Net Lease Advisor Overview

Fueled by an aging population and the demand for generic drugs and convenience, CVS continues to deliver new net lease properties to the market. CVS has annual retail sales per square foot totaling more than $840, compared to the sector average of $680 for its publicly traded peers. CVS has a lower credit rating than Walgreens, but CVS is also considered investment grade with a stable outlook, which improves the value and marketability of corporate guaranteed net lease properties.

CVS properties continue to be highly sought after by the NNN investor, even with the flat rental structure. The attraction to the investor is likely due to the stability and profitability of the Pharmacy segment as well as the investment grade credit of CVS. The real estate also plays an important driver in these assets, as they are almost exclusively hard corner locations with premiere visibility, and generous access on 1.00 -2.00 acres of land.

Over the past decade, CVS has signed a variety of lease types. Originally, CVS stores operated under NN leases, holding the landlord responsible for the roof and structure of the building, and in some cases parking and landscaping. These NN leases might provide rental increases as often as every 5 years. However, new leases typically contain flat rents over the primary term and can vary from absolute NNN ground leases to NN fee simple transactions.

Tenant Description

CVS Caremark Corporation (CVS Caremark) is a provider of prescriptions and related healthcare services in the United States. It is a pharmacy services company and drives value for its customers through its approximately 6,900 CVS/pharmacy and Longs Drug retail stores. CVS Caremark operates in two business segments: Pharmacy Services and Retail Pharmacy. CVS/pharmacy (commonly called CVS) is the largest pharmacy chain in the United States, with approximately 6,900 stores across 45 states.

The Pharmacy Services business provides a range of prescription benefit management (PBM) services, including mail order pharmacy services, specialty pharmacy services, plan design and administration, formulary management and claims processing. Its customers are primarily employers, insurance companies, unions, government employee groups, managed care organizations and other sponsors of health benefit plans and individuals throughout the United States.

The Retail Pharmacy Segment included 6,923 retail drugstores, of which 6,857 operated a pharmacy, its online retail Website, CVS.com and its retail health care clinics. CVS/pharmacy stores sell prescription drugs and a wide assortment of general merchandise, which it refers to as front store products The CVS/pharmacy store sells prescription drugs and a wide assortment of nationally advertised brand name and private label merchandise. Its front store categories include over-the-counter drugs, beauty products and cosmetics, film and photo finishing services, seasonal merchandise, greeting cards and convenience foods.

CVS is incorporated in Delaware, and is based in Woonsocket, Rhode Island. It was founded in Lowell, Massachusetts in 1963.