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 space’s 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 Aid’s 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.
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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.
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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%
6
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%
9
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%
4
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%
5
Sep-15
Walgreens
Terre Haute
IN
$2,875,000
$213
7.16%
5
Sep-15
Rite Aid
Seneca
SC
$2,550,000
$234
9.20%
5
Sep-15
Rite Aid
Wadsworth
OH
$2,496,240
$222
8.80%
3
Sep-15
Rite Aid
Millen
GA
$2,439,456
$216
7.35%
10
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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
Š 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.
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