Walgreens, CVS, along with also Rite Aid - What RE Investors Should Know
There are 3 major drugstore chains inside US: Walgreens, CVS, along with also Rite Aid. Below are some key statistics about the 3 major drugstore chains as of 2012:
1. Walgreens ranks first with market cap of $28.51 Billion, $72.2 Billion in 2011 total revenue ($45.1B by prescription revenues), along with also an S&P rating of A. According to Walgreens, 75% of the US population lives within 3 miles by its stores. In April 2010, the idea acquired 258 Duane Reade drug stores in fresh York Metropolitan area which brings a total of 7841 drug stores Walgreens operates as of February 2012, including 137 hospital on-site pharmacies.
2. CVS ranks second with market cap of $56.56 Billion, $107.1 Billion in revenue ($40.5 Billion by CVS prescription revenues along with also $16.1B by its Caremark prescription mail order revenue), along with also an S&P rating of BBB+. As of December 31, 2011, CVS operates 7404 drug stores.
3. Rite Aid ranks third (fourth, behind Walmart in terms of prescription revenues) with market cap of $1.49 Billion, $26.1 Billion in revenue ($17.1B by prescription revenues), operates 4714 drug stores as of February 2011 along with also has an S&P rating of B-.
Investors purchase properties occupied by these drugstore chains for the following reasons:
1. The drugstore business is actually very recession-insensitive. People need medicine when they are sick, regardless of the state of the economy. Both rich along with also poor people inside US have access to medicine. Some even argue of which low-income people use more medicine due to free or low-cost drugs offered by government-assisted programs. So the tenants should do well during tough time along with also have money to pay rent to landlords.
2. The drugstore business incorporates a not bad prospect inside US:
· People are living longer along with also need more medicine to sustain longevity, e.g. Actonel for osteoporosis, Aricept for Alzheimer's symptoms. Older people tend to use more medicine than younger ones as they often have more medical problems. As the 78 million baby boomers are getting closer to retiring age starting by 2008, the drugstore chains anticipate the demand for medicine to enhance in next 20 years.
· The drug market continues to expand as the US population continues to grow. More along with also more Americans suffer by various diseases. The number of Americans suffers by seasonal allergies doubled inside last 15 years to 37 million people per Fortune magazine. They spent $5.4 Billion in 2009 for allergy drugs. As their waist lines balloon (75% of Americans are forecasted to be either overweight or obese by 2020), more Americans are diagnosed with diabetes, along with high cholesterol at younger along with also younger ages. In addition, doctors also recommend treating various diseases sooner than later due to better understanding about the diseases. For example, doctors at This kind of point prescribe antiretroviral drugs for patients soon after infected with HIV virus instead of waiting for the infection to become AIDS. More doctors combine insulin with oral medicines to treat type-2 Diabetes instead of just oral medicines alone. All these factors increase the size of the drug market.
· Advance in genetic engineering has introduced various fresh genetic DNA testing kits which allow the genetic diagnosis of vulnerabilities to inherited diseases along with also disorders. Genetic testing is actually currently the highest growth segment inside diagnostics industry. Some of these genetic tests will probably transform into direct-to-consumer testing kits available in drug stores inside near future.Upon FDA approval, these fresh products will potentially bring in additional revenue for drug stores.
· Using a fresh method of tailoring molecules called structure-based design; drug companies come up with fresh medicines of which they might not have discovered otherwise, e.g. Xalkori by Pfizer to treat lung cancer.
· The passage of Health Care Reform Bill on March 23, 2010 provides insurance coverage to an estimated 33 million more American. This kind of is actually a great present to the drugstore industry.
· There are fresh drugs to treat previously untreatable illnesses, along with also fresh diseases, e.g. Viagra for men's unhappiness, Avastin for colon cancer, Herceptin for breast cancer,. The fresh medicines are very expensive, e.g. a year's supply of Avastin costs about $55,000. Eli Lilly has sold about $4.8 billion of Zyprexa in 2007 for schizophrenia along with also yet most people have never heard of This kind of medicine.
· There are existing drugs at This kind of point approved to treat fresh illnesses thereby increase their sales revenue. For example, Lyrica was originally intended to treat pain caused by nerve damagein people with diabetes. the idea is actually at This kind of point approved by FDA to treat Fibromyalgia which affects 5.8 million Americans per WebMD.
