Buying a property leased to Walgreens is widely regarded as one of the safest, most secure real estate investments. Unlike many other retail investment properties, every property leased by Walgreens is guaranteed by the full assets of Walgreens corporate (NYSE:WAG).
Walgreens has not and will not default. Rent is paid monthly, like clockwork. And will be for the next 25+ years of the lease. Moody's rates Walgreens long-term debt Aa3 and short-term debt P-1. Standard & Poor's rates Walgreens long-term debt A+ and short-term debt A-1.
For the fiscal year ended August 31, 2011:
As an owner of a property leased to Walgreens, you will have ZERO management responsibilities and ZERO exposure to any unforeseen costs or expenses. The standard Walgreens lease is truly triple-net (NNN), meaning that Walgreens itself is legally obligated to handle the payment and management of ALL operating expenses, insurance, and property taxes.
As an investor, there are no hidden fees and NO OWNERSHIP HEADACHES! Walgreens, as the tenant, is solely responsible for maintenance, repair and insurance costs in addition to rent.
In many ways, owning an investment property NNN leased to Walgreens is like owning a corporate bond--your investment will produce a fixed yield to maturity. There are no expense pitfalls as can be found in other types of real estate investments.
Owners of Walgreens properties enjoy the same financial benefits as all other real estate investors: leverage, depreciation, and tax savings.
Leverage can allow an investor to use borrowed money to maximize cash flow in the shorter-term, or structure a longer-term loan for estate planning purposes. As a result of Walgreens stellar credit ratings and financial standing, there are a variety of financing options available to investors. In fact, in today's market, Walgreens' credit is highly sought after by lenders, so borrowers are offered more favorable terms than are available for many other commercial property investments.
Depreciation of a commercial real estate investment provides most investors with very significant after-tax savings. In fact, the tax savings provided by depreciation are often the primary reason investors choose to allocate a portion of their net worth to real estate investments. Walgreens properties, like all commercial property, is depreciated over 39 years, on a straight-line basis. However, for the savvy and sophisticated investor, returns may be enhanced by accelerated depreciation.
We have found that the vast majority of Walgreens buyers are considering their longer-term, family estate planning when acquiring a Walgreens property.
Likely, for all of the reasons above:
Don't forget that you are buying real estate! Generally speaking, when you buy a property leased to Walgreens, you will be buying the best corner in town. Walgreens is highly selective in their site selection criteria, and most new stores are located at "Main and Main."
For the past two decades, Walgreens corporate real estate department has been the darling of the industry. They simply are the best at site selection. Each site must run through a gauntlet of corporate hurdles, including:
Walgreens is a corporation with a long-term vision. They have a strategy and plan which they have executed well. A key component of that strategy is opening stores in locations that will be the most profitable. Remember, when Walgreens signs a lease to open a new store they are committing to pay rent at that location for at least 25 years! As an investor, you can rest assured that each location has been thoroughly vetted by Walgreens corporate and, as a result, may be more likely to hold value, or appreciate with future development, than any other investment property.
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