Walgreens and other drug and convenience stores are highly sought-after in the NNN market. That’s because Walgreens sign long-term leases for their pharmacies and meet all the city location and traffic criteria that define profitable triple net properties for sale with long-term potential. The brand is recognizable and trusted by many consumers, and even in economic downtimes or a pandemic, people still need necessities, medicine, virus tests, vaccinations, and flu shots offered by pharmacies such as Walgreens.
In addition, a significant number of people now desire a secure place to invest their money due to the volatility of financial markets. Stable, predictable investment vehicles are rare, which increases the desirability of investing in a Walgreens NNN property for sale.
The Walgreens Boots Alliance, Inc owns the Walgreens chain. The parent company is the largest retail pharmacy retailer in the U.S. and Europe, with 13,200 stores in over eleven countries. Walgreens stores are not franchises but corporate-owned. In the U.S., Walgreens operates 8,175 stores, including Walgreens and Duane Reade. Walgreens owns 15% of the pharmacies, and the remainder are leased.
As a result, you cannot acquire a Walgreens franchise because the company chooses where to build its stores. This policy is advantageous to triple-net investors because it ensures Walgreens maintains a high standard of excellence in each store, i.e., upkeep of the interior, signage, and maintenance of the outside areas and parking lot. Walgreens does have a pharmacy acquisition program that purchases independently owned pharmacy stores.
A few U.S. states have regulations about licensing and corporate ownership of chains, such as North Dakota. In that state, chains cannot retain full ownership of their pharmacy stores. Instead, the local pharmacist must have a 50% or more ownership stake in the store and should also participate in the day-to-day management of the store. Walgreens only has one store in North Dakota.
Investing in a Triple Net Lease Walgreens For Sale
Although individual Walgreen stores cannot be purchased as franchises, there is still an opportunity to invest in a triple net lease property with a Walgreens tenant.
Corporations sign NNN leases for a number of reasons, but one of the main objectives is to ensure that each store conforms to strict corporate standards. The property’s location center and the upkeep of the building and outside areas are crucial to their business operations. High-credit tenants agree to cover the real estate taxes, insurance, capital area maintenance charges (CAM), and capital expenditures to maintain control of the property.
These types of leases are more common for retail properties but are being adopted by office and industrial real estate properties as well. There are several different variations of net leases; each one allocates different responsibilities for property expenses onto the tenant.
The decision to lease instead of purchasing is advantageous to the corporation because it can retain capital to lease additional locations, and it also means the company has fewer real estate properties to manage. The dependability of a long-term NNN lease with precise expenses and set rental increases reduce financial issues and create stability for tenants and property owners.
Net lease real estate offers an array of benefits for investors who are looking for a stable source of income, with zero landlord responsibilities that come along with property ownership since the tenant pays some, or all, of the expenses that are usually covered by the property owner. Generally, net lease assets are single-tenant, free-standing buildings such as banks and fast-food drive thru restaurants. In a single net lease, the tenant pays the base rent and property taxes. In a double net lease, the tenant covers their base rent, property taxes, and building insurance.
In a triple net lease, the tenant assumes the majority of expenses associated with the property (in addition to monthly triple net rent) where they will operate their business, such as:
- Real Estate Taxes
- Maintenance, Repairs, and Utilities
In absolute net leases assign all responsibilities to the tenant, including structural building maintenance, and the property owner has no responsibilities.
Based on the lease, the property owner of a NNN property may also have to cover structural repairs, such as repairing the roof. Heating, ventilation, and air conditioning are often split between tenant and property owner. In some leases, the landlord responsibilities also cover outside areas, i.e., the parking lot.
The most profitable triple net lease properties for sale typically have a few critical things in common, which signal an excellent investment with longevity, including:
Geographical location: Growing cities and areas experiencing population and economic booms are ideal markets for NNN properties.
Physical location of the building: A building with an easily accessible location, particularly on a corner with high traffic and many nearby businesses to bring more people to the area is great for NNN lease properties.
In addition, because tenants typically sign long-term leases, the risk of having to find a new tenant after a tenant leaves is usually lower compared with other categories of leases.
