The Boulder Group Publishes Net Lease Drug Store Research Report

1. 666 Dundee Road, Suite 1801
Northbrook, IL 60062
www.bouldergroup.com
THE NET LEASE
DRUG STORE REPORT
Q3 2014
Q1 2014 Q3 2014 Basis Point
Sector (Previous) (Current) Change
Walgreens 5.60% 5.60% 0
CVS 5.90% 5.75% -15
Rite Aid 7.75% 7.40% -35
DRUG STORE PROPERTIES
ON THE MARKET
Q1 2014 Q3 2014 Percentage
Sector (Previous) (Current) Change
Walgreens 131 169 +29.0%
CVS 45 74 +64.4%
Rite Aid 33 36 +9.1%
DRUG STORE PROPERTIES
MEDIAN ASKING PRICE
Median Asking Median Price
Sector Price Per Foot
Walgreens $6,776,000 $467
CVS $5,318,749 $419
Rite Aid $3,240,000 $290
MARKET OVERVIEW
Cap rates for CVS and Rite Aid properties reached their historic low in
the net lease drug store sector in the third quarter of 2014. Walgreens
cap rates remained stable at their previously reached historic low level
in the first quarter of 2014. While the overall cap rates for Walgreens
properties held steady; cap rates for Walgreens properties with more
than 20 years of lease remaining compressed by 20 basis points to
5.30%. These levels can be attributed to the low interest rate environment
coupled with high demand amongst 1031 exchange buyers for long
term leased properties.
With cap rates for Walgreens and CVS at all-time low levels, the ratio
of long term leased drug store properties (20+ years) to the total supply
has decreased by 15%. In the first quarter of 2014, long term leased
Walgreens and CVS properties accounted for 50% of the market
compared to 35% in the third quarter of 2014. Walgreens recent change
from 25 year initial lease terms to 20 year initial lease terms has left a
limited supply of drug stores with more than 20 years left on the lease.
The supply of net lease drug store properties increased across all
three major tenants by 33% in the third quarter of 2014. Most notably,
properties tenanted by CVS experienced the largest increase, with
an overall gain of 64%. The biggest contribution to the supply of CVS
properties is from former zero cash flow properties where the owner
has defeased the fully amortizing loan.
Cap rates for Rite Aid properties continued to compress as investors
value the additional yield associated with Rite Aid. The additional yield
is attributed to Rite Aid not being an investment grade rated company
similar to Walgreens or CVS. However, with a limited supply of Rite Aid
properties available (13% of the net lease drug store sector) owners
have been aggressively pricing their assets as evidenced by the 35
basis point decline in cap rates since the first quarter.
Transaction velocity for 2015 across the net lease drug store sector
should remain at a similar pace to 2014 as drug stores continue to be
at the forefront of investor demand. As cap rates for new construction
properties with long term leases continue to compress, expect 1031
exchange buyers and private investors to remain the primary buyer.
DRUG STORE PROPERTIES
MEDIAN ASKING CAP RATES
Above numbers include properties with all lease lengths.

2. 666 Dundee Road, Suite 1801
Northbrook, IL 60062
www.bouldergroup.com
THE NET LEASE
DRUG STORE REPORT
Q3 2014
MEDIAN ASKING CAP RATE BY LEASE TERM REMAINING
Term Remaining Walgreens CVS Rite Aid
20+ 5.30% 5.50% N/A
15-19 5.60% 5.55% 6.50%
10-14 5.90% 5.75% 7.00%
6-9 6.38% 6.32% 8.00%
5 & Under 7.00% 7.13% 8.25%
MEDIAN ASKING CAP RATE BY PROPERTY TYPE
Property Type Walgreens CVS Rite Aid
Ground Lease 4.75% 5.00% 6.00%
Fee Simple 5.60% 5.75% 7.40%
Leasehold 6.80% 7.00% 8.10%
MEDIAN NATIONAL ASKING VS. CLOSED
CAP RATE SPREAD
Tenant Asking Closed Spread (bps)
Walgreens 5.57% 5.81% 24
CVS 6.00% 6.20% 20
Rite Aid 7.32% 7.86% 54
DRUG STORE VS. RETAIL NET LEASE
MARKET CAP RATE
Q1 2014 Q3 2014
Tenant (Previous) (Current)
Drug Store 5.90% 5.75%
Retail Net Lease Market 6.75% 6.50%
Drug Store Premium (bps) 85 75

3. 666 Dundee Road, Suite 1801
Northbrook, IL 60062
www.bouldergroup.com
THE NET LEASE
DRUG STORE REPORT
Q3 2014
Walgreens CVS Rite Aid
Credit Rating BBB (Stable) BBB+ (Stable) B (Stable)
Market Cap $62 billion $99 billion $5 billion
Revenue $76 billion $132 billion $26 billion
2014 Stores Planned 150 150 N/A
Number of Stores 8,794 7,779 4,581
Typical Lease Term 20 or 25 year primary term with
fifty years of options
25 year primary term with six 5-year
options
20 year primary term with six
5-year options
Typical Rent Increases None None in primary
10% increases in option periods
Increases every 10 years of
10%
COMPANY AND LEASE OVERVIEW
FOR MORE INFORMATION
AUTHOR
John Feeney | Vice President
john@bouldergroup.com
Randy Blankstein | President
randy@bouldergroup.com
Jimmy Goodman | Partner
jimmy@bouldergroup.com
Jordan Kaufman | Vice President
jordan@bouldergroup.com
(Company estimates)
© 2014. The Boulder Group. Information herein has been obtained from databases owned and maintained by The Boulder Group as well as third party sources. We have not verified the information
and we make no guarantee, warranty or representation about it. This information is provided for general illustrative purposes and not for any specific recommendation or purpose nor under any
circumstances shall any of the above information be deemed legal advice or counsel. Reliance on this information is at the risk of the reader and The Boulder Group expressly disclaims any liability
arising from the use of such information. This information is designed exclusively for use by The Boulder Group clients and cannot be reproduced, retransmitted or distributed without the express
written consent of The Boulder Group.
Zach Wright | Research Analyst
zach@bouldergroup.com
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