Federal Trade Commission Prepares to File Lawsuit to Block Walgreen’s $15 Billion Purchase of Rite Aid
OCEANSIDE, Calif. – Hanley Investment Group Real Estate Advisors, a nationally-recognized real estate brokerage and advisory firm specializing in retail property sales, arranged the sale of a single-tenant absolute net-lease Walgreens property located in north San Diego County at 3507 Cannon Road in Oceanside, Calif. The purchase price was $7.4 million, which represented a cap rate of 5.0 percent.
Hanley Investment Group Executive Vice President Kevin Fryman, along with Ed Hanley, president of Hanley Investment Group, represented the seller, a private investor based in Beverly Hills, Calif. The buyer, a private investor from Northridge, Calif., was represented by Jason Flashman/Flashman Investment Group of Peak Commercial of Los Angeles.
According to Fryman, shares of Rite Aid Corp. (RAD) and Fred’s Inc. (FRED) are falling sharply on a new report that the Federal Trade Commission is preparing to file a lawsuit seeking to block Walgreen’s $15 billion purchase of Rite Aid. Walgreens Boots Alliance Inc. (WBA) shares also had fallen slightly. Walgreens has given the FTC until July 7 to reach a decision on their pending merger, after which the companies are free to merge unless the commission files a lawsuit challenging the deal before that date.
“Investor interest in single-tenant retail buildings is still very strong, especially ‘daily needs’ driven type of retailers like drug stores,” said Fryman. “Daily needs and service-oriented retailers are thought to be more internet-resistant and can drive foot traffic to other shops in the shopping center.”
Built in 2007, the 14,380-square-foot freestanding building with a drive-thru is located on a 1.64–acre pad within a former Ralphs-anchored shopping center that includes national tenants such as McDonald’s, AutoZone and Pizza Hut. There are more than 15 years remaining on the Walgreens primary lease with ten five-year renewal option periods.
Walgreens has a 10-year history at this location and benefits from the strong demographics in the area and close proximity to two regional hospitals, a large retirement community and convenient freeway access, Fryman notes. “Over 42,000 cars per day travel through the signalized intersection of Cannon Road and Melrose Drive. Melrose Drive is a major north/south thoroughfare in the city of Oceanside.”
Fryman adds, “More than 280,000 people live within a five-mile radius of the property and have an average household income of over $79,000 within a one-mile radius.”
Two regional hospitals are located less than five miles from Walgreens, Tri-City Medical Center and Scripps Coastal Medical Center. Walgreens is also near Ocean Hills Country Club, an active senior retirement community with over 1,600 homes.
“This transaction is another great example of the high demand for well-located single-tenant investments, specifically for credit retailers like Walgreens with a corporate guaranteed lease with investment grade credit,” said Fryman. “The absolute triple-net (NNN) lease offers zero landlord responsibilities since the tenant is responsible for the costs of real estate taxes, property insurance, and maintenance in addition to rent.”
“There has only been one other Walgreens that has traded hands in San Diego County in the last 12 months,” said Hanley. “According to CoStar, only eight Walgreens with more than 10 years remaining on their initial lease have sold in California in the last 12 months for an average cap rate of 5.35 percent compared to 13 transactions in the 12 months prior to that for an average cap rate of 5.03 percent.”