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Walgreen's Closing 200 Stores

Walgreen's Boots Alliance Inc., the second largest retail pharmacy in the United States announced in a regulatory filing this week that it plans to close 200 stores across the country in a cost-cutting measure. The drugstore giant is feeling the impact of online e-commerce (e.g., Amazon) on its overall sales, a trend that exists today across many brick-and-mortar retail providers. Walgreen's also completed an acquisition of 1,932 stores from Rite Aid and the announcement to close 200 stores could be an aftershock of that mega-deal, as Walgreen's looks to close under-performing stores or locations that overlap each other.

So what does this mean to landlords of Walgreen's leased properties?

For landlord's that own properties that are leased to Walgreen's, the rental payments will continue to come in as Walgreen's has a contractual obligation to continue with their lease. On another positive note, before Walgreen's signs a lease or picks a location, they typically do an extensive retail market study and they generally pick locations that are well-located, with good demographics and strong market fundamentals, which makes it easier for a landlord to back-fill or re-position the property for a future tenant. Potential future tenant's for these soon-to-be locations are plentiful and landlord's will continue to receive their future cash flow streams as they plan ahead, per the lease agreement signed by Walgreen's.

The challenge, in this situation, is with landlord's that have a need to re-finance their property in the near future. Banks and lenders have different criteria when analyzing a "dark store" and often times the rate and terms are less favorable in these situations. If a landlord's mortgage is maturing in the near future, it may be time to evaluate selling the property and moving on to another asset.

If you are a landlord of a Walgreen's leased property and would like guidance on the right strategy moving forward, feel free to call me at (408)601-0049 or email me at to discuss your options.


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