There has been recent speculation that Walgreens (WAG) will acquire Rite Aid (RAD). These rumors surface occasionally and usually amount to nothing. However, that does not prevent a deal from occurring or us looking forward at its possible impact.
If a deal did occur, cap rates would compress on Rite Aid deals, especially the ones deemed surviving locations in a takeover. For Rite Aid stores that might be candidates for closure, the calculation could be a little more complicated. Cap rate compression could still occur with potential store closures if they had long term leases as Walgreens would assume the lease obligation. On the other hand, Rite Aids with short remaining lease terms viewed as potential closures may have a boost in cap rate. However, these have already been pretty heavily discounted in the marketplace with offering cap rates being in the 11% cap rate range.
With regard to Walgreens locations that might be closed if it is an inferior location to a Rite Aid, for shorter term leases you may see an increase in the cap rate as the investor may now attach more risk to Walgreens renewing their lease.
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Jonathan Hipp
Jonathan Hipp began his career in real estate over 25 years ago. In his early years as a broker, he ventured into the net lease industry and quickly began leading the US net lease market, closing over $3 billion in transactions. In 2005, Jon founded Calkain Companies, a company focused solely on net lease investment services. As President and CEO, he has been instrumental in building the firm into one of the leading Net Lease real estate companies, transacting over $12 billion of net lease deal volume over the past 13 years. He has expanded Calkain’s services to include brokerage, advisory, asset management, capital markets, and industry research. He has become a well-known resource, panelist, and speaker at various Net Lease and Industry conferences and is a regular contributor to GlobeSt.com on real estate trends. In June 2015, Jon’s passion for the real estate business was again recognized as he was nominated for the Top Real Estate Player in the DC area by SmartCEO magazine.
