{"id":1004269100,"date":"2018-10-02T13:04:27","date_gmt":"2018-10-02T21:04:27","guid":{"rendered":"https:\/\/www.commercialsearch.com\/news\/?p=1004269100"},"modified":"2022-12-08T13:52:40","modified_gmt":"2022-12-08T21:52:40","slug":"net-leased-rite-aid-pharmacies-offer-value-and-risk","status":"publish","type":"post","link":"https:\/\/www.commercialsearch.com\/news\/net-leased-rite-aid-pharmacies-offer-value-and-risk\/","title":{"rendered":"Net-Leased Rite Aid Stores Offer Value\u2014And Risk"},"content":{"rendered":"<p>By Gavin Behr<\/p>\n<div id=\"attachment_1004269109\" style=\"width: 460px\" class=\"wp-caption alignright\"><img loading=\"lazy\" decoding=\"async\" aria-describedby=\"caption-attachment-1004269109\" data-attachment-id=\"1004269109\" data-permalink=\"https:\/\/www.commercialsearch.com\/news\/net-leased-rite-aid-pharmacies-offer-value-and-risk\/behr-gavin\/\" data-orig-file=\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2018\/10\/Behr-Gavin.jpg\" data-orig-size=\"1474,1341\" data-comments-opened=\"0\" data-image-meta=\"{&quot;aperture&quot;:&quot;0&quot;,&quot;credit&quot;:&quot;&quot;,&quot;camera&quot;:&quot;&quot;,&quot;caption&quot;:&quot;&quot;,&quot;created_timestamp&quot;:&quot;1538482579&quot;,&quot;copyright&quot;:&quot;&quot;,&quot;focal_length&quot;:&quot;0&quot;,&quot;iso&quot;:&quot;0&quot;,&quot;shutter_speed&quot;:&quot;0&quot;,&quot;title&quot;:&quot;&quot;,&quot;orientation&quot;:&quot;1&quot;}\" data-image-title=\"Behr, Gavin\" data-image-description=\"\" data-image-caption=\"&lt;p&gt;Gavin Behr&lt;\/p&gt;\n\" data-large-file=\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2018\/10\/Behr-Gavin.jpg?w=1024\" class=\"wp-image-1004269109\" src=\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2018\/10\/Behr-Gavin.jpg\" alt=\"\" width=\"450\" height=\"409\" srcset=\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2018\/10\/Behr-Gavin.jpg 1474w, https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2018\/10\/Behr-Gavin.jpg?resize=300,273 300w, https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2018\/10\/Behr-Gavin.jpg?resize=768,699 768w, https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2018\/10\/Behr-Gavin.jpg?resize=1024,932 1024w\" sizes=\"auto, (max-width: 450px) 100vw, 450px\" \/><p id=\"caption-attachment-1004269109\" class=\"wp-caption-text\">Gavin Behr<\/p><\/div>\n<p>Asking cap rates for U.S. single-tenant Rite Aid properties average 7.05 percent, according to CoStar data. This figure represents a significant, 80-basis-point spread over the 6.25 percent average asking cap rate for Walgreens properties. CVS properties on the market command an even lower asking cap rate, averaging roughly 5.71 percent.<\/p>\n<p>These yield spreads reflect several factors, most notably:<\/p>\n<ul>\n<li>a variance in corporate credit<\/li>\n<li>the potential closure of stores recently acquired by Walgreens<\/li>\n<li>uncertainty regarding Rite Aid\u2019s future as an independent company in the aftermath of failed merger discussions with Albertsons<\/li>\n<\/ul>\n<h2><strong>Credit considerations<\/strong><\/h2>\n<p>Most real estate investors consider the lease guarantor\u2019s credit rating to be paramount when underwriting an acquisition. Indeed, creditworthiness is one of the single greatest determinants of <a href=\"https:\/\/www.commercialsearch.com\/news\/2018-retail-sales-volume-cap-rates\/\">asking cap rates<\/a>.<\/p>\n<p>It is for this reason that Rite Aid properties have the potential for outsize returns. While Walgreens and CVS both hold investment-grade ratings of BBB and BBB+, respectively, from Standard and Poor\u2019s, Rite Aid holds the less desirable B rating.<\/p>\n<p>This lack of investment-grade credit may remove Rite Aid from the radar of institutional and private investors who use this credit classification as a litmus test for acquisitions. As a result, buyers who are less concerned with investment-grade credit\u2014and instead focus on the underlying real estate and store sales data, when available\u2014will likely face fewer competitors for acquisition of Rite Aid stores. Given the generally higher caps available on many of those assets, those same investors may achieve more attractive yields relative to those of similar Walgreens or CVS properties.<\/p>\n<h2><strong>Closure risk<\/strong><\/h2>\n<p>Walgreens\u2019 recent acquisition of more than 1,900 Rite Aid locations added opacity to the market, due to the potential closure of redundant stores. The uncertain viability of some Rite Aid locations is driving market cap rates upward as potential buyers assign a greater risk factor. This translates into better returns for buyers who identify recently acquired Rite Aids in markets free from immediate competition and potential cannibalization by surrounding Walgreens stores.<\/p>\n<h2><strong>After Albertsons<\/strong><\/h2>\n<p>The failed merger between Albertsons and Rite Aid would have consumed the roughly 2,600 remaining stores not acquired by Walgreens. While Rite Aid retains the flexibility to pursue other merger opportunities, the uncertainty of Rite Aid\u2019s future as an independent company could exert continued upward pressure on cap rates. This would create opportunities for astute investors to acquire Rite Aid properties at an attractive cap rate.<\/p>\n<p>Creditworthiness, <a href=\"https:\/\/www.commercialsearch.com\/news\/economy-watch-some-12k-stores-at-risk-of-closure-in-2018\/\">potential store closures<\/a> and Rite Aid\u2019s future prospects create a unique cap rate climate. The resulting opportunities may appeal to the yield-conscious investor looking to enhance their portfolio with higher-yield assets in the net-leased pharmacy space.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Amid ongoing interest-rate hikes by the Federal Reserve, many investors are eager for these single-tenant assets&#8217; above-average returns. Transwestern Associate Gavin Behr thinks properties occupied by the drugstore chain may fit the bill.<\/p>\n","protected":false},"author":1485,"featured_media":1004269109,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[21825,23891,21749,37301,21684],"tags":[33313],"class_list":["post-1004269100","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-finance","category-national","category-retail","category-uncategorized","category-viewpoint","tag-transwestern"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v23.4 (Yoast SEO v24.6) - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Net-Leased Rite Aid Stores Offer Value\u2014And Risk - Commercial Property Executive<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.commercialsearch.com\/news\/net-leased-rite-aid-pharmacies-offer-value-and-risk\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Net-Leased Rite Aid Stores Offer Value\u2014And Risk\" \/>\n<meta property=\"og:description\" content=\"Amid ongoing interest-rate hikes by the Federal Reserve, many investors are eager for these single-tenant assets&#039; above-average returns. 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