In 1963, the first CVS (Customer Value Stores) opened in Lowell, Massachusetts, and in 1967 added its first pharmacy. Most likely, the three founders would never have imagined that by year-end 2019, CVS would earn $15.3 billion and become the largest pharmacy-led health care company in America.
CVS Health Corporation’s financial strength and size, the company’s needs-based, virtually recession-proof consumer offerings, and its real estate investment opportunities combine to make CVS Westwood Net Lease Advisors’ Tenant of the Quarter.
Who is CVS Health?
CVS Health is more than just a pharmacy; its business consists of integrated pharmacy-related goods and services, retail areas with consumer staples, progressive healthcare and infusion therapy clinics, health care benefits plans, and more.
Over the years, CVS has merged with or purchased other health care companies and pharmacies, such as Caremark Rx, Coram, Navarro Discount Pharmacy, Omnicare, Target pharmacies, Aetna, and most recently, Schnucks pharmacies, ramping up market share and the ability to serve more people.
To date, CVS has approximately 10,000 U.S. retail locations and approximately 1,100 walk-in medical clinics that serve an estimated 37 million people. During the year ending December 31, 2019, the company’s pharmacy benefit management (PBM) filled or managed 2 billion prescriptions on a 30-day equivalent basis, or 26.6% of all U.S. prescriptions – more than any other U.S. pharmacy.
“CVS Health is working to create the most consumer-centric health company by being consumer obsessed and pursuing its three strategic goals: be local, make it simple, and improve health. Putting the consumer at the center of care will drive long-term sustainable value and place CVS at the forefront of the evolution of health care.” – 2019 Q4 Report
Financially Strong & Growing
In 2019, CVS earned $15.3 billion on revenue of $256.7 billion, ranked eighth on the Fortune 500 and 19th on the Fortune Global 500 list. The company’s pharmacy services generated $141.5 billion in sales and a net income of $5.1 billion. This, CVS Health’s largest business segment, is one reason investing in these properties is a stable, income-producing prospect – pharmacy products and health services are essential in any economy.
Most recently, during the coronavirus pandemic, CVS began hiring 50,000 people for full-time, part-time, and temporary in-store positions, home delivery drivers, distribution, and customer service professionals. Additionally, the company continues to add drive-thru COVID-19 testing sites, use data analytics to identify individuals who are at increased risk for the virus, and emphasize employee health even more so they can carry on with business while caring for customers.
As for net-lease investment opportunities, the company has opened dozens of CVS® HealthHUB® locations in Florida, Georgia, New Jersey, Pennsylvania, and Texas, with plans to roll out more of these properties over the next year. The HealthHUB model dedicates 20% of floor space to an expanded range of health services and wellness products for everyday care and chronic conditions, all hours of the day, including nights and weekends. The goal is to have 1500 HealthHUBs by year-end 2021.
“We believe our greatest opportunities ahead will be a result of our ability to meaningfully impact the health of local communities, bringing together the power of our business and strategic community investment.” – Eileen Howard Boone, Senior Vice President, Corporate Social Responsibility and Philanthropy.
A Top Net