What Makes An NNN Walgreens Net Property Profitable

What to Look for in an NNN Walgreens Available to Purchase

Walgreens net leased properties have been proven real estate investments since the early 1990s. Walgreens, CVS and Rite Aid net leased properties are categorized as a subcategory of the NNN property sector, and provide investors with a tenant that has a higher barrier to entry than most typical retailers. During the last 30 plus years, drugstores have proven to be safe and reliable NNN properties for landlords withstanding different market cycles.

Drugstores, in particular Walgreens for sale, are preferred by many net leased investors because of their longer lease terms, credit strength and strong corner positions throughout the country. Unlike many other net leased box retailers, drugstores have a higher barrier to entry due to their pharmacy component, which has allowed them to be profitable even as online retailers continue to take market share away from traditional brick and mortar retailers.

Walgreens acquired Alliance Boots to create Walgreens Boots Alliance, which now has over 13,000 stores worldwide – including over 9,000 locations in the United States. Walgreens also purchased over 1,900 stores from Rite Aid, which has allowed them to grow their pharmacy customer base significantly in the Southeast, Northeast and certain states in the Midwest. With locations in almost every market of the United States, Walgreens is strategically positioned to grow their supporting revenue streams in the future, for example with healthcare clinics in their stores.

During the pandemic, Walgreens held up well and continued to pay rent at all their locations, which drove more demand from net leased investors to purchase Walgreens properties. Buyers of Walgreens were able to get the best property financing available, as many lenders also had an appetite to lend on Walgreens net leases assets. The combination of attractive financing and buyer demand for Walgreens net leased properties has continued to grow since the pandemic. Investors see that Walgreens is positioned well for the future by being located at some of the best real estate corners in the country.

The History of the Walgreens Brand

Walgreens Boots Alliance is publicly traded under the stock symbol WBA, and has a number of initiatives for the Walgreens brand in the United States. Walgreens has launched 24-hour, same-day delivery for most retail items in their stores and is expanding their concept of VillageMD, which provides chronic care management, diagnostic testing and other wellness programs for customers.

Most Walgreens net properties have the real estate owned by third-party landlords unrelated to the Walgreens corporate; however, a small percentage of their stores do have corporate owned real estate. Since all Walgreens locations are operated by corporate, there are no franchisee operators. This makes Walgreens store operations more streamlined and landlords know that their rental income is backed by a large corporation.

Every geographic market has different prescription coverage plans for certain employers or healthcare plan administrators, allowing customers to get prescriptions filled at Walgreens easily at over 9,000 locations throughout the country. Walgreens will have a total of 11 micro-fulfillment centers by the end of 2022, which use robotics and automation to fill prescriptions then ship them back to the originating stores. This will free up pharmacists, and the pharmacy staff, to provide more interactive service to customers and their healthcare needs. With 80% of the U.S. population located within 5 miles of a Walgreens store, the national footprint of Walgreens real estate locations is one of the biggest advantages for the chain to continue to add on services and revenue streams in the future. Walgreens has locations in all 50 states, the District of Columbia, Puerto Rico and the U.S. Virgin Islands. Despite this large capacity, Walgreens is absorbed in the knowledge of each state’s prescription distribution regulations, and have positioned themselves in each market to stay ahead of the competition curve in the drugstore sector.

Advantages and Disadvantages of A Walgreens Net Property

Walgreens net leased properties are a great source of stable income for investors that wish to be hands off with minimal management responsibilities. Additionally, the firm lease term remaining on Walgreens leases are typically longer than most other similar investment grade NNN properties, allowing for more financing options and longer guaranteed rental income. The return on Walgreens net property varies depending on the lease length, real estate quality, store profitability and also the lease type.

Walgreens leases can be absolute triple net or double net. Their double net leases usually have the landlord responsible for expenses of the roof, exterior structure, and other possible costs, such as capital improvements to the parking lot. Some double net leases occasionally may have the landlord paying for such property expenses as insurance, property taxes or common area maintenance, but then will reimburse the landlord for those costs. The preferred lease type for Walgreens is the absolute net lease structure. In an absolute net lease, the tenant is directly responsible for all property maintenance and expenses, and the landlord has zero management of the property.

Walgreens properties that are triple net versus double net are valued differently, due to the property management aspect of the lease. The lease type is one of the main factors when calculating the return for investors. Both triple net and double net Walgreens leases sell consistently, as pricing is discounted for more management responsibilities. Some investors prefer a higher return to manage a double net Walgreens property, while others prefer to have a lower return in order to have zero management on an absolute net Walgreens lease. Many property owners of double net Walgreens leases will have local contacts to visit the property to check on the condition of the building, in particular the roof on a regular basis.

Investing in An NNN Walgreens for Sale

Investing in a Walgreens net leased property has been a great option for many properties owners over the last 30 years. Walgreens has continued to pay all their lease obligations at their stores over the years, regardless of market downturns or disruptions. These investments are safe, reliable and provide years of consistent rental payments. If purchased correctly, sold at the appropriate time and with the right strategy, Walgreens landlords can see profits from a sale of the investment, in addition to the rental income received during their hold period.

A seasoned drugstore commercial real estate broker, such as Pharma Property Group (PPG), can allow a buyer to know what Walgreens net property has the most potential in a future disposition, and what has stability during the holding period. Pharma Property Group only specializes in real estate occupied by Walgreens, CVS and Rite Aid, which has allowed them to advise drugstore owners in an unparalleled way. PPG’s experience in transacting hundreds of Walgreens property sales has allowed their buyer clients a seamless acquisition process; and gives their buyers unique access to Walgreens properties for sale both on- and off-market.

Buyers should work with a commercial real estate broker, such as PPG, that has a vast resume of Walgreens property sales, since these brokerage teams have the relationships with current Walgreens landlords who are considering selling. Another advantage to working with an experienced drugstore real estate broker is that they know how to qualify a potential acquisition to avoid any pitfalls in the property’s due diligence, and can minimize the downside risk of future lease renewals. PPG is an expert when it comes to evaluating Walgreens net lease property investments, as it has underwritten over 1,000 Walgreens properties over the last decade. This experience allows them to analyze the return level for buyers, to see if it’s appropriate for the risk level being taken on.

Jason Pongsrikul, Managing Principal
Pharma Property Group
1979 Chicago Street
San Diego, CA 92110
www.pharmapropertygroup.com
Office: (858) 860-6591