Speaking of which . . .

The Pharmaceutical/Insurance Alliance

In Woonsocket, RI, CVS indicated it would pay $69 billion to acquire Hartford, CT-headquartered Aetna. CVS said the acquisition would turn its stores into a “community based health hub, dedicated to connecting the pathways needed to improve health.”

In plain English, CVS believes the deal, anticipated to close in the second half of 2018, will convert its stores and pharmacies into healthcare delivery centers, staffed with nurses, pharmacists and other healthcare providers qualified to run lab work, offer advice about diabetes, colds and flu, and, of course, fill prescriptions.

“It is the development of community based clinics – capable of delivering care with the technology and health information available from both parties – that could prove to be the biggest change brought about by the deal,” the New York Times wrote. Furthermore, this merger, and, no doubt, similar ones in the future, could have an impact on healthcare net lease values and cap rates. Stay tuned.

Not All Retailers Are Failing

On the retail side, 2017 headlines blared about shuttering stores, declaring bankruptcy, and generally doing poorly, thanks to the so-called “Amazon effect.” What these headlines failed to note, however, was that single tenant net lease (STNL) retailers, especially the dollar stores, did well.

One reason why the Dollar Generals and Dollar Trees are facing down the Amazon effect is customer demographics. Many of the shoppers reside in secondary and tertiary markets, where e-commerce delivery is costlier and less efficient. These dollar store customers are less likely to shop online, meaning an essential brick-and-mortar presence.

The Crystal Ball

Net lease property investors will be able to find outstanding deals in 2018, even with low supply. Cap rates will increase from their historic lows – in Q4 2017, the average cap rate for a NNN asset was just under 6.3%.

Also look for more healthcare mergers in 2018. As healthcare retailers, groups and providers attempt to navigate around this challenging industry, there could be more alliances similar to those of Walgreens/Rite Aid and CVS/Aetna.