· Big advances in genetics, biology along with also stem cells research are required to produce a fresh class of drugs to treat diabetes, Parkinson's along with also various rare genetic disorders. For example the fresh drug Ilaris by Novartis targets genetic causes of an inherited disorder of which there are only 7000 known cases worldwide. However, Novartis hopes to gradually broaden its drugs to a blockbuster drug to more common disorders caused by similar genetics.
· Technology along with also modern life introduce along with also require fresh products, e.g. pregnancy test kits, Lamisil for stronger clearer toe nails, Latisse for longer & thicker eyelashes, Propecia for male hair loss, Premarin for menopausal symptoms, diabetic monitors, electronic toothbrushes, contact lenses, lenses cleaners, diet pills, vitamins, birth-control pills, IUDs, nutrition supplements along with also Cholesterol-lowering pills (Americans spent nearly $26B in 2006 on Cholesterol medications alone per IMS Health, a Connecticut-based consulting company of which monitors pharmaceutical sales.)
· Before the customers can get to the medicine aisles or pharmacy counters, they have to pass by chocolates, sodas, digital cameras, watches, toys, dolls, beers along with also wines, cosmetics, video games, flowers, fragrances, along with also greeting cards. Drug stores wish you use the one-hour photos services there. The stores also carry seasonal items, e.g. Halloween costumes, along with also "As Seen on TV" merchandise, e.g. Shamwow. As a result, customers buy more than their prescriptions along with also medicine in these drugstores. CVS reported of which non-pharmacy sales represented 30% of the company's total sales in January of 2007. The figure for Walgreens is actually 34% along with also 37% for Rite Aid. Many pharmacy locations are in effect convenience stores especially ones of which are in residential or rural areas. along with also so Walgreens hopes of which customers also pick up WD-40, along with also screwdrivers at its stores instead of at Home Depot; Thai Jasmine rice, along with also fish sauce to avoid a trip to Safeway or Kroger Supermarkets. During the recession, sales of these non-drug items are down as customers buy what they need along with also not what they want. Walgreens tries to reduce the number of items by 4000. the idea also introduces its own private label which has higher profit margins.
· There are more along with also more generic medications on the market as numerous enormously favorite brand-name blockbusters lose their 20-year long patents, e.g. Lipitor (best selling drug inside earth to lower cholesterol) in 2010, Viagra (you know what the idea's for) in 2012. Drugstores prefer to sell generic drugs to customers due to higher profit margins than the brand-name medications.
· Many people are addicted to pain killers, e.g. Hydrocodone/Oxycodone. Per the DEA in 2012, there are 1.5 million American addicted to cocaine yet 7 million addicted to prescription drugs.
· This kind of author estimates of which at least 10% of the dispensed prescription drugs are not used at all along with also sit idle inside medicine cabinets. They are eventually expired along with also thrown away.
3. These companies sign very long-term NNN leases, guaranteed by their corporate assets. This kind of makes the investment inside underlying property fairly low risk, especially for Walgreens having a S&P "A" rating. In fact, these properties are sometimes referred to as investment-grade properties. Once the drugstore chains sign the lease, they pay the rent promptly along with also timely. This kind of author is actually not aware of any properties leased by one of these drugstore chains in which the tenants failed to pay rents. Even when the stores are closed due to weak sales (Walgreens closed 119 stores in 2007), these companies may sublease the properties to additional companies, e.g. Advance Auto Parts along with also continue to pay rents on the master leases.
· A typical Walgreens lease consists of 20-25 year primary term plus 8-10 all 5-year options. During primary term along with also options, there will be no rent increases in most of the leases. This kind of is actually the main disadvantage of investing in Walgreens drugstores.
· A typical CVS lease consists of 20-25 year primary term plus 4-5 all 5-year options. The rent is actually normally flat during the primary term along with also then there is actually a 2.5%-10% rent increase in each 5-year option.
· A typical Rite Aid lease consists of 20-25 year primary term plus 4-8 all 5-year options. The lease often incorporates a rent increase every 5-10 years.
Investment Risks
Although the pharmacy business in general is actually recession-insensitive, there are risks involved in your investment:
1) The main downside about investing in pharmacies is actually there is actually little or no rent bump for a long time, e.g. 20-50 years, especially for Walgreens. So the rent is actually effectively reduced after inflation is actually factored in. This kind of is actually one of the main reasons these properties do not appeal to younger investors, especially when the cap rate is actually low.
