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THE NET LEASE

DRUG STORE REPORT


Q3 2015
DRUG STORE PROPERTIES
MEDIAN ASKING CAP RATES

MARKET OVERVIEW

Q3 2014
(Previous)

Q3 2015
(Current)

Basis Point
Change

Walgreens

5.60%

5.50%

-10

CVS

5.75%

5.45%

-30

Rite Aid

7.40%

6.63%

-77

Sector

Above numbers include properties with all lease lengths.

DRUG STORE PROPERTIES


ON THE MARKET

Sector

Q3 2014
(Previous)

Q3 2015
(Current)

Percentage
Change

Walgreens

169

203

+20.1%

CVS

74

95

+28.4%

Rite Aid

36

43

+19.4%

DRUG STORE PROPERTIES


MEDIAN ASKING PRICE
Sector

Median Asking
Price

Median Price
Per Foot

Walgreens

$6,700,000

$460

CVS

$5,340,460

$438

Rite Aid

$3,995,000

$357

Cap rates for single tenant CVS, Rite Aid and Walgreens properties
reached a new historic low in the net lease drug store sector in the third
quarter of 2015. Cap rates continued to decline as investors flock to
the net lease spaces cornerstone asset, drug stores. With historically
low cap rates, the drug store property supply has increased drastically
by over 20% as owners attempt to take advantage of unprecedented
high values. While overall cap rate levels experienced compression,
short term leased Rite Aid properties with 5-9 years of lease term
remaining had the greatest cap rate compression of 85 basis points
in the third quarter of 2015. New construction CVS properties
experienced the second greatest compression of 50 basis points
to a 5% cap rate, the same level for new construction Walgreens
assets. These levels can be attributed to the historically low interest
rate environment coupled with high demand amongst 1031 exchange
buyers for long term leased properties in a market constrained by
limited expansion plans for drug stores tenants.
With cap rates for Walgreens and CVS at all-time low levels, the ratio
of long term leased drug store properties (20 years or more) to the
total supply has decreased when compared to the third quarter of
2014 and total overall supply of long term leased drug stores declined
by 27% in the same time period.
As Rite Aids financial strength improves, investors have gained
interest in the extra yield associated with Rite Aid properties. The
additional yield is attributed to Rite Aid not being an investment grade
rated company similar to Walgreens or CVS. However, with improving
company fundamentals, cap rates for Rite Aid properties decreased
by 77 basis points since the third quarter of 2014.
Transaction velocity for 2016 in the net lease drug store sector should
remain at a similar pace to 2015 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. It
has become increasingly difficult for institutional investors to acquire
long term leased drug stores due to the low cap rates associated with
these properties. Additionally, investors searching for higher yields for
drug store properties will seek short term leased assets with strong
store sales.

www.bouldergroup.com

THE NET LEASE


DRUG STORE REPORT
Q3 2015
MEDIAN ASKING CAP RATE BY LEASE TERM REMAINING
Term Remaining

Walgreens

CVS

Rite Aid

20+

5.00%

5.00%

6.15%

15-19

5.50%

5.25%

N/A

10-14

5.60%

5.83%

6.65%

6-9

6.75%

6.60%

7.15%

5 & Under

6.90%

7.00%

8.00%

CVS

Rite Aid

MEDIAN ASKING CAP RATE BY PROPERTY TYPE


Property Type

Walgreens

Ground Lease

5.05%

4.85%

N/A

Fee Simple

5.50%

5.25%

6.63%

Leasehold

6.88%

7.00%

N/A

MEDIAN NATIONAL ASKING VS. CLOSED


CAP RATE SPREAD

DRUG STORE VS. RETAIL NET LEASE


MARKET CAP RATE
Q3 2014
(Previous)

Q3 2015
(Current)

Drug Store

5.75%

5.49%

19

Retail Net Lease Market

6.50%

6.25%

21

Drug Store Premium (bps)

75

76

Tenant

Closed

Asking

Spread (bps)

Walgreens

6.23%

6.00%

23

CVS

5.92%

5.73%

Rite Aid

6.93%

6.72%

Tenant

Above numbers are only reflective of closed transactions.