Triple net properties are often desirable to part-time investors who want guaranteed income with little to no day-to-day management responsibility, and they offer an appealing exit strategy for investors with mature portfolios. Another advantage is that you can invest in NNN properties for sale located anywhere in the U.S. because NNN ownership requires minimal to no landlord responsibilities.
As with any real estate investment, a few factors must be examined when valuing and structuring the deal. While it is true that NNN properties for sale offer the advantage of limited management responsibilities and stable, long-term income, they may generate lower returns than properties with greater management duties. Prices for NNN properties typically start in a range of a 6% cap rate for tenants with the best credit ratings, up to about 8.5% – 9% for lesser credit quality, or those with short lease terms. A cap rate is the rate of return on the commercial property for lease if you were paying all in cash. The lower the cap rate, the higher the sale price on average.
Sometimes the commercial lease for a space is advertised at $12/PSF, or $12 per square foot for the base rent, and NNN expenses will be added to that figure, including upkeep of common areas such as parking lots and hallways.
But each deal is as unique as the property itself, so it’s essential to know these three aspects of NNN expenses (from the standpoint of an investor and a tenant) to ensure you choose the best investment for your portfolio.
Investors who tap debt financing when purchasing triple net properties for sale can generate leveraged returns in the 10% — 12% range.
Before investing in a triple net lease property, investors must be accredited and have a minimum net worth of $1 million (not including the appraised value of their primary residence) or annual income of $200,000, or $300,000 for joint filers).
Is Owning a Walgreens Profitable?
When evaluating a specific NNN for sale, not just Walgreens, investors should assess the health of the tenant’s business model and finances. Questions that should be asked include how many stores does the company own? What is the company’s debt to equity ratio, operating margin, management’s strength, and the outlook for its industry sector? These questions are similar to evaluating a publicly-traded company when you are thinking about purchasing its stock.
When you lease your property to a tenant, you are giving capital to the business, and Walgreens’ financial success directly impacts the long-term health of your investment. The company’s history and its future financial outlook are both important.
Walgreens stores have historically been popular among triple net lease investors because they are an investment-grade company with tenants (the pharmacies) located on desirable sites—known as “main and main.” Walgreens is also part of a strong and growing industry due to vibrant demand for its products from the aging population.
The company also typically signs long absolute NNN leases. Due to competition from rival CVS, Walgreens is known to pay higher rental rates to obtain prime locations with 25-year primary lease terms.
The company continues to perform well, and that is reassuring to Walgreen property owners. In the 2021 fiscal year, sales rose 8.6% to $135 billion, and net earnings from continuing operations were $2.0 billion, compared with $180 million a year earlier.
When examining any NNN for sale, the credit rating of the tenant’s company must be evaluated. A company’s credit rating is calculated by each of three rating firms (Standard and Poor’s, Moody’s, and Fitch), and those with a rating of BBB- and higher (S&P scale) are considered “investment grade.” Walgreens corporation has an excellent BBB rating from Standards & Poor’s and Baa2 from Moody’s.
Analyzing performance on a per-store basis, the average cap rate is 6.0% based on a 12-month average with a ten-year or longer lease. The stores sell for an average of $600,000 (stores can range from $1.65 million to $3.67 million) and have a net operating income (NOI) of $366,000 and a lease of $414 per square foot.
Typically, the average size of a Walgreens store is about 14,500 square feet, but it can range from 10,800 to 15,000 square feet. The operating data for Walgreens compares quite favorably to CVS. The rival’s cap rate is 5.3%, the average sale price is $475,500 (stores can fetch from $2.6 million to $2.99 million) with an NOI of $251,751 and a lease of $317 to $594 per square foot. On average, CVS stores are a bit smaller—8,000 square feet to 15,000 square feet.
Why should I invest in a Walgreens for sale?
As stated above, investing in a property leased to a Walgreens is widely considered one of the safest and most reliable real estate investments. What makes the investment unique compared to other real estate properties is that a Walgreens pharmacy is guaranteed by the total assets of a billion-dollar company. Investors can be confident that rent will be paid on time each month for the next 20 years remaining or more. In evaluating NNN properties, be aware that all credit ratings can vary significantly between tenants.