2) The 3 drugstore chains at This kind of point have a fresh formidable competitor, Walmart. Walmart sells prescription drugs in more than 4000 Walmart, Sam's Club along with also Neighborhood Market stores in 49 states. As of 2012, Walmart is actually the third largest drug retailer with $17.4B in prescription sales, just ahead of Rite Aid with $17.1B in prescription sales. The retail giant is actually known for launching in 2006 a highly-publicized $4 generic prescription drug program which at This kind of point sells 350 generic medications for a 30-day supply. The actual number of medications is actually less as the medications with different strengths are counted as different medications. For example, Metformin 500 mg, 850 mg, along with also 1000 mg are counted as 3 medications. Walmart probably makes very little profits on these medications if any. However, the marketing campaign--created by Bill Simon, the President along with also CEO of Walmart US, generates a lot of publicity for Walmart. Walmart hopes to draw customers to its stores with additional prescriptions where the idea has higher profit margins. In an unscientific survey with just one brand-name prescription of Lyrica, This kind of author finds the lowest cost at Costco, the highest cost at Walgreens along with also Walmart at the middle. additional drug chains try to counter Walmart in different ways. Target at This kind of point offers the same 350 generic medications for $4 for a 30-day supply. Walgreens incorporates a Prescription drugs club with membership fee which offers 1400 generic medications for as little as $1/week. CVS says the idea will match any offers by its competitors.
3) Chief Business Correspondent Rick Newman by US World & News Report predicted of which Rite Aid might not survive in 2009. Rite Aid is actually still around in 2012. The prediction seems to go away in 2012 as Rite Aid as the idea was able to refinance the long terms debts along with also sales revenue has increased.
4) Drugs are also sold in thousands of supermarkets, Target stores, along with also Costco warehouses. However, there are no drive-through windows at these stores or Walmart to conveniently drop off the prescriptions along with also pick up medicines. Customers will not be able to pick up their prescriptions during lunch hour or after 7PM at Target stores or supermarkets. They need to have membership to buy medicines at Costco. Others may not fill their prescriptions at Walmart because they don't want to mingle with typical Walmart customers who are in lower income brackets. along with also some baby boomers don't want their prescriptions filled at Target or Walmart because there are no comfortable chairs for them to sit down along with also wait for their medicines.
5) Drugs retail business to some degree is actually controlled by the Pharmacy Benefits Managers (PBMs). Customers normally get prescription coverage by their health insurance companies, e.g. Blue Cross. These PBM manage prescription benefits on behalf of the insurance companies. In 2012 Walgreens lost a contract valued at over $5 Billion with Express Scripts, a major PBM. Walgreen revenue was immediately fallen inside first quarter of 2012 as Express Scripts customers cannot fill their prescriptions at Walgreens. The PBMs are also inside drugs retail business via mail orders which do not require leasing expensive retail spaces. The prescription mail orders currently capture over 20% market share of the total prescription revenue. Should customers change their prescription purchase habits to mail orders (there is actually no such evidence in 2012), the idea could have negative impact to the business of drugstore chains.
6) Many leases in areas with hurricanes along with also tornadoes are NNN leases with the exception of roof along with also structure. So if the roof is actually damaged, you will have to pay for the expenses.
7) The tenant may move to a fresh location down the road or across the street when the lease expires. This kind of risk is actually high when the property is actually located in modest town where there is actually low barrier for entry, i.e. lots of vacant & developable land.
8) The tenant may ask for rent concession to improve its bottom line during tough times. The possibility is actually higher if the tenant is actually Rite Aid along with also if the store has low sales revenue along with also/or higher than market rent.
9) More Americans are walking away by their prescriptions, especially the most expensive brand-name medicines. This kind of may have negative impact on the sales revenue along with also profits of drug stores along with also consequently may cause drug store closures. According to Wolters Kluwer Pharma Solution, a health-care data company, nearly 1 in 10 fresh prescriptions for brand-name drugs were abandoned by people with commercial health plans in 2010. This kind of is actually up 88% compared to 4 years ago just before the recession began. This kind of trend is actually driven in part by higher along with also higher co-pays for brand name drugs as employers are shifting more insurance costs to their employees.
Among 3 drugstore chains, Walgreens along with also CVS pharmacies in general develop the best locations-at major intersections while Rite Aid has less than premium locations. Walgreens tends to hire only the top graduates by pharmacy schools while Rite Aid settles with bottom graduates to save costs. When possible, all drugstore chains try to fill the prescriptions with generic medications which have higher profit margins.
