Jonathan Hipp
Just as the dust settled on the Walgreens Boots Alliance-Rite Aid Corp. alliance, the latter made news once again. In late February 2018, supermarket operator Albertsons Cos. announced it would acquire the remaining Rite Aid assets, as GlobeSt.com previously reported. The grocer's goal is to reposition its in-store pharmacies under the Rite Aid brand, while continuing to operate Rite Aid stand-alone retail pharmacy centers.
If all goes according to plan, the $2.6-billion transaction will close in the second half of 2018, resulting in a company that controls 4,900 locations, 4,350 pharmacy counters and 320 clinics in 38 states and Washington DC. Unlike the Walgreens-Rite Aid merger, the Albertsons deal will likely close without too much trouble.
Analysts have gone to great lengths to focus on the acquisition's benefit to Albertsons. What doesn't seem to be on the radar, however, is the potential impact on stand-alone Rite Aid stores. Here is our analysis.
1) Front-of-store sales boost. A Bloomberg analysis, shown in the chart below, demonstrates Rite Aid's struggles. The Albertsons' acquisition could mean a Rite Aid reboot. Additionally, better grocery options could lead to an increase in Rite Aid's front-of-store retail sales.
2) A cap rate boost. Rite Aid retail pharmacy centers tended to trade at higher cap rates than their Walgreens and CVS counterparts. Calkain research shows Rite Aid store cap rates were at 7.5% in 2017, an increase from the 6.8% reported in the previous year. The reason? Not much development since the mid-1990s. As more Rite Aid stores are rebranded under the Walgreens brand, cap rates could increase as fewer Rite Aid stores remain.
3) Continued lack of location competition. NNN leased Rite Aid stores are often situated on high-demand corners, without much direct competition. A Calkain report from November of 2015 showed 63.3% of Walgreens stores were located more than three miles away from the nearest Rite Aid location. Once again, this dynamic could change as Rite Aid stores come into the Walgreens fold. It could also bode well for remaining stand-alone stores.
From a property investment perspective, uncertainty still exists about Rite Aid's future. Cap rate increases could become an especially thorny issue. However, Albertsons ownership could refresh Rite Aid's brand name, while placing better-quality product in stand-alone stores; stores that are already in great locations.
The views expressed here are those of the author and not ALM Real Estate Media.
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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.