With the significant expenses paid by the tenant in the NNN lease, the property owner benefits from not having to worry about hidden fees or any ownership annoyances or problems. Many people compare owning a triple-net lease with Walgreens as the tenant to owning a corporate bond, i.e., the investment provides a fixed yield until the security’s maturity. There are simply no possible unforeseen expenses that can arise in other categories of real estate investments.
Owning a Walgreens can also be advantageous if the property owner wants to borrow funds to improve cash flow in the short term or structure a longer-term loan for estate planning. Because Walgreens maintains excellent credit ratings from the major credit agencies, property owners can benefit from several financing options and may even obtain better terms than those available on other commercial properties.
Just like other NNN properties, property owners can use the 1031 and 1033 Tax-Deferred Exchange Code and utilize capital gains to their benefit with your triple net investment. If the value of investment property rises and you choose to sell it, you can then circumvent taxes on the gains by immediately placing your profit into a new property. This enables you to buy larger and better properties and hopefully boost your income in the process. Thus, you can generate a profit without paying as much in taxes or delaying the tax bill.
Also, with triple net properties, the leases can typically be transferred. That allows the property owner or investor to sell his or her interest in the property, even if a lease is in place and the property is occupied. As the property owner, you will be able to move on with your investment strategy when it’s the right time for you and not have to worry about having to wait to structure a sale when the term of the lease ends.
Another reason to buy a store leased to Walgreens is the opportunity to benefit from the company’s highly respected site selection. Before the company agrees to break ground on a store, the site must adhere to several corporate requirements:
- Favorable demographics
- Traffic counts that meet a certain threshold
- The company models the stores’ future cost, sales, and profit levels
- Analysis of competitors with stores in close proximity
- Retail trade area concentration
Walgreens takes the time to analyze each location because it has a long-term outlook for its business operations. They have developed a clear strategy and plans that they execute with precision. They place so much importance on a location because they want the store to be in a location that will be profitable. When Walgreens builds a store, they typically sign leases that bind them to pay rent at the site for 25 years remaining, so they must be confident about it. As an investor, you can profit from the company’s long-term outlook and be reassured that the property will continue to pay you rent, month after month, steadily.
What benefits does a Walgreens for sale add to my portfolio?
Net leased properties with credit tenants have grown in popularity with investors in the past few years due to low returns on convertible assets such as bonds and liquid assets. Net leased properties with credit tenants can be an excellent investment if you perform the appropriate due diligence.
While triple net properties are relatively low risk, it’s crucial to determine the tenant’s financial situation. Publicly traded companies, such as Walgreens, offer transparency because it’s not difficult to research the company’s finances with readily accessible information. Walgreens is considered a superior tenant among triple-net leases and a sound long-term investment.
Walgreens is a top-rated company that prefers to sign long-term triple-net leases of 20 years or more, and the property owner usually does not have to pay for expenses. This eliminates worries about collecting rent on time or owning a vacant building. Many banks and other lenders will agree to a fixed, self-amortizing loan for those 25 years.
Walgreens stores are typically in optimal locations with the possibility of extending the leases over a long period. Several locations are on 1.5-acre lots on prominent corners in areas with high traffic and excellent demographics. More practically, their buildings are not too large if you have to lease them to another tenant if Walgreens decides to leave the property at lease end.
Often, a corporate tenant, such as Walgreens, will extend beyond the initial lease term, and if you have completed paying your asset, this can be an opportunity to increase your profits. Also, if you must or desire to sell, the longer the lease term remaining, the greater the possibility of obtaining a higher property value. Trading up to another more lucrative NNN lease investment is also an opportunity for a tax-free 1031 exchange. The benefits are many, while the owner’s responsibilities are minimal.
- Passive, guaranteed income
- A reliable investment with low risk.
- Preserving wealth and diversifying investments.
- Opportunity to create equity over the lease term.
- Permanent, tangible asset and value that will not vary day-to-day.
- Annual tax benefits and opportunities for a 1031 exchange.
- A possibility of owning your NNN property without debt at the lease term’s conclusion.
- Lack of active property management.
Walgreens Stores for Sale
When looking for a Walgreens NNN property for sale, choosing the best one for your portfolio can be a complex process to navigate.
Along with the tenant’s credit rating, triple-net properties must be evaluated just like any type of real estate by examining the location, land, local conditions, building size, quality and use, and the lease terms. The goal must include analyzing the current value and determining the best-case and worst-case future situation including the chance that property will be vacant, or “as-dark” value.
