There are 3 major drugstore chains in the U.S.: Walgreens, CVS and Rite Aid. The following table lists the companies by market capitalization and turnover in September 2009 that:
Walgreens is # 1, with a market capitalization of 34.26 billion U.S. dollars, $ $ 62.23 in sales, and notes, S & P +. According to Walgreens, 75% of the life of the U.S. population within 3 miles of their stores. In October 1, 2009, Walgreens opened its 7000 ° shop in Brooklyn, New York.
CVS is the number 2, with a market capitalization of $ 5293.27 billion U.S. dollars of dollars of income (less than a CVS, Walgreens, if you) to Caremark income group, and S & P BBB +. CVS has 7,000 stores open Word in Little Canada, Minnesota, 5 October 2009.
Rite Aid is ranked No. 3 in a market capitalization of 1.87 billion U.S. dollars, 26.21 U.S. dollars the value of revenue, 4901 stores and S & PB.
The purchase of real property occupied by these chains of Pharmacy for the following reasons:
The pharmacy business isinsensitive recession. People need medicine when sick, regardless of the state of the economy. Rich and poor in America have access to medicines. Some even argue that the low-income people or drugs free because of the low cost, which can make better use of the programs funded. Therefore, the tenants must do, even in difficult times and to pay the landowners.
The activities of pharmacy has good prospects in the United States
People are living longer and need more support for doctorsLongevity, for example, osteoporosis, Actonel, Aricept for the symptoms of Alzheimer's disease. Older people tend to use drugs younger. As 78 million baby boomers reached retirement age in 2008, the drugstore chains anticipate the demand for medicine in the next 20 years continue to grow.
The drug market continues to grow as the population of the United States to grow.
There are new drugs from incurable diseases and new diseases, such as Viagra to treat menUnfortunately, Zoloft for depression, colon cancer, Avastin, Herceptin for breast cancer nicotine patch for smoking habit, Tamiflu for pandemic influenza vaccines for pigs kick influenza (H1N1) influenza pandemic, Tekturna / Rasilez for hypertension and some new drugs against AIDS and Attention Deficit Disorder (ADD). The new drugs are very expensive, for example, one years supply of Avastin costs about $ 55,000. Eli Lilly has over 4.8 million U.S. dollars in 2007 to sell Zyprexa for schizophrenia, butMost people have never heard of this drug.
There are drugs that are currently approved for the treatment of diseases and increase revenue. For example, Lyrica was originally developed for pain caused by nerve damage in patients with diabetes. Now is approved by the FDA for the treatment of fibromyalgia, which affects 5.8 million Americans from WebMD.
Great advances in genetics, biology and stem cells is expected that a new class of drugs to treat diabetes, Parkinson's and produce morerare genetic diseases. For example, new drug targets Ilari Novartis genetic causes an inherited disease that there are only 7000 known cases worldwide. But Novartis hopes to gradually expand its drug-selling drug with the most common diseases that are caused by genetically similar.
Technology and modern life and the need for new products, increase as pregnancy testing, Lamisil toenails to introduce a clearer, longer, often lashes Latiss, Premarin for menopausal symptoms,diabetic monitors, electronic toothbrushes, contact lenses, lens cleaners, diet pills, vitamins, oral contraceptives, IUDs, food supplements and cholesterol-lowering pills (the Americans spent about $ 26B in 2006 medication for cholesterol only by IMS Health, Connecticut, a consulting firm, the pharmaceutical industry monitor revenue.) There are also various operations: caesarean section, triple-kidney transplant, open heart above – and breast enlargement. Half-drug operations oftenis necessary, such as prevention Vicodin for pain and warfarin to prevent clotting of blood in the bathroom.
Before customers can access the medicine aisles or pharmacy counters, they must hand over the chocolate, soft drinks, cameras, watches, toys, dolls, beer and wine, cosmetic products, video games, flowers, perfumes and greeting cards. Expect to be one hour and the information service can solve your liquid propane tank there. The stores also sell seasonal products, such as Halloween costumes, and "as seenon TV "products, such SHAMWOW. As a result, customers who sell more of their needs and medicines in pharmacies. Rite Aid more than 28,000 objects in its non-Walgreens stores, and has 22,000 different items shelves in stores. CVS said the non-pharmacy sales represented 30% of total sales in January 2007. The figure for Walgreens is 34% and 37% on Rite Aid. Pharmacie different places, in fact, particularly in convenience stores residential sectoror in rural areas. During the recession, fell to sell these products, because customers buy what they need and not what they want. Walgreens attempts to reduce the number of points from 4000 a. But it also has its own brand, which has a higher profit margin.
