There are a number of different types of CVS properties for sale when compared to other freestanding net leased tenants. Each property can range in square footage, tenant operations, building type, lease structure and ownership structure. These factors directly impact the value of any CVS for sale and should be considered in addition to the typical valuation factors of real estate quality and lease term remaining before the options.
Some CVS properties listed for sale are zero cash flow ownership structures where the entire rental payments go to the lender to pay down the debt giving the landlord zero cash flow during the primary lease term. Many times these properties have a rent holiday for CVS at the end of the primary term before the lease options. These zero cash flow investments are valued completely differently than the typical CVS investments.
Most CVS stores are fee simple ownership structures; however, there are some that are
infill ground lease structures that may have increases in the primary lease term or have larger increases
in the renewal option periods versus a typical CVS lease. Another ownership type that is more prevalent
with CVS are the leasehold ownership structures. These properties have a ground owner
but then also a leasehold position that can become available for sale.
CVS properties also can range in building square footage. Due to CVS acquisition of Long’s Drugs, many locations in the West Coast are inline anchors within shopping centers and can range in size up to 30,000 square feet. Typical freestanding CVS stores range from 10,000 square feet to 16,000 square feet.
Another differentiator between CVS for sale is the lease structure. Some stores are absolute net with zero landlord responsibilities and others are double net with varying landlord responsibilities. Of the double net properties, some have roof, structure or parking lot responsibilities and some may have reimbursable expenses pertaining to common areas if located within a shopping center. CVS properties all have varying business operations which directly affect store profitability. Some locations have a minute clinic or are 24 hour operations which are preferred by many net lease investors.
Most CVS stores have store operating hours until 8 PM to 10 PM. Some locations may have beer, wine or liquor sales as well. These are all smaller factors that help investors value each store especially when stores sales volumes are not available to the landlord. If a specific store has a few of these positive subtle differences over another then it provides comfort to an investor in the likelihood of CVS remaining as a tenant for years to come.
Factors for CVS stores for Sale
In addition to these factors, two main drivers in pricing of CVS stores are the primary lease term remaining before the renewal options and the real estate quality. Most locations that have over 15 years of primary lease term before the options will trade sub 6.25 CAP. Other stores that have less than 5 years of lease term before the options may trade over a 7 CAP depending on the real estate quality. As with most net leased properties, the main value is the credit strength of the tenant and the lease in place but obviously all investors regardless of property type consider the real estate quality.
Considerations when purchasing a CVS
The difference with CVS for sale is that an investor must understand the backfill rent per square foot and compare that with the likelihood of CVS renewing the lease to see if they are purchasing the risk at a fair CAP rate. The factors mentioned in this article will allow any investor considering a purchase of a CVS investment a way to gauge value between one store for sale versus another when real estate quality is even. Due to these varying factors in it’s important to work with a broker who has a firm understanding of drugstore properties and who has closed a variety of CVS properties.