Apr
23

Will Walgreens Closures Impact Net Lease Sector?

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walgreens_logoIn the net lease world, Walgreens has ranked as the most desirable retail asset for decades. Investors like the chain’s dominant position, long-term leases, and investment grade credit. The recent announcement that Walgreens plans to close 200 U.S. stores won’t diminish investor interest, but it will compel investors to be more thorough in their due diligence, net lease experts say.

“I do not see this announcement affecting investor interest, given that Walgreens is still an investment-grade tenant and held in very high regard … not to mention Walgreens still commands some of the best loan terms in the market if an investor is considering debt,” says Chris Schellin, president of St. Louis-based Westwood Net Lease Advisors LLC.

The plan to shutter 200 stores is part of previously announced cost-cutting initiative. “After a rigorous analysis, the company has identified additional opportunities for cost savings, primarily in its Retail Pharmacy USA division,” Walgreens said in its second quarter 2015 earnings report. “These additional opportunities will increase the total expected cost savings program by $500 million to a projected $1.5 billion by the end of fiscal 2017. Significant areas of focus include plans to close approximately 200 USA stores; reorganize corporate and field operations; drive operating efficiencies; and streamline information technology and other functions.”

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