1) Walgreens: the company was founded in 1901 by Charles Walgreen, Sr. in Chicago. While the company has existed for more than 100 years, most stores are only 5-10 years old. This kind of is actually the best managed company among the three drugstore chains along with also also among the most admired public companies inside US. The company has been run by executives with proven track records along with also hires the top graduates by universities. Due to its superior financial strength--S&P A rating-- along with also premium irreplaceable locations, properties with leases by Walgreens get the highest cost per square foot along with also/or the lowest cap rate among the 3 drugstore chains. In addition, Walgreens gets flat rent or very low rent increases for 20 to 60 years. The cap rate is actually often inside low 5% to 6.5% range in 2012. Investors who buy Walgreens tend to be more mature, i.e. closer to retirement age. They are looking for a safe investment where the idea's more important to get the rent check than to get appreciation. They often compare the returns on their Walgreens investment with the lower returns by US treasury bonds or Certificate of Deposits by banks. Walgreens opened many fresh stores in 2008 along with also 2009 thereby you see many fresh Walgreens stores for sale. the idea will slow down This kind of expansion in 2010 along with also beyond along with also focus on renovation of existing stores instead.
2) CVS Pharmacy: CVS Corporation was founded in 1963 in Lowell, MA by Stanley Goldstein, Sidney Goldstein, along with also Ralph Hoagland. The name CVS stands for "Consumer Value Stores". As of 2009, CVS has about 6300 stores inside US, mostly through acquisitions. In 2004, CVS bought 1,0 Eckerd Drugstores mostly in Texas along with also Florida. In 2006, CVS bought 700 Savon along with also Osco drugstores mostly in Southern California. along with also in 2008 CVS acquired 521 Longs Drugs stores in California, Hawaii, Nevada along with also Arizona for $2.9B dollars. The acquisition of Long Drugs appears to be a not bad one as the idea CVS did not have any stores in Northern CA along with also Arizona. Besides, the cost also included real estate. the idea is actually also bought Caremark, one of the largest PBMs along with also changed the corporation name to CVS Caremark. When CVS bought 1,0 Eckerd stores, the idea formed 1-entity LLC (Limited Liability Company) to own each Eckerd store. Each LLC signs the lease with the property owner. inside event of a default, the owner can only legally go after the assets of the LLC along with also not by any additional CVS-owned assets. Although the owner loses the guaranty security by CVS corporate assets, This kind of author is actually not aware of any incident where CVS closes a store along with also does not pay rent.
3) Rite-Aid: Rite Aid was founded by Alex Grass (he just passed away on Aug 27, 2009 at the age of 82) along with also opened its first store in 1962 as "Thrif D Discount Center" in Scranton, Pennsylvania. the idea officially incorporated as Rite Aid Corporation along with also went public in 1968. By the time Alex Grassstepped down as the company's chairman along with also chief executive officer in 1995, Rite Aid was the nation's largest drugstore chain in terms of total stores along with also No. 2 in terms of revenue. His son, Martin Grass, took over yet was ousted in 1999 for overstatement of Rite Aid's earnings inside late 1990s. Rite Aid is actually at This kind of point the weakest financially among the 3 drugstore chains. In 2007, Rite-Aid acquired about 1,850 Brooks along with also Eckerd drugstores, mostly along the East coast to catch up with Walgreens along with also CVS. inside process, the idea added a huge long term debt along with also is actually the most leveraged drugstore chain based on its market value. The integration of Brooks along with also Eckerd did not seem to go well. Revenue by some of these stores went down as much as 20% after they change the sign to Rite Aid. In 2009, Rite-Aid had over 4900 stores along with also over $26 Billion in revenues. The figures went down in 2010 to 4780 stores along with also $25.53 billion in revenue. On January 21, 2009 Moody's Investor Services downgraded Rite Aid by "Caa1" to "Caa2", eight notches below investment grade. Both ratings are "junk" which indicate very high credit risk. Rite Aid contacted numerous its landlords in 2009 trying to get rent concession to improve the bottom line. In June 2009, Rite Aid successfully completed refinancing $1.9 Billion of its debts. In 2012, Rite Aid benefits by Walgreens contract problem with Express Scripts. Same store sales increased 2.2%, 3.2%, along with also 3.6% for January, February along with also March of 2012, respectively. Rite Aid is actually still losing money in fiscal year 2012 which ended in March 3, 2012. However, the idea is actually losing less, $0.43 per share in 2012 versus $0.64 per share in fiscal year 2011. The company expects better outlook in fiscal year 2013.