A property in an inferior location may be challenging to re-lease. That is why it is crucial to have extensive knowledge of local conditions. Along with the site, it is crucial to research local trends in population demographics, employment, and income to know how one triple net lease property will perform compared to similar properties in another market. Often, these market factors can be the most crucial factors when choosing a NNN property.
The lease itself is perhaps the most crucial aspect of a NNN lease. The buyer must read, interpret, and comprehend the lease terms, which are part of a complex lease document. They are usually written by the tenant and can be biased toward the lessee. They can include unexpected expenses, cancellation clauses, or default penalties. Risks can increase for properties with leases that are close to expiration or renewal options during the planned hold period.
As a result, having an experienced net lease broker on your side can ensure you understand the applicable NNN cap rates, pick the right property and obtain the most beneficial NNN lease terms.
What is a NNN Lease Advisor?
A net lease advisor or broker is a professional who specializes in net lease properties and has a solid success record of guiding investors in the selection of profitable, long-term NNN investments. Net lease advisors understand the industry intimately and are up to date on all the trends driving the most lucrative deals in the market. An experienced net lease broker can help you find and qualify triple net listings that align with your investment strategy and also assist you with financing and net lease negotiations on the property you choose for your portfolio.
Net lease advisors offer a variety of different services that can be tailored to your investment goals, which include (but are not limited to):
- Property Evaluations
- Portfolio Analysis
- Strategic Advice and Recommendations
What to Look For in a Net Lease Advisor or Broker When Shopping for a Walgreens NNN For Sale
Before you begin working with a net lease advisor, you should look into their successes and services by seeking out information about their work in the industry. This research will help you learn who they are and what services they offer to help you in your net lease property search and purchase. A few key things you should consider carefully before you begin working with a net lease advisor are:
- Industry Experience: A net lease broker should have extensive expertise in the market, including market insight, property values, and long-term profitability.
- Proven Track Record in Triple Net Properties and Deals Closed: The net lease advisor you choose should have a demonstrated record of success in closed deals and case studies.
- Client-Focused Approach: A excellent net lease broker will be very client-focused and treat you with the utmost respect as they examine your portfolio and listen to your goals to form a long-term strategy for you financially.
Working with a reputable net lease advisor is a great way to ensure that you get access to the best properties available and understand all of the net lease details before you enter a deal. Net lease advisors aid in making certain that you get the best investment possible with the low-risk, high-reward scenario you are looking for in your triple net property.
Among its listings, Sands Investment Group has several NNN lease properties with a Walgreens tenant for sale. These stores, located in New York, North Carolina, and Pennsylvania, are close to major roads and offer favorable demographics, along with nearby retail stores, companies, and universities. They also provide long-term triple net leases of 15-20 years and attractive cap rates that range between 6.0%-7.0%. For example, a Walgreens in Saint Pauls, NC, has a Cap rate of 7.0% and about four years remaining on an absolute triple net lease that features 5% increases in each option period. The store is also located in a strong-performing site. The next closest national drugstore operator is more than 15-miles away. Many national chain stores are located nearby, including AutoZone, Hardee’s, Pizza Hut, Burger King, Food Lion, Days Inn, Taco Bell, Family Dollar, and Walmart Neighborhood. The store’s signs can be easily spotted by cars passing by on Route 301, with more than 6,629 vehicles per day (VPD).
Another listing is for a larger store in East Norriton, PA, a suburb of Philadelphia. The store has a number of favorable attributes that demonstrate Walgreens’ skill in choosing profitable locations. The site has strong demographics with over 164,531 residents and an average household income of more than $114,849 in the five-mile radius. Several hospitals and corporations are located in the vicinity.
Sands Investment Group is the fastest growing net lease investment company in America, with over 3,000 transactions in 48 states (to the tune of $5.9 billion) since 2010. Our company is comprised of distinguished experts in the space who fully understand the advantages of net lease properties and can offer you strategic advice on which triple net property makes the best sense for your goals and portfolio.
Want to learn more? Get in touch with an expert net lease advisor today by calling 844.4.SIG.NNN or sending us an email at info@SIGnnn.com.