Rite Aid TENANT OVERVIEW


Pros

  • Rental increases in primary term of lease
  • Corner locations
  • Higher cap rates than competition

Cons

  • Tenants credit
  • Future viability of Rite Aid
  • Out positioned by stronger competition in some markets

Tenant Description

Rite Aid is a drugstore operator.

Rite Aid is currently in a state of flux while being purchased by the Walgreens Boots Alliance. This merger may mean divestiture of up to 1,200 stores. Although Rite Aid faces many challenges, they remain a popular asset in the net lease market due to strong fundamentals: highly demanded corner locations and long-term NNN leases. The overall stability of the pharmacy sector also creates interest and demand for Rite Aid net lease properties. With their acquisition of pharmacy chains Brooks, in the northeast, and Eckerd's, in the Carolina's and Georgia, Rite Aid has been able to remain as one of the largest pharmacy chains in the nation in regards to market presence. However, the cost of those acquisitions is weighing heavily on their balance sheet, creating significant concern for their long term viability, if the pending merger is disallowed by the FTC.

Between the acquisition of rival chains and its financial woes, Rite Aid has been selling corporate owned sites through sale leaseback transactions, and in the process they have been willing to provide more favorable lease terms than their competitors. Rite Aid has been offering a 20-year primary term with 10% rental increases every ten (10) years. Rite Aid would often agree to lease rates that are in-line with the local market rather than using their size and strong credit to negotiate a low rent. New store openings have diminished and most of the newly leased Rite Aid-occupied properties have been generated through these sale leaseback transactions. These sale leasebacks offer an investor a look at historical store sales, potentially alleviating some of the risk. The re-use or redevelopment of these net-leased assets is of utmost importance to current investors when evaluating Rite Aid investments. The underlying real estate asset may be the driving force behind these investment decisions. Allowing investors to purchase a location with great real estate fundamentals at a high cap rate. The typical Rite Aid operates in a 11,000 -15,000 square foot building, sitting on 1.00 acre of land.

Rite Aid Corporation is one of the leading drugstore chains in the United States and a Fortune 500 company, #107 in 2016. As of 3/4/2017, Rite Aid operated 4,536 stores in 31 states across the country and in the District of Columbia. Headquartered in Camp Hill, a suburb of Harrisburg, Pennsylvania, Rite Aid is publicly traded company, NYSE: RAD.

Rite Aid stores service prescription drug customers and offer an assortment of other general merchandise, which it calls front-end products. Front end products include over-the-counter medications, health and beauty aids, personal care items, cosmetics, household items, beverages, convenience foods, greeting cards, seasonal merchandise, and other everyday and convenience products, as well as photo processing. It offers approximately 3,300 products under the Rite Aid private brand.

The overall average size of each store in the Company's chain is approximately 12,500 square feet. Over 50% of its stores are freestanding and approximately 50% of its stores include a drive-thru pharmacy. Many locations also feature one-hour photo shops and include a GNC store-within-Rite Aid-store.

finviz dynamic chart for  RAD
Average Cap Rate
6.44%
12 mo avg with 10+ yr lease term
Average Property & Lease
Average Sale Price $6,022,446
NOI $374,783
$/Square Foot $200 - $400
Building SF 14,564 sf
Lot Size 1.40 Acres
Lease Term 20 Years
Escalations 10% Every 10 Years
Stock Symbol RAD
Credit Rating
S&P B
Moody's B2
Average Cap Rate Trend
7.07%
2015
6.44%
2016
Rates reflect last 12 mos, short and long-term
Recent Sales Comps
Santa Rosa, CA 5.00%
Rochester, NY 6.50%