Things to consider when invested in a pharmacy
If you are interested in investing in a property leased by drugstore chains, here are a few things to consider:
1. If you want a low risk investment, go with Walgreens. In stable or growing areas, the degree of safety is actually the same whether the property is actually in California where you get a 5.5% cap or Texas where you may get a 6.5% cap. So, there is actually no significant advantage to invest in properties in California as the property value is actually based primarily on the cap rate. In 2012, the offered cap rate for Walgreens seems to come down by 7.5%-8.4% in 2009 to 5.5%-6.5% for fresh stores.
2. If you are willing to take more risk, then go with Rite-Aid. Some properties outside of California may offer up to 9% cap rate in 2012. However, among the 3 drug chains, Rite Aid has 10.5% chance of going under in 2010. Should the idea declare bankruptcy, Rite Aid has the option to pick along with also choose which locations to keep open along with also which locations to terminate the lease. To minimize the risk of which the store is actually shuttered, choose a location with strong sales along with also low rent to revenue ratio.
3. Financing should be an important consideration. While the cap rate is actually lower for Walgreens than Rite Aid, you will be able to get the best rates along with also terms for Walgreens.
4. If you are not a conservative investor or risk taker, you may want to consider a CVS pharmacy. the idea has BBB+ S&P credit rating. Its cap rate is actually higher than Walgreens yet lower than Rite Aid. Some leases may offer better rent bumps. On the additional hand, some CVS leases, especially for properties in hurricane areas, e.g. Florida are not truly NNN leases where landlords are responsible for the roof along with also structure. So make sure you adjust the cap rate down accordingly. Some of the CVS locations have onsite Minuteclinic staffed by registered nurses. Since This kind of clinic idea was introduced recently, the idea's not clear having a clinic inside CVS is actually a plus or minus to the bottom line of the store.
5. All 3 drugstore chains have similar requirements. They all want highly visible, standalone, rectangular property around 10,000 - 14,500 SF on a 1.5 - 2 acre lot, preferably at a corner with about 75 - 80 parking spaces in a growing along with also high traffic location. They all require the property to have a drive-through. Hence, you should avoid purchasing an inline property, i.e. not standalone along with also property with no drive-through windows. There is actually a chance of which these drugstores may not want to renew the lease unless the property is actually located in a densely-populated area with no vacant land nearby. In addition, if you acquire a property of which does not meet the fresh requirements, for example a drive-through, you may have a problem getting financing as lenders are aware of these requirements.
6. If the pharmacy is actually opened 24 hours a day, the idea is actually in a better location. Drugstore chains do not open the store 24 hours day unless the location draws customers.
7. Many properties may have a percentage lease, i.e. the landlord can get additional rent when the store's annual revenue exceeds a certain figure, e.g. $5M. However, the revenue used to compute percentage rent often excludes a page-long list of items, e.g. wine along with also sodas, tobacco products, items sold after 10 PM, drugs paid by governmental programs. The excluded sales revenue could account for as much as 70% of store's gross revenue. As a result, This kind of author has seen only 2 stores in which the landlord is actually able to collect additional percentage rent. The store having a percentage rent is actually required to report its annual sales to the landlord. As an investors, you want to invest in a store with strong gross sales, e.g. over $500 per square foot a year. In addition, you also want to check the rent to revenue ratio. If the figure is actually inside 2-4% range, the store is actually likely to be very profitable so the chance the store is actually shut down is actually low.
8. the idea does not matter how not bad the tenants are, avoid investing in declining, e.g. Detroit along with also/or low-income areas or modest towns with less than 30,000 residents within 5 miles ring. In a modest town, the idea may be the only drug store in town along with also captures most of the market share. However, if a competitor opens a fresh location inside area, revenue may be severely affected. In addition, the tenant can always moves to a fresh location down the road when the lease expires since there is actually low barrier to entry in a modest town. These properties are easy to buy at This kind of point along with also hard to sell later. When the credit market is actually tight, you may have problems finding a lender to finance these properties.
9. Many properties have an existing loan of which the buyer must assume. If you have a 1031 exchange, think twice about buying This kind of property. You should clearly understand loan assumption requirements of the lenders before moving forward. Should you fail to assume the existing loan (assuming an existing loan is actually a lot more difficult than getting a fresh loan), you may run out of time for a 1031 exchange along with also may be liable to pay capital gain.
