Walgreens NNN For Sale

Walgreens is one of America’s largest drugstore chains, and at one point, it was referred to as the poster-child of net lease properties. It gained that nickname due to the low risks associated with investing in its drugstore properties and the relative stability of the pharmaceutical sector and its non-discretionary merchandise.

A market leader in the U.S., Walgreens has over 8,000 of its hallmark stores in the country. Parent company Walgreens Boots Alliance, Inc. is an international giant that also owns Duane Reade and Alliance Healthcare. It is the largest retail pharmaceutical company in the U.S. and in Europe, with almost 13,000 stores spread across 11 different countries.

Walgreens is a solid option for investors looking for a dependable commercial real estate investment, if they can find a profitable location with favorable lease terms.

Tenant Overview

Part of what makes Walgreens (and other drug and convenience stores) desirable in the NNN market is its high-traffic locations and its strong brand recognition. With a loyal customer base, Walgreens tends to experience steady revenue even during economic downturns – like that brought on by 2020’s pandemic.

Even when times are tough, consumers still need necessities like medicine, antiviral tests, vaccinations, flu shots, and basic home and personal care goods. And Walgreens allows them to purchase these items at reasonable prices.

When hard times come, families aren’t just going to stop buying the everyday necessities that you find at Walgreens. That’s why Walgreens makes a solid investment regardless of what the economic situation is in the US.

Walgreens stores are typically located on top-tier hard corner locations with lots that are larger than 1 acre. Their prototype store clocks in at 14,500 square feet, requiring lots that range from 1.5 to 2 acres. In the past few years, Walgreens has been willing to pay competitive rental rates in order to compete with its rival CVS to secure attractive retail sites.

Investing in a Walgreens NNN lease is a stable choice, as the company’s numbers just make sense for an NNN landlord. Here’s a Walgreens net lease overview.

Walgreens Lease Structure

Walgreens stores typically sign 15 - 25 year NNN leases with rent price bumps negotiated on a deal-by-deal basis. The company has signed a number of 75-year leases, however – but after the primary lease term of 25 years, Walgreens has periodic cancellation options (varying in length depending on the lease). In other words, after the initial 25-year term, the renewal options are already in place.

Due to the NNN leases that Walgreens favors, landlords are normally not responsible for the maintenance of these properties. For that reason, Walgreens can be a great passive-income opportunity for even out-of-state investors who want to generate consistent cash.

The average cap rate, or capitalization rate, for a Walgreens net lease is 5%. Cap rate speaks to a real estate investment’s profitability and return potential. Generally, cap rates of 5% to 8% are considered good. Walgreens’s 6.45% average cap rate is right within that average and they’re believed to be on the safer side when it comes to NNN tenants.

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

Gross leases and net leases are normally considered opposites. There are many reasons why commercial real estate investors tend to prefer net leases, and we’ll explore why net leases are attractive here.

Gross leases state a predetermined amount that a tenant will pay to use a space. That amount doesn’t change based on operating expenses, because the landlord is generally responsible for those costs. Net leases, on the other hand, let the landlord pass operating expenses to the tenant.

There are three levels of net leases: single, double, and triple. These categories are also known as N, NN, and NNN leases. Each tier of net lease passes additional expenses onto the tenant, freeing the property owner of more and more responsibility.

Single net leases, or N leases, hold the tenant responsible for property taxes in addition to the cost of rent. The landlord retains responsibility for the property’s insurance, maintenance, repairs, and utilities. N leases are less common for commercial real estate. Double net leases, or NN leases, and triple net leases, or NNN leases, are more common.

What Types of Net Leases Does Walgreens Operate Under?

Newer Walgreens stores typically use NNN leases with 25-year initial terms. These NNN leases are typically the most attractive type of lease for commercial real estate investors. That’s because they involve the tenant paying for all of the property’s operating expenses, including insurance premiums, property taxes, and structural maintenance and repair costs.

NN leases are usually less attractive to investors because tenants are liable for only rent, insurance, and property taxes. That is to say that the property owner is responsible for any structural maintenance and repairs, which can be incredibly expensive when you think about a 14,500 square foot building!

Experts suggest that a routine yearly maintenance call on an average-sized Walgreens roof will cost around $450, and replacing it could cost $135,000 - $247,500.

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

How to Evaluate a Walgreens Net Lease

Evaluating an NNN lease involves looking at both property value and tenant strength. Especially when you’re looking at single-tenant properties like those typical of Walgreens stores, 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 Walgreens prefers in its locations. These qualifications include corner locations with premier visibility on highly trafficked interchanges. The locations need to be able to accommodate large stores and parking lots.

Because of that, you need to ensure that your investment property meets the qualifications Walgreens prefers in its locations. These qualifications include corner locations with premier visibility on highly trafficked interchanges. The locations need to be able to accommodate large stores and parking lots.

Luckily, NNN lease tenants like Walgreens are most often well-known companies with strong balance sheets. That means you’ll be able to count on your payments arriving promptly, and you won’t be chasing down your tenants in order to get your next check.

Walgreens Net Lease Example

Let’s break down how financing this sample Walgreens NNN lease in Springdale, Ohio can help you achieve long-term financial stability.

• Purchase Price: $4,723,200
• Cap Rate: 6.25%
• NOI (Net Operating Income): $295,200 per year
• Lease Type: NNN (tenant covers taxes, insurance, and maintenance)
• Lease Term Remaining: 14.9 years
• Loan Terms: 10 years at 6.3% interest, amortized over 25 years
• Down Payment: 40% ($1,889,280)
• Loan Amount: $2,833,920
• Annual Loan Payments: ~$225,386

With an NOI of $295,200 and payments on the NNN financing of ~$225,386, the investor would be profiting approximately $65,000 per year right out of the gate. And then, after 25 years they would own a $4.7M (or maybe more by then) asset outright!

This is assuming a few things;

1. Walgreens chose to keep this specific location open when it came time to renegotiate the lease terms, and
2. Walgreens is doing well enough financially to make the rent payments.

By strategically financing this Walgreens NNN lease, an investor can turn an initial $1.89M investment into a multimillion-dollar asset while securing stable, long-term income.

Is Walgreens an Attractive NNN Tenant?

Walgreens has strong brand recognition, a loyal customer base, and functions in a stable industry. By combining these features with its strong financials and a respectable credit rating, it’s become a sought-after option for NNN lease investors.

However, thanks to the boom of shopping online in recent history, Walgreens' sales and profit have struggled. They have plans to close approximately 1,200 unprofitable stores, with as many as 500 closing this year.

That still leaves almost 7,000 stores operational and paying their rent, which is why the right Walgreens property can still be a very profitable investment.

A few other attractive tenants that we recommend are Starbucks, Chipotle, Chase Bank, and Shell.

But if you’re still intent on investing in a Walgreen net lease, here are some of the best opportunities available.