• S&P 500: 5320.59 -0.82 -0.02%

    Dow 30: 39853.45 -19.54 -0.05%

    Nasdaq: 77.99 -0.67 -0.85%

    Bloomberg Barclay High Yield: 0 0.00 %

    JP Morgan Emerging Market Bonds: 89.28

    Bloomberg Barclays Muni Index: 45.64

    Crude Oil: 18809.25 +10.00 +0.05%

    Gold: 2393.5 -32.40 -1.34%

    Copper: 4.861 -0.25 -4.9%

  • US 5-Yr Treasury: 4.455 +0.02

    US 10-Yr Treasury: 4.426 +0.01 +0.23%

    US 30-Yr Treasury: 0.00 %

    Federal Discount Rate: 5.50%

Rite Aid NNN For Sale

Rite Aid is one of America’s leading drugstore chains. It’s also a Fortune 500 company, most recently ranked at #113 on Fortune’s list. Rite Aid was founded in Scranton, Pennsylvania, in 1962, and went public shortly afterward in 1968. It’s now headquartered in Camp Hill, a suburb of Harrisburg, Pennsylvania.

While Rite Aid has experienced some troubles in the industry, it remains standing and has a loyal customer base. The store offers both drugstore prescriptions and general “front-end” products, including over-the-counter medications, cosmetics, health and wellness products, hygiene products, seasonal decor, snack food, and more.

Because of its tough competition and lower credit rating (Standard & Poor’s recently downgraded Rite Aid’s credit rating to CC), Rite Aid offers competitive leasing terms and a higher cap rate than its competitors. For these reasons and others, Rite Aid is a desirable NNN lease tenant for the right investor.

Tenant Overview

Rite Aid’s biggest factor of appeal is its existence in the pharmacy sector, which is generally considered to be a stable and largely recession-resistant vertical. Rite Aid operates close to 2,300 stores in the U.S. alone.

The company has a preference for freestanding corner locations with large parking lots, high visibility, and room for a drive-thru. Over 50% of the store’s locations are freestanding, and about 50% of its stores have drive-thru windows for prescription pick-up.

When you’re considering investing in a Rite Aid NNN lease, you may want to consider some of the factors outlined in the table below

Rite Aid NNN Lease at a Glance
Average sale price $4,400,000
Average NOI (net operating income) $280,000 monthly
Average square feet 11,000 - 15,000
Average lot size 1.0 - 2.0 acres
Typical lease term 20 years
Escalators 10% every 10 years
Typical location Corner locations with high visibility and room for a drive thru
Ticker symbol NYSE: RAD

Rite Aid Lease Structure

Rite Aid typically signs 20-year NNN leases, during which the rent prices will rise 10% every ten years. A further benefit is that Rite Aid often agrees to sign lease rates that are aligned with the local market rather than using its size and strong foothold to negotiate lower rental rates.

The average cap rate, or capitalization rate, for a Rite Aid net lease is 5.8%. The cap rate looks at a real estate investment in terms of its profitability and its return potential. Typically, cap rates that land between 5% and 10% are considered good. Lower rates within that range, like Rite Aid’s, generally indicate simply that the investment is lower risk.

Why Choose a Net Lease Over a Gross Lease When Investing in Commercial Real Estate?

In the world of commercial real estate, a few different types of leases exist, but many find that there are numerous benefits when choosing to use a net lease. A net lease is usually considered the opposite of a gross lease. Let’s break down the differences.

A gross lease indicates that a tenant will pay a predetermined amount to use a space. That amount won’t change based on operating expenses, which generally fall under the landlord’s responsibilities. On the flip side, a net lease allows the landlord to pass operating expenses on to their tenants.

There are three tiers of net leases: single, double, and triple. The categories are also known as N, NN, and NNN leases. Each level passes additional expenses over to the tenant, exposing the property owner to fewer risks as the levels increase.

Single net leases, also called N leases, pass property taxes onto the tenant in addition to the cost of rent. In that case, the landlord retains responsibility for insurance, maintenance, repairs, and utilities. N leases are less common in commercial real estate. Double net leases (NN leases) and triple net leases (NNN leases) are used far more often.

What Types of Net Leases Does Rite Aid Operate Under?

Rite Aid stores typically operate under NNN leases with 20-year initial terms. These NNN leases are usually the most attractive type of lease for commercial real estate investors. That’s because, under an NNN lease, the tenant pays for the property’s operating expenses, including insurance premiums, property taxes, and structural maintenance and repair costs.

Double net leases, or NN leases, are usually less attractive to investors. That’s because tenants are liable for only rent, insurance, and property taxes. In other words, the property owner is responsible for what’s left, including structural maintenance and repairs, which can prove to be expensive when the need arises.

When renting a property through an NNN lease, a tenant like Rite Aid will generally pay a lower base rent because they’re responsible for all of the operating costs. NNN leases reduce the burden of property management by passing so many responsibilities onto the tenant.

How to Evaluate a Rite Aid Net Lease

There are some concerns about the future viability of Rite Aid, so it’s crucial to consider the potential for reuse or redevelopment of these net-leased assets. The quality of the underlying real estate is an important factor in Rite Aid investment decisions. 

This is true for every potential NNN lease tenant: you need to evaluate both property value and tenant strength. Especially when you’re looking at single-tenant properties like those that Rite Aid prefers, tenant concentration can be only 100% or 0% – in other words, you’ll be maximizing your cash flow or generating none at all.

Because of that, you need to ensure that your investment property meets the qualifications Rite Aid prefers in its locations. These criteria include corner locations with high visibility on highly trafficked interchanges. The locations need to be able to accommodate large stores and parking lots, ideally with room for a drive thru.

What Makes Rite Aid an Attractive NNN Tenant?

In December, Rite Aid published its third-quarter results for 2022. Revenue remained relatively stable year over year, decreasing from $6.2 billion to $6.1 billion in the third quarter. Same store front-end sales excluding tobacco increased 2.7% year over year.

Rite Aid may have stiff competition in its industry from the likes of CVS and Walgreens, but it’s putting forth a solid effort to stay afloat in this competitive environment. It recently acquired Brooks and Eckerd’s, two pharmacy chains that expanded its market presence.

However, these acquisitions weighed heavily on its balance sheet, leading Rite Aid to sell 1,900 locations to Walgreens.

Still, the company continues to grow and expand its presence, targeting attractive locations and operating is a stable sector. For those reasons, Rite Aid remains among the best NNN tenants around.