10. With few exceptions, drugstore chains do not own the stores they occupy for several reasons. Here are just a couple of them:
- They know the pharmacy business yet don't know real estate. Stock investors also don't want Walgreens to become a real estate investment company.
- Owning the real estate will require them to carry lots of long term debts which is actually not a brilliant idea for a publicly-traded company.
11. About 10% of the drugstore properties for sale along with also typically CVS pharmacies require very modest amount of equity to acquire, e.g. 10% of the purchase cost. However, you are required to assume an existing fully-amortized loan with zero cash flow. of which is actually, all of the rent paid by the tenant must be used to pay down the loan. The cap rate may be inside 7-9% range, along with also the interest rate on the loan could be attractive inside 5.5% to 6% range. Hence, the investor pays off the loan in 10 to 20 years. However, you have no positive cash flow. This kind of requires you to come up with outside cash to pay income tax on the rental profits (the difference between the rent along with also mortgage interest). The longer you own the property, the more outside cash you will need to pay income taxes as the mortgage interest will get less along with also less toward the end. So who might buy This kind of kind of property?
- The investors who have substantial losses by additional investment properties. By acquiring This kind of zero cash flow property, they may offset the income by the drugstore tenant against the losses by additional investment properties. For example, a property has $105,000 of rental profits a year, along with also the investor also has losses of $100,000 by additional properties. As a result, the combined taxable profits are only $5,000.
- The uninformed investors who fail to consider of which they have to raise additional cash to pay income taxes.
Out of the Box Thinking
If you put too much weight on the S&P rating of the tenants, you may end up either taking a lot of risks or passing up not bad opportunities.
- A not bad location should be the key in your decision on which drug store to invest in. the idea's often said a lousy business should do well at a great location while the best tenant will fail at a lousy location. A Walgreens store of which is actually closed down later on (yes, Walgreens closed 119 stores in 2007) is actually still a bad investment even though Walgreens continues paying rent on time. So you don't want to blindly invest in a drug store simply because the idea incorporates a Walgreens sign on the building.
- No company is actually crazy enough to close a profitable location. the idea does not take rocket science to understand of which a financially-weak company like Rite Aid will make every effort to keep a profitable location open. On the additional hand, a financially-strong Walgreens will need justifications to keep an unprofitable location open. So how do you determine if a drug store location is actually profitable or not if the tenant is actually not required to disclose its profit & loss statement? The answer is actually you cannot. However, you can make an educated guess based on the store's annual gross revenue which is actually often reported to the landlord as required by the percentage clause inside lease. With the gross revenue, you can determine the rent to income ratio. The lower the ratio, the more likely the store is actually profitable. For example, if the annual base rent is actually $250,000 while the store's gross revenue is actually $5M then the rent to income ratio is actually 5%. As a rule of thumb, the idea's hard to make a profit if This kind of ratio is actually more than 8%. So if you see a Rite Aid with 3% rent to income ratio then you know the idea's likely a very profitable location. inside event Rite Aid declares bankruptcy, the idea will keep This kind of location open along with also continue paying rent. If you see a Rite Aid drug store with 3% rent to income ratio offering 10% cap, chances are the idea's a low risk investment with not bad returns along with also the tenant will most likely to renew the lease. The weakness of corporate guaranty by Rite Aid is actually probably not as critical along with also the risk of having Rite Aid as a tenant is actually not definitely of which significant.
- Drug stores with fresh 25 years leases tend to sell at lower cap, e.g. 6-7% cap on fresh stores versus 8.0-8.5% cap on established locations with 5-10 years remaining on the lease. This kind of is actually because investors are afraid of which the tenants may not renew the leases. Unfortunately, lenders also develop the same fear! As a result, many lenders will not finance drug stores with 2-3 years left on the leases. The fact of which drugstores with fresh leases have a premium on the cost means they have potential of 20% depreciation (buying fresh at 6% cap along with also selling at 7.5% cap when the leases have 8 year left). Some investors will not consider investing in drug stores with 5-10 years left on the lease. They might simply ignore the fact of which the established stores may be at irreplaceable locations with very strong sales. Tenants simply have no additional choices additional than renewing the lease.
Walgreens, CVS, along with also Rite Aid - What RE Investors Should Know
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