Walgreens TENANT OVERVIEW
Updated: December 21, 2017
- Investment grade tenant
- Corner locations
- Long absolute NNN leases
- No rental increases
- High initial rental rate
- Annual cancellation option after initial term
Q1 Earnings Summary
- GAAP diluted net earnings per share were $0.81, down 16.5% from the year-ago quarter mainly due to impairment of the company's equity method investment in Guangzhou Pharmaceuticals Corporation; Adjusted diluted net earnings per share were $1.28, an increase of 16.4%, up 15.5% on a constant currency basis
- GAAP net earnings attributable to Walgreens Boots Alliance decrease 22.1%, to $821 Million; Adjusted net earnings attributable to Walgreens Boots Alliance increase 7.8$ to $1.3 Billion, up 7.2% on a constant currency basis
- Sales increase 7.9% (7.2% on a constant currency basis)
- GAAP operating income decreases 8.6% to $1.3 Billion due to a loss from the company's equity earnings in AmerisourceBergen; Adjusted operating income increases 4.8 percent to $1.8 billion, up 4.4 percent on a constant currency basis
Walgreens is one of the largest drugstore chains.
The poster-child of net lease properties, Walgreens has been a highly traded investment property given the low risks typically associated with these drugstore properties. Additionally, the drugstore sector remains stable given is non-discretionary merchandise offerings.
On the real estate side of things, Walgreens demands premier hard corner locations greater than 1.00 acre. Generally, sites are 1.5 - 2.0 acres to fit their store prototypes of 14,500 square feet, however units can range from 10,800 - 15,000 square feet. To compete with rival CVS, Walgreens has generally been willing to pay premier rental rates to secure prime sites with a primary lease term of 25 years. The most significant lease variation from Walgreens of late has been the difference in their renewal options, previously requiring eight to ten renewal options of five years in length; they recently signed a number of leases that were 75 years in length, however after the 25th year Walgreens has an annual cancellation option, essentially creating 50 1-year renewal options. This small variation created significant concern for investors because at the end of the initial 25-year lease term, these assets will not be financeable.
Walgreens is owned by the Walgreens Boots Alliance, Inc. This parent company is currently the largest retail pharmacy in the US and Europe, with 13,200 stores in over 11 countries.
Walgreens Boots Alliance was created through the combination of Walgreens and Alliance Boots in December 2014. This transaction brought together two leading companies with iconic brands, complementary geographic footprints, shared values and a heritage of trusted healthcare services through pharmaceutical wholesaling and community pharmacy care, dating back more than 100 years. Walgreens had been in merger talks with Rite Aid since 2015. In June of 2017, the pharmacies announced the merger was off however Walgreens will acquire over 2,100 Rite Aid locations.
Walgreens is a market leader in the US and has 8,175 retail stores which includes Walgreens and Duane Reade. Walgreens owns 15% of these retail locations and the rest are leased. Walgreens Boots Alliance stated that they will close about 200 less-profitable US Walgreens stores and open the same number of stores in new locations. The last closing will be no later than the end of 2017.
Average Cap Rate
12 mo avg with 10+ yr lease term
Average Property & Lease
|Average Sale Price
||$300 - $400
Average Cap Rate Trend
Rates reflect last 12 mos, short and long-term
Recent Sales Comps
|Richmond Hill, GA
Featured Tenant Profiles
Avg. Cap Rate: 5.89%
Avg. Cap Rate: 4.92%
Avg. Cap Rate: 6.40%