Net Lease Drug Store Report

1. THE NET LEASE
DRUG STORE REPORT
Q4 2012
DRUG STORE PROPERTIES MARKET OVERVIEW
MEDIAN ASKING CAP RATES Limited supply of properties continues to be the major issue throughout
the net lease drug store sector. Compared to the second quarter of 2012,
Q2 2012 Q4 2012 Basis Point
Tenant (Previous) (Current) Change the fourth quarter experienced a dramatic 56% decline in the amount
Walgreens 6.45% 6.40% -5 of net lease drug stores available. More specifically, there was a 62%
decrease in the supply of recently developed drug stores within the
CVS 6.70% 6.60% -10 same time period. Median asking cap rates in the net lease drug store
Rite Aid 9.20% 9.00% -20 sector compressed for all major pharmacy properties (Walgreens, CVS
Above numbers include properties of all lease terms. and Rite Aid) from the second quarter of 2012 to the fourth quarter of
2012. Cap rates for Walgreens properties built within the past three
years compressed by 25 basis points over the same time frame. Drug
DRUG STORE PROPERTIES store properties remain in high demand among investors and were
ON THE MARKET priced at a 32 basis point premium to the net lease retail market as a
whole in the fourth quarter of 2012.
Q2 2012 Q4 2012 Percentage
Tenant (Previous) (Current) Change In addition to the constrained development pipeline, corporate
Walgreens 173 86 -50.3% sale-leaseback transactions have been a contributing factor to the
CVS 106 30 -71.7% decreased availability of new construction properties accessible on
Rite Aid 74 38 -48.6% an individual basis. Sale-leaseback drug store property portfolios
have been sold to institutional investors, leaving the private individual
investor with scarce supply.
There has been a recent resurgence in investor activity for Rite Aid
properties. Rite Aid properties are one of the few net lease assets
DRUG STORE PROPERTIES available in the market that can offer longer term leases, limited
MEDIAN ASKING PRICE landlord responsibilities and investor yields over 8%. During the past
two quarters, cap rates for single tenant Rite Aid properties have
Median Asking Median Price
Tenant Price Per Foot decreased by 20 basis points as financing for Rite Aid properties is
Walgreens $5,422,000 $372 more readily available. However, the majority of the investor interest
for Rite Aid properties remains in locations with strong sales histories.
CVS $4,136,220 $369
Rite Aid $2,883,890 $254 Transaction volume remains heavily concentrated in recently
constructed Walgreens and CVS properties; however with the cap
rates at historic lows for these assets investors will evaluate older
Walgreens or CVS properties with strong sale performance. Given
the lack of newly constructed drug stores with over 20 years of lease
term, 1031 investors will have challenging time finding these assets.
The net lease drug store sector will continue to command a premium
as investors gravitate towards recognizable tenants, well located real
estate and the positive fundamentals of the pharmacy industry.
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2. THE NET LEASE
DRUG STORE REPORT
Q4 2012
MEDIAN ASKING CAP RATE BY BUILDING AGE
Year Built Walgreens CVS Rite Aid
2010-2012 5.75% 6.00% 8.35%
2005-2009 6.08% 6.14% 8.50%
2000-2004 6.91% 7.25% 8.75%
1995-1999 7.45% 7.75% 10.12%
Before 1994 8.10% 8.79% 10.45%
MEDIAN ASKING CAP RATE BY PROPERTY TYPE
Property Type Walgreens CVS Rite Aid
Ground Lease 5.31% 5.50% 7.75%
Fee Simple 6.50% 6.80% 9.00%
MEDIAN NATIONAL ASKING VS. DRUG STORE VS. RETAIL NET LEASE
CLOSED CAP RATE SPREAD MARKET CAP RATE
Q2 2012 Q4 2012
Tenant Closed Asking Spread (bps) Tenant (Previous) (Current)
Walgreens 6.28% 6.10% 18 Drug Store 7.00% 6.93%
CVS 6.40% 6.12% 28 Retail Net Lease Market 7.50% 7.25%
Rite Aid 9.35% 9.00% 32 Drug Store Premium (bps) 50 32
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3. THE NET LEASE
DRUG STORE REPORT
Q4 2012
COMPANY AND LEASE OVERVIEW
Walgreens CVS Rite Aid
Credit Rating BBB (Stable) BBB+ (Stable) B- (Stable)
Market Cap $39 billion $64 billion $1 billion
Revenue $70 billion $123 billion $26 billion
2013 Stores Planned 175 186 N/A
(Company estimates)
Number of Stores 8,516 7,458 4,633
Typical Lease Term 20 or 25 year primary term with 25 year primary term with six 20 year primary term with six
fifty years of options 5-year options 5-year options
Typical Rent Increases None None in primary 10% increases in Increases every 10 years of 10%
option periods
FOR MORE INFORMATION
AUTHOR
John Feeney | Research Director
john@bouldergroup.com
CONTRIBUTORS
Randy Blankstein | President Jimmy Goodman | Partner Chad Gans | Research Analyst
rblank@bouldergroup.com jimmy@bouldergroup.com chad@bouldergroup.com
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