www.bouldergroup.com

THE NET LEASE


DRUG STORE REPORT
Q3 2015
SELECTED SINGLE TENANT SALES COMPARABLES
Sale
Date

Tenant

City

Price
Per SF

Cap
Rate

Lease Term
Remaining

Sep-15

Walgreens

Anchorage

AK

Oct-15

CVS

Plano

TX

$11,600,000

$783

5.22%

19

$10,202,589

$699

4.82%

Aug-15

CVS

Niskayuna

NY

21

$10,200,000

$750

5.32%

21

Sep-15

CVS

Ballston Spa

Aug-15

CVS

Oxford

NY

$8,993,000

$680

5.00%

20

MS

$8,690,000

$657

5.10%

Aug-15

Walgreens

Minneapolis

23

MN

$8,275,000

$591

5.45%

Jul-15

Walgreens

20

Columbus

OH

$7,713,700

$520

5.73%

20

Sep-15
Aug-15

Walgreens

Altoona

PA

$7,599,999

$532

5.50%

19

Walgreens

Levittown

PA

$7,233,644

$488

5.30%

15

Aug-15

Walgreens

Bellingham

WA

$7,089,000

$469

6.35%

Aug-15

Walgreens

Midfield

AL

$7,063,943

$523

5.30%

20

Sep-15

Walgreens

Southington

CT

$7,050,000

$484

5.86%

14

Aug-15

Walgreens

Shawnee

KS

$7,034,339

$465

5.35%

15

Jul-15

Walgreens

Idaho Falls

ID

$6,915,000

$477

5.35%

20

Aug-15

Walgreens

Oklahoma City

OK

$6,634,800

$453

5.75%

15

State

Price

Aug-15

Walgreens

Nashville

TN

$6,562,000

$480

5.80%

14

Aug-15

Walgreens

Kansas City

MO

$6,229,875

$420

5.90%

14

Sep-15

Walgreens

Ypsilanti

MI

$6,000,000

$440

5.80%

17

Sep-15

Walgreens

Tallahassee

FL

$5,900,000

$432

5.50%

14

Oct-15

Walgreens

Midvale

UT

$5,895,000

$400

5.94%

15

Aug-15

Walgreens

Woodway

TX

$5,500,000

$371

5.55%

15

Oct-15

Walgreens

San Bernardino

CA

$5,400,000

$364

5.30%

15

Aug-15

CVS (GL)

Glenview

IL

$5,220,000

$395

4.50%

25

Sep-15

CVS

Clermont

FL

$5,175,000

$375

5.72%

Sep-15

Rite Aid

Boston

MA

$5,000,000

$366

5.48%

13

Aug-15

CVS

Vallejo

CA

$4,880,625

$296

4.30%

25

Sep-15

Rite Aid

Durham

NC

$4,548,000

$357

7.75%

Sep-15

Walgreens

Lewisburg

TN

$4,378,700

$297

6.10%

15

Sep-15

Walgreens

Natchitoches

LA

$4,350,000

$294

5.90%

15

Aug-15

Walgreens

Ramseur

NC

$3,800,000

$376

6.70%

10

Aug-15

Walgreens

Mesa

AZ

$3,680,000

$237

5.90%

10

Aug-15

Rite Aid

Thomasville

GA

$3,402,773

$305

6.90%

10

Aug-15

CVS (GL)

Bonita Springs

FL

$3,269,904

$334

6.75%

Sep-15

Walgreens

Terre Haute

IN

$2,875,000

$213

7.16%

Sep-15

Rite Aid

Seneca

SC

$2,550,000

$234

9.20%

Sep-15

Rite Aid

Wadsworth

OH

$2,496,240

$222

8.80%

Sep-15

Rite Aid

Millen

GA

$2,439,456

$216

7.35%

10

www.bouldergroup.com

THE NET LEASE


DRUG STORE REPORT
Q3 2015
COMPANY AND LEASE OVERVIEW
Walgreens

CVS

Rite Aid

Credit Rating

BBB (Stable)

BBB+ (Stable)

B (Positive)

Market Cap

$91 billion

$112 billion

$6 billion

Revenue

$93 billion

$145 billion

$27 billion

2015 Stores Planned

150

150

N/A

Number of Stores

8,207

7,822

4,600

Typical Lease Term

20 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 estimates)

FOR MORE INFORMATION


AUTHOR
John Feeney | Vice President
john@bouldergroup.com

CONTRIBUTORS
Randy Blankstein | President

Jimmy Goodman | Partner

Zach Wright | Analyst

Scott Harris | Analyst

randy@bouldergroup.com

jimmy@bouldergroup.com

zach@bouldergroup.com

scott@bouldergroup.com

2015. 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.

www.bouldergroup.com