CVS/Walgreens Portfolio...Too Good to Be True?

Question

A broker recently sent me a list of sevral CVS and Walgreens properties for sale throughout the U.S. I'm currently eyeing several of the CVS properties, but they just seem too good to be true. All the Walgreens are listed for over $5M (that makes sense), a few of the CVS are listed at ~$3.4, but many of them are around $1M, some even less and that seems suspicious.

All are absolute NNN corporate leases with 15+ years on the lease with fairly large lots and CAPs above 5%. A few of them are in areas that aren't that great but the rest seem to be in decent locations.

What's the deal here? Most of the the Walgreens and CVS I've seen are going for at least $3M, trying to figure out why these are going for so much less. Anyone have any idea?

Paul Cattin · Answer

Account Closed I would also want to really see the OM for what they are really offering. An "as-is" or pro-forma value. They could be accounting for renewal options and future rate bumps. i.e. less than a 1 year left on a lease that has 3 more 5-year options that increase 10% every 5 years. If an absolute NNN lease, they are most likely paying CAMs.

Account Closed · Answer

@Joel Owens Definitely no free lunches! These would be all cash purchases, just wondering why some of them are so cheap relative to the rest. I have only a list of the properties, waiting on the details from the broker, I'll send the list over to you.

@Sam Shueh Amazon is encroaching on Walgreens/CVS territory, the just recently bought the PillPack pharmacy. To what extent this will effect the big two, I'm not sure yet.

Sam Shueh · Answer

I thought it is affected by fierce competition and Amazon's disruptive business plan.

Joel Owens · Answer

There are no free lunches out there.

Wesam what are you trying to do?

I have pretty much seen all these properties as I look at about 1,000 a week and know most of the companies in the space doing searches for other clients.

Leasehold's and other oddball lease structures for pharmacies that are not NNN or NN are very hard to finance. Most of these would be cash purchases.

You could send it to me and I can likely quickly tell you why it is a certain way etc.

Ronald Rohde · Answer

I'm sure the difference is due to cash flow, NOI or as mentioned, different asset purchase entirely.

Read the legal docs and you'll see.

Account Closed · Answer

@Jamie Engledow Haha you're much more observant than I! I'll make an effort next time I visit both stores and see if I notice the differences.

CVS/Walgreens Portfolio...Too Good to Be True?

CVS/Walgreens Portfolio...Too Good to Be True?

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