There are more and more generics on the market as a series of blockbuster popular brand losing patent length of 20-year-old, for example, Lipitor (the world's best-selling drug for lowering cholesterol), in 2010, Viagra (whichI know what it is) in 2012. Pharmacies Generic prefer customers to higher profit margins of branded products for the sale of drugs.
Some people are addicted to painkillers like hydrocodone and consume a large amount of drugs, up to 30 days, for example, after administration on a day to come. According to the testimony of the National Institute on Drug Abuse, the retail pharmacies in the U.S. nearly 180 million prescriptions in 2007 to opiates such as hydrocodone.
This author believes that at least 10% ofDrugs are not used and remain on stand-by the medicine cabinet. Are finally defeated and eliminated.
These companies sign NNN long term leases, secured by the assets of your company. This makes the investment in the property underlying risk quite low, especially for Walgreens with an A + rating from S & P. In fact, these qualities are often associated with investments in soil properties. Once signed, the chains of pharmacies that lease, pay the rent promptly andthe right time. This has rented the author is not aware of the property through a chain of pharmacies, where the tenants pay no rent. Although the shops are closed because of weak sales (Walgreens closed 119 stores in 2007), allowing these companies to sublet the property of other companies and to continue to pay the rent for the principal.
Investment Risks
Although the activities of the pharmacist is usually not vulnerable to a recession, there are risks to the investment:
Majorlower investment in pharmacies is that there is little or no importance to rent for a longer period, for example, 20-50 years, particularly for pharmacies. Therefore, the income after inflation has actually been reduced, this is one of the main reasons for these properties are not attractive to younger investors accepted.
The 3 pharmacy chains now have a formidable new competitor, Wal-Mart. Wal-Mart sells more than 4,000 pharmaceutical products in Wal-Mart, Sam's Club and Neighborhood Market stores in 49 states. The giant retailknown for launch in 2006 to provide a widely publicized program of 4 million of generic drugs, which now sells 350 generic drugs for 30 days. The actual number of drugs is lower than the average in different doses are counted as different drugs. For example, metformin, are numbered 500 mg, 850 mg and 1000 mg of 3 drugs. Wal-Mart is probably not very profitable on these medications, if necessary. However, the market generates great publicity for Wal-Mart(Target offers the same drugs for $ 4, but know only a few people.) Wal-Mart wants to get customers into its stores with other conditions, which have a higher profit margin. In a scientific poll with a name prescription drug Lyrica, the author finds the lowest price at Costco, the highest price at Walgreens and Wal-Mart in the middle.
Business Leader Rick Newman, a correspondent for U. S. News & World Report predicted that Rite Aid could not survive 2009. Seemscould be wrong. The study of Integrity Review Rite Aid has the opportunity for 10.5 percent of bankruptcy in 2010. However, actions are very well marked in the second half of 2009. For the second quarter ending in August 2009 Rite Aid reduced its losses to 116 million euros compared to a loss of 222 million U.S. dollars a year earlier.
Drugs are also sold in thousands of supermarkets, Target and Costco.
Many leases in areas where hurricanes and tornadoes are leased, with the exception NNNRoof and structure. So, if the roof is damaged, you must pay the costs.
Between 3 chains of pharmacies, Walgreens and CVS pharmacies usually have the best positions, the most important intersections, and Rite Aid places less reward.
Walgreens: The company was founded in 1901 by Charles Walgreen, Sr. in Chicago. Although the company has more than 100 years, remain the shops only 5-10 years. This is the best way to manage the company for threePharmacy chain, and also between the public most admired companies in the United States. The company is managed by professionals with a proven and let the best graduates. Because of its superior financial strength – S & PA + rating – irreplaceable location and properties with leases from Walgreens get the highest price per square foot and / or the rate of growth than capital between 3 chains of pharmacies. In addition, Walgreens, rental apartment, or only very small increase of rents between 20 and 60 years.Market capitalization is often below the 6% to 7.5% from the beach in 2009. Investors who buy Walgreens tend to be more mature, or nearly the age of retirement. Are you looking for a safe investment where it is most important for controlling rent for the satisfaction. We often compare the performance of their investments Walgreens with the lower performance of the United States government bonds or certificates of savings banks. Walgreens opened many new stores in 2008 and 2009, so you will see many new stores WalgreensSale. Expansion to slow in 2010 and the renovation of existing stores, but focuses
CVS: CVS Corporation was founded in 1963 in Lowell, MA from Stanley Goldstein, Sidney Goldstein, and Ralph Hoagland. The name of the CVS stands for "Consumer Value Store." Since 2009, CVS has about 6,300 stores in the United States, primarily through acquisitions. In 2004 CVS purchased in 1200 primarily in Texas and Florida, Eckerd. In 2006, CVS bought 700 Savon and Osco drugstores, in particular,Southern California. In 2008, CVS acquired 521 Longs Drugs stores in California, Hawaii, Nevada and Arizona for $ 2.9 billion. The purchase of drugs long CVS seems to be good, because it has no stores in Northern California and Arizona. Moreover, the price also includes real estate. He also bought Caremark, the largest pharmaceutical services companies and changed its name to CVS Caremark. When CVS bought Eckerd in 1200, were as one LLC (LimitedLiability Company) to own one of Eckerd stores. Each LLC signs the lease with the landlord. In the event of default, the landlord can not legally go after the assets of the LLC, rather than the CVs of other goods. Even if the owner loses the security of company assets for CVS, this author is not aware of any incident where CVS closes a store and pay no rent.
Rite Aid: Rite Aid was founded by Alex Grass (who just died August 27, 2009 at the age of 82)and opened its first store in 1962 as a "discount thrife D Center in Scranton, Pennsylvania. It was officially incorporated as Rite Aid Corporation and is published in 1968. When Alex Grass resigned as president and CEO of the company during 1995, Rite Aid is the largest national chain of pharmacies has been in relation to the total number of stores and number 2 in terms of revenues. His son Martin Grass, resume, but Rite Aid was founded in 1999 with inflation degree during the years 1990 prompted Rite AidNow financially weakest of the 3 chains of pharmacies. In 2007, Rite-Aid about 1,850 Brooks and Eckerd pharmacy, purchased mainly along the east coast to reach with Walgreens and CVS. In this process a huge debt in the long term (today has more than 5.69 billion U.S. dollars) and is the largest drugstore chain in terms of market value to be used. The integration of Brooks Eckerd and does not seem to fit. Recipes for some of these plants was reduced by 20% by changing the sign of ritualHelp. Since 2009, Rite-Aid has more than 4900 branches and more than 26 million dollars in revenues. On January 21, 2009, Moody's Investors Service downgraded Rite Aid to "Caa1" to "Caa2," eight levels below investment grade. Both evaluations are "parasites" that give a high credit risk. Rite Aid has been contacted to be improved, the number of its owners in 2009, the search for the subsidy for the rent of the baseline. Rite Aid in June 2009 successfully completed the refinancing of $ 1.9 billion of debt. In September 2009 Rite Aidreported a small loss for the second quarter ended in August 2009.
Things to consider when you invest in a pharmacy
If you are investing in a property leased by drugstore chains are interested, here are some things to consider:
If you are a low risk investment, you go to Walgreens. In areas of stable or growing, the level of security is the same whether the property is in California, where a maximum of 6% or Texas, where he could get a limit of 7.5%. There area significant advantage for investing in real estate in California, that the property value is based on the prices of the CAP. In 2009, the height of the IC seems to offer the Walgreens to increase by about 1% compared to previous years. How can we not be obtained otherwise, some appreciation of your investment if you sell at a lower rate of CAP in the future.
If you're willing to risk more, and then continue with Rite-Aid. Some properties outside of California, offers up to 10.75% activation rate% in 2009. However, among the 3 drugsChains, Rite Aid, with a probability of 10.5% decline in 2010. I have to file for bankruptcy, Rite Aid has received a selection of places to be open space and to terminate the lease. To minimize the risk that minimize memory components, select a location with strong sales and rentals at low relative to sales.
Unless you are a prudent investor or risk taker, you can check on a CVS pharmacy. BBB + rating by S & P. The market capitalization is greater than Walgreens, but lessRite Aid. Some contracts may provide a better skin for rent. Secondly leases, no lease CVS, especially for homes in hurricane zones, for example, Florida does not really NNN, where the owners are responsible for roof and structure. Then you must adjust the speed at wholesale on this basis. Some places have staff on site minutes from clinical nurses CV. This idea was the clinic has been introduced recently, is not clear, for a clinic in a CVS is about the bottom lineShop.
All 3 pharmacy chains have similar requirements. They all want highly visible, independent, rectangular property around 10,000-14,500 SF 1.5 – Lot 2 acres, preferably in a corner with about 75 to 80 seats in a growing and high-traffic location. All require the property that have a drive-thru. Therefore, you should avoid buying a property line, ie not-self, and property without drive-thru windows. It 'possible that these drugs do not want,The renewal of the lease if the property is located in a densely populated and the lack of open spaces nearby. Even if you have a property that is not the new requirements, such as a drive-through purchase, you may have a problem of financing available and lenders are aware of these requirements.
If the pharmacy is 24 hours a day, in a better place. Pharmacy chain stores are not 24 hours a day, if the location draws customers.
Many properties can mean a lease rateie the owner can provide additional income when received, the annual turnover of more than a specific bank, for example, $ 5 million. However, revenues go to pay the percentage rent often includes loads a page long list of items, such as wine and soft drinks, tobacco and snuff products, items that are sold after 10 clock for the drug programs government, etc., without revenues could affect up to 70% of the gross receipts from the store. Consequently, this author has seen only 1 shop where the owner can be an additional costPercentage of income. Rent a percentage is required to report monthly sales to the owner. As an investor who wants to invest in a business with high gross sales, for example, more than $ 500 per square meter per year. Also want to check the income of the revenue ratio. If the number in the range of 2-4%, the shop is likely to be very lucrative if the fate of the store is closed, is small.
No matter what the tenants are good, avoid investing in the reduction and / or low incomeAreas or small cities with fewer than 30,000 residents within 5 miles Rings. In a small country may be the only pharmacy in the city and includes a large share of the market. However, if a competitor has opened a new branch in the region, revenues could be adversely affected. These properties are easy to buy and difficult to sell later. In 2009, when the credit market is tight, may have difficulty finding a lender for the financing of these properties.
Many properties have an existing loan to pay the purchaser.If you have an exchange of 1031, we think twice before buying the property. You need the credit needs of the assumptions of lenders before realizing that acts. If you are unable to assume the existing loan (assuming the existing mortgage is much more difficult to grant) a new loan, you probably also time for the exchange of May 1031 and is responsible for increasing the capital.
With few exceptions, the owners of the chain drug store are not occupied for several reasons. Here are just sometheir
They know that the activities of the pharmacy, but does not know real estate. Investors in the stock market does not want to Walgreens for a REIT.
Owner requires a large amount of long-term debt that is not a good idea for a listed company.
Approximately 10% of homes for sale and CVS pharmacies typically require very little capital to purchase, for example, 10% of the purchase price. However, it must be assumed,existing fully amortized loan with zero cash flow. In other words, used to pay the full rent by the tenant to repay the loan. The capitalization rate can vary from 7% and the rate of interest on the loan may be too attractive in terms of 5.5% -6%. Therefore, the investor pays the loan in 10 to 20 years. However, the investor is not cash flow positive. This requires that you find external funding from taxes on profits to pay the rent (the difference between income and mortgage interest).The longer you own the property, more money from the mortgage interest you pay less and less towards the end have. Who should buy this type of property?
Investors who have significant loss of property or other securities have a market. With the acquisition of this property at free cash flow can compensate the tenant and drugs against the loss of income or other assets or securities. For example, a property of 105,000 rent $ of profits a yearand the investor also has rental losses of U.S. $ 100,000 from other properties. Consequently, the combination is profits are only $ 5,000.
The non-sophisticated investors do not know that they need to raise additional funds to pay the income tax.
Thinking Out of the Box
If you take too much weight on the S & P rating of the conductor, or you may end up with a lot of risks or missed opportunities, too.
Good location should be the key to his decision Drug Storeinvest, is often a very bad thing would be a great place, and most tenants in a poor site. A Walgreens store closes later (yes, Walgreens closed 119 stores in 2007) is still a bad investment, but Walgreens still paying the rent on time. Do not be blind to invest in a drug just because it is a Walgreens.
No company is crazy enough to close a profitable position. It does not take a genius to understanda financially weak and Rite Aid are striving to keep open unprofitable. In addition, a solid financial plan Walgreens continues to justify an open unprofitable. How can you determine whether or not a site for the pharmacy is profitable or if the tenant is not obliged to disclose profits and losses? The answer is that we can not. However, you can establish a presumption of annual gross revenue of the store is, however, often with the owneras a percentage clause in the lease. Can be compared with the gross receipts to determine the rental income. The lower the ratio, the more likely that the business is profitable. For example, if the annual base rent is $ 250,000, while the gross receipts of the store 5 million dollars, while pension income is 5%. In general, it is difficult to make a profit when you make the relationship more than 8%. If you're a Rite Aid, with an income of 3% compared to income, you know, it is probably a very profitable. InRite Aid is the case of bankruptcy, that this post will remain open and continue to pay the rent. If you see Rite Aid pharmacy for a fee of 3% compared to income of 11% of the CAP is probably a low risk investment with good returns. The weakness of the security company Rite Aid, is probably not so critical that Rite Aid may have as a tenant, is not very large.
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