Net Lease N Illinois

The Boulder Group: Walgreens, Rite AID deal slowing drugstore transactions this year

  
Walgreens, Rite AID deal slowing drugstore transactions,ph01

Concerns over Walgreens’ acquisition of rival Rite Aid has put a damper on the number of sales of drug stores across the country during the last 18 months, according to research from The Boulder Group.

In its third-quarter net-lease drug store report, Boulder Group cited trepidations regarding the Walgreens and Rite Aid merger as one of the most important factors leading to a slowdown in drug-store sales during the last year-and-a-half.

As the Boulder Group reports, Walgreens originally proposed a complete acquisition of Rite Aid stores. Those plans, though, fell through because of regulatory concerns. The final version of the Walgreens and Rite Aid transaction calls for Walgreens to acquire 1,932 Rite Aid stores, three distribution centers and existing inventory at a cost of $4.38 billion.

While that acquisition has started, it isn’t expected to be complete until the spring of 2018. The unknown consequences from this big deal has caused investors to hesitate before sinking their dollars into drug-store properties. As the Boulder Group reports, investors want to see how Walgreens will handle store overlap and other real estate decisions. Walgreens has said it will close 600 stores in 2018 and 2019 as a result of the merger.

Because of this, the supply of drug-store properties for sale rose significantly during the third quarter of 2017. The Boulder Group says there were 192 Walgreens stores on the market in the third quarter, a jump of 42.2 percent from the 135 available during the third quarter of 2016.

There were also 120 CVS stores for sale during the quarter, up 41.1 percent from the 85 for sale during the third quarter of 2016. There were 65 Rite Aid stores for sale, up 54.8 percent from the 42 for sale in the third quarter of 2016.

How much do these assets cost? The Boulder Group said that the median asking price for a Walgreens store in the third quarter of this year was more than $5.45 million, or $374 a square foot. The median price for a CVS store was more than $4.39 million or $345 a square foot, while the median price of a Rite Aid stood at $4.06 million or $303 a square foot.

The Boulder Group says that the pace of net-lease drug-store transactions should remain slower during the rest of 2017. Much of the reason again has to do with the Walgreens-Rite Aid merger. The Boulder Group said that landlords and investors want to see the ramifications of the companies’ merger before making purchase decisions.