We knew it would happen.
A $9.4-billion acquisition by Walgreens Boots Alliance of Rite Aid is going to create a mega drugstore empire that will have nearly a combined 13,000 stores, if approved, making it larger than rival CVS, though, according to a Bloomberg analyst, CVS should still perform well.
However, that number could decrease. The potential deal means Walgreens could dispose of 3,000 stores, if that makes regulatory approval more possible, which is coming under scrutiny by regulators and some in Congress. Despite that, there was bound to be some overlap that would have spurred the need for store closings.
On the face of it, such a situation would not be what landlords are hoping for. That’s a lot of commercial real estate to absorb, after all.
But it might not all be that bad.
Some commercial real estate observers say that the stores shed by Walgreens will be in high demand by other tenants.
Allen Brown, director at GRS | Title, told us earlier this year that net lease retail real estate is doing very well after his trip to the annual ICSC RECon conference in Las Vegas. Of course, drug stores are some of the successful tenants that drive investor interest in the property type, but they are by far not the only types of tenants. During our conversation he also mentioned dollar stores, such as Dollar General, and eateries like Buffalo Wild Wings.
Despite that, some analysts think the Walgreens-Rite Aid deal isn’t a good idea. A Motley Fool contributor said that Walgreens is overpaying to purchase its rival, which has consistently posted quarterly losses over the last few years. There is also the argument that Walgreens will be taking on too much debt as a result of the acquisition, and Rite Aid stores aren’t that operationally favorable.
Either way, Walgreens seems poised for a major expansion that is going to lead to some new space in the net-lease retail arena. One can only hope that Walgreens’ strong operations can carry over to the stores it absorbs and makes for a strong combined tenant for retail real estate owners.