $0.89 $0.85 $0.75 $0.69 Value PSF Tax PSF SOUTH DALLAS INDUSTRIAL NORTHEAST/EAST DALLAS INDUSTRIAL $ $0.84 $34.21 $0.96 $37.72 $1.05 $39.75 $1.08 $28.27 $31.28 $0.83 $ $0.99 $36.50 $1.02 $0.73 $0.75 Value PSF Tax PSF Value PSF Tax PSF 9

10 DALLAS FORT WORTH INDUSTRIAL RECOMMENDATIONS Implement Proactive Budgeting Due to the complex nature of the taxing industry which can differ from state to state, it is recommended that owners employ a firm with expertise in property tax matters to handle the appeal process on their behalf and to assist them in proactively budgeting for future cycles. An expert can prudently analyze these budgets based on a depth of knowledge and experience in dealing with assessing authorities. This can be a crucial component in the overall anticipated performance of a portfolio. Begin Benchmarking There are numerous factors that are considered when assessing a property in Texas. Fair and equitable treatment is a defense widely used to ensure a just valuation. Benchmarking a property against similar assets allows for outliers to be spotted more easily. HOW TO PLAN FOR WHAT TO EXPECT? Industrial values and taxes can be expected to increase again in 2018 based on the strong market fundamentals and aggressive appraisal districts. CONCLUSION For many commercial property owners taxes can account for as much as 40-50% of operating expenses. Having a thorough understanding of tax and valuation trends in a market can be a crucial decision making tool at numerous stages of the investment lifecycle whether that is during development, acquisition, lease negotiations, or disposition. Altus Group represents commercial property owners to ensure a fair valuation by the local taxing authority. Our understanding of local tax codes and procedures help our clients make more informed decisions. Altus Group is a leading provider of independent advisory services, software and data solutions to the global commercial real estate industry. Our businesses, Altus Analytics and Altus Expert Services, reflect decades of experience, a range of expertise, and technology-enabled capabilities. Our solutions empower clients to analyze, gain insight and recognize value on their real estate investments. Headquartered in Canada, we have approximately 2,500 employees around the world, with operations in North America, Europe and Asia Pacific. Our clients include some of the world s largest real estate industry participants. Altus Group pays a quarterly dividend of $0.15 per share and our shares are traded on the TSX under the symbol AIF. 10

11 PROPERTY TAX BENCHMARK REPORT Texas Property Tax Calendar January 1 Valuation date for all property January 31 Final day to pay prior year taxes April 1 Deadline Date Change April 15 NEW! Filing deadline for business personal property renditions in counties with freeport exemptions. A 30 day extension may be granted if requested in writing. Filing deadline for business personal property renditions in counties without freeport exemptions. A 30 day extension maybe requested in writing. May 15 Deadline Date Change NEW! Deadline to appeal all property assessed values (or by 30 days after the date assessment notices are mailed, whichever is later) June 1 - July 15 County Appraisal Review Board (ARB) hearings July 25 Chief Appraiser certifies tax roll and delivers values to taxing jurisdictions October Taxing jurisdictions mail current year tax statements Altus Group makes no representation or warranty regarding the accuracy, currency, completeness, or relevance of this information. Do not use this information as substitution for consultation with professional advisers. Before making any decisions or taking any action you should obtain professional advice relevant to your particular circumstances. January 2018 Mike Fritz Senior Director, Property Tax Altus Group mike.fritz@altusgroup.com Mark Wood Director, Property Tax Altus Group mark.wood@altusgroup.com Matt Edgar Senior Consultant Altus Group matt.edgar@altusgroup.com 11

12 DALLAS FORT WORTH INDUSTRIAL Dallas Fort Worth Industrial PROPERTY TAX BENCHMARK REPORT altusgroup.com 12