Despite Uncertainty, Drugstores Continue to Provide Value

Single-tenant net lease (STNL) properties are becoming quite popular among buyers seeking low-maintenance investments with consistent and predictable cash flow. Interest in drugstore investments is driving cap rates to historic lows in the retail sector, with private investors and 1031 exchanges continuing to be the principal buyers of pharmacies. Popular drugstores, like CVS, are reporting revenue increases, and forecasts are looking positive for this market sector.

The U.S. drugstore market has become multi-faceted, selling medicines and items such as cosmetics and groceries. With over 25,000 drugstores in the U.S., the market is expected to expand and evolve. The market is projected to grow from $560 billion in 2021 to $861.67 billion by 2028 at a CAGR of 6.3 percent in the 2021-2028 period.

CVS Updates

CVS Health announced a 10 percent increase in third-quarter revenue over the previous year and topped earnings projections for the third quarter in a row, owing to increased retail sales and pharmacy services. This overall increase in growth set the company up to beat Wall Street’s expectations for the quarter. CVS’s earnings per share were expected to be $1.99, but was $2.09; in addition, the company achieved a revenue of $81.16 billion, exceeding its expected revenue of $76.75 billion.

CVS has been increasing its focus on healthcare services, and it has announced plans to purchase at-home health services provider, Signify in an $8 billion deal expected to complete in the first half of next year. The initiative is like Amazon and Walgreens’ expansions into healthcare services. Amazon is paying $3.9 billion for OneMedical, a chain of boutique doctors’ clinics. CVS intends to continue its attempts to expand its healthcare business. An example of this continuous expansion is that CVS now sells over-the-counter hearing aids because of a change in classification from the Food and Drug Administration. The organization is looking for an appropriate acquisition candidate to provide primary care services.

Walgreens Updates

In the United States, Walgreens is a well-known healthcare provider with a thriving business supported by a network of over 9,000 retail pharmacies. The company provides a stable and passive income and has remained profitable. Recently, the company has announced plans to expand access to complimentary diabetes services. Walgreens has invested in training to equip pharmacists with expert knowledge to address the specific challenges of this complex condition. Walgreens is dedicated to helping the diabetes community establish and maintain an ideal regimen and routine to live a healthy life. They provide upgraded services designed to increase access to low-cost, local treatment.

Walgreens pharmacists are now more crucial in healthcare than ever before. Walgreens is presently partnering with VillageMD to open doctor’s offices. The company plans to expand into doctor’s offices to be more service-based and accessible to consumers. As part of team member performance reviews, Walgreens is doing away with all task-based metrics for retail pharmacy employees. This action will allow the company’s pharmacists to practice at the very top of their licenses and foster a unique workplace culture throughout its shops. Walgreens pharmacists are uniquely situated to close significant gaps in the American healthcare system since they are one of the most readily available healthcare providers. The business is dedicated to giving patients and customers the best care and service possible and continuously looking for fresh, creative approaches to improving the experiences of both team members and clients.

Rite Aid Updates

Rite Aid is a significantly smaller drugstore chain compared to Walgreens and CVS. However, by integrating more powerful analytics, higher agility, and better overall consumer experiences, Rite Aid aims to upgrade its pharmaceutical expertise.

Rite Aid and Google Cloud have established a multi-year deal to migrate critical applications to Anthos, the software’s application deployment platform. The innovation will enable on-site cloud computing for Rite Aid’s 2,350 pharmacies. Rite Aid can now provide superior treatment despite unpredictable occurrences like natural catastrophes, assuring comprehensive patient data, cutting-edge prescription management, and ongoing suggestions without connecting to a centralized, aging mainframe.

Increase in Demand for Drugstore Investments

This demand is attributed to investors’ preference for critical retailers, a scarcity of drugstores with more than ten years of leases, a limited development pipeline for new pharmacies, and pharmacy tenants’ investment-grade credit ratings.

Pharmacy pricing is most substantial in STNL retail and outperforms the broader retail market. There are also several benefits of investing in pharmacies, some of which include the following:

• Lease terms typically range between 20 and 25 years, including renewals, implying that the chances of a pharmacy facility “going dark” are low.
• The pharmacy tenant is ordinarily responsible for maintenance and repairs, insurance, property taxes, and build-outs under a single-tenant net lease (STNL).
• Pharmacies are typically located on prime real estate at high-traffic intersections, highly visible pad sites, or outparcels of commercial centers.

The simple STNL lease structure reduces ownership services, allowing an investor to reap the benefits of commercial real estate ownership without the hassle of day-to-day property management. These properties are also much more stable since several drugstores are well-known regional or national tenants. Overall, owning a pharmacy continues to prove itself as a profitable business venture. Drugstore owners have a lot of room to expand while feeling secure in an ever-changing market.