Walgreens NNN For Sale
Walgreens is one of America’s largest drugstore chains, and it’s sometimes even 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 8,800 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 more than 13,200 stores spread across 11 different countries.
Due to the company’s stability, low risk, attractive sector, and stellar locations, it’s a premier option for investors looking for a dependable commercial real estate investment
Tenant Overview
Part of what makes Walgreens (and other drug and convenience stores) highly 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.
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.
If you’re considering investing in a Walgreens NNN lease, you may want to consider some of the factors outlined in the table below.
| Walgreens NNN Lease at a Glance | |
| Average sale price | $6,000,000 |
| Average NOI (net operating income) | $345,000 monthly |
| Average square feet | 14,500 |
| Average lot size | 1.5 - 2.0 acres |
| Typical lease term | 25 years |
| Escalators | None |
| Typical location | High-traffic urban areas on large lots with parking spaces |
| Ticker symbol | NASDAQ: WBA |
Walgreens Lease Structure
Walgreens stores typically sign 25-year NNN leases without rent price bumps. The company has recently signed a number of 75-year leases, however – but after the primary lease term of 25 years, Walgreens has an annual cancellation option. In other words, once the first quarter-century has passed, there are 50 one-year renewal options.
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 10% are considered good. Walgreens’s 5% cap rate is slightly lower than those of some of its competitors, meaning it’s believed to be a safer investment.
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 pays 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 what’s left, mainly including structural maintenance and repairs, which can prove to be expensive.
When renting a property through an NNN lease, a tenant will generally pay a lower base rent. That’s because they’re responsible for so many operating costs. NNN leases reduce the burden of property management, because they pass so many 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.
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.
What Makes 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.
In October, Walgreens Boots Alliance (the parent company of Walgreens) reported its full-year and fourth-quarter results-for-fiscal-2022. Although many of the company’s financial reports included losses, CEO Rosalind Brewer cited macroeconomic headwinds as the cause. Sales from continuing operations remained fairly steady, increasing just 0.1% year over year.
As a whole, Walgreens is a high-quality, investment-grade tenant with locked-in stability that’s echoed in its 5% cap rate. It’s an attractive option for an NNN lease.
