The Rite-Aid Corporation was going to be bought by Albertsons Companies in early 2018. The plan, first announced in February of that year, would see Albertsons take over all the Rite-Aid locations without association with a previous deal with Walgreens. However, Walgreens purchased 2,186 Rite-Aid stores in 2017. The Albertsons Companies deal would include about 2,400 Rite-Aid pharmacies and would see the balance of the previously owned Albertsons pharmacies rebranded to the Rite-Aid name.
The Deal Fell Through And Did Not Happen
Unfortunately, Rite-Aid shareholders did not like the plan. Because of this stance, the Rite-Aid and Albertsons’ $24 billion merger dropped and did not materialize. However, the shareholders were not the only ones balking at the deal. Analysts shared the same opinion, including Neil Saunders. Saunders is the Retail Managing Director of GlobalData. He said that Albertsons and Rite-Aid could be better at retail. He described them this way: “Albertson’s has a tired and shabby store portfolio that is in desperate need of investment, while Rite-Aid also has a retail proposition that is far from cutting edge.” A bias was already evident. Therefore, no surprise merger did not occur.
Rite-Aid Moves To Become A Stand-Alone Company
According to Rite-Aid’s Chairman and CEO, the brand plans to become a stand-alone company. As a result, this means to investors that the deal that didn’t get approved five years ago opened doors in 2023. In other words, Rite-Aid pharmacies are now available as investments. Check the Pharma Property Group lists on the available Rite-Aid pharmacy stores for more information.
The Pros and Cons of Rite-Aid Stand-Alone Opportunities
As great as this news may be to investors, investing in the new stand-alone Rite-Aid concept has some advantages and disadvantages. So let’s look at the benefits and risks of investing in stand-alone Rite-Aid stores.
There are several advantages for investors choosing to acquire Rite-Aid net lease properties. First, the benefits include implementing a series of sale-leasebacks on corporate-owned sites. These “investor-friendly leases” are 20 years long and contain a 10 percent rental increase every ten years. This implementation is a unique arrangement in net lease pharmacy purchasing.
Another perk with Rite-Aid net lease pharmacies is that investors with at least one in their portfolio do well. As a result, this is because Rite-Aid pharmacies are typically in 11 to 15 thousand-square-foot buildings that sit on street corners with high traffic volume and are visually apparent every couple of miles. That alone makes them attractive pieces of property. Secondly, should the retail store close, the lease stays in place, generating a regular income while searching for a new, stable tenant, usually another pharmacy chain retail store.
On the other side of the coin, the operation of the Rite-Aid company almost cancels out the stellar condition of the real estate. However, according to Vince Martin of Seeking Alpha, the highly leveraged business, Rite-Aid’s earning power has been slipping since the COVID pandemic. For example, problems include same-store sales, the deleveraging of workers, and rent expenses to insurers offering lower reimbursement rates, which has hurt the pharmacy department across the industry.
What They Had To Say
Analysts have been vocal about how they feel regarding Rite-Aid’s prospects. For example, Kristine Harjes of the Motley Fool says, “You look at the broader pharmacy retail landscape, and (Rite Aid is) not even the best-positioned in that space…it has a really small scale…I’m not very bullish on its future.” The credit rating service Moody’s shares the same feeling after placing Rite-Aid stock on review “for a possible downgrade.”
The company explains the move is because “it lacks the scale or the balance sheet to compete in the changing pharmacy landscape with many larger and well-capitalized competitors.” As a result, Rite-Aid stock currently has a “B” grade. A downgrade from there may impact net lease deals – particularly their structure and pricing.
In the words of Rite-Aid CEO John Standley, the company’s future is “murky, at best,” which makes sense considering that the company’s brand has been struggling for years. Regardless, real estate from this company, with or without the Rite-Aid branding, will be a good investment. As a result, it is advisable to be cautious and do your homework before you jump into a Rite-Aid stand-alone deal. So keep in mind that this is not your ordinary NNN lease investment. Instead, focus on the balance sheet and location. For safety’s sake, assume a higher risk associated with a Rite-Aid real estate store and use that as your filter. Of course, investors and stakeholders must still need to make suitable investments. It means better ones are available in the retail pharmacy net lease sector, so research alternatives to decide which is appropriate for you.