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Drug Store Cap Rates Jump, Reversing Long-Term Trend

CHICAGO—A potential merger, and the attitude of federal regulators, has buyers getting more cautious.

By Brian J. Rogal | brianjrogal | Updated on November 01, 2016

chi-DrugStorePhoto Walgreens has about 8,200 stores, and Rite Aid about 4,500, making a combination much larger than CVS.

CHICAGO—Reversing a long-term trend, cap rates for single tenant CVS, Rite Aid and Walgreens properties all increased significantly in the third quarter of 2016, according to a new report by the Boulder Group, a net lease firm in suburban Chicago. Investors seem most concerned by US antitrust regulators’ requirement that Walgreens sell between 500 and 1,000 stores before they will approve its plan to acquire Rite Aid.

Cap rates for the net lease drug store sector increased by 33 bps to a 5.96% cap rate when compared to last year, Boulder found. Rite Aid and Walgreens cap rates went up 30 and 37 bps each. In the same timeframe, CVS cap rates increased by 25 bps.

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