MID-YEAR DRUGSTORE UPDATES
The first quarter of 2025 brought significant shifts in the healthcare and net lease sectors, which have implications for retail real estate. Below are the key developments you need to know.
RITE AID BANKRUPTCY & STORE SALES
} Chapter 11 Filing: Rite Aid filed for bankruptcy again, seeking to sell or close stores while keeping most open for now.
} Asset Sales: Rite Aid has agreed to sell pharmacy assets from 1,000+ locations to CVS, Walgreens, Albertsons, Kroger, and Giant Eagle.
} CVS Expansion: The company will acquire and operate some Rite Aid and Bartell Drugs stores in Washington, Oregon, and Idaho.
CVS HEALTH PERFORMANCE & AETNA TURNAROUND
} Strong Q1 Results: CVS reported net income of $1.78B ($1.41/share), boosted by improved performance in its Aetna healthcare-benefits segment (adjusted operating income rose to $2B from $732M YoY.
} Litigation & Asset Sale Impact: Earnings were affected by a $387M charge from an Omnicare legal verdict and a $247M loss from selling part of its accountable-care business.
WALGREENS TO FOCUS ON ITS CORE BUSINESS
Walgreens’ chief executive, Tim Wentworth, has said the company was looking to reduce its investment in VillageMD after billions of dollars in losses and the need to focus on more profitable ventures to turn around the drugstore chain. In January of this year, Wentworth said the exit process from VillageMD had begun.
“To be clear, our ultimate intent to exit is unchanged, and we remain committed to redeploying any proceeds to reduce our net debt and improve the health of our balance sheet,” Wentworth said.
NET LEASE INVESTMENT TRENDS
} Declining Sales Volume: High borrowing costs and rising cap rates slowed net lease retail investment sales to $20B in 2024 (down 26.1% YoY).
} Q1 2025 Cap Rates:
} Overall: 6.78% (+2 bps QoQ)
} Retail: 6.56% (+4 bps)
} Office: 7.80% (+2 bps)
} Industrial: 7.23% (unchanged)
} Early 2025 Activity: January transactions hit $1.49B, slightly above 2021/2023 levels, but still reflecting sector distress.
KEY TAKEAWAYS
} CVS is benefiting from Aetna’s recovery, but faces legal/operational headwinds.
} Rite Aid’s bankruptcy signals further consolidation in the pharmacy sector, with CVS expanding its footprint.
} Net lease retail remains under pressure due to financing costs, though industrial properties show relative stability.
INVESTOR OUTLOOK: WHAT’S NEXT?
} More Pharmacy Consolidation: Rite Aid’s collapse will benefit CVS, Walgreens, and grocery chains—watch for real estate spin-offs.
} Net Lease Opportunities: Distressed Rite Aid locations may hit the market at discounted prices.
} Interest Rate Impact: If the Fed cuts rates in late 2025, expect a rebound in net lease demand.
RECENT LISTING
} List Price: $7,600,000
} Cap Rate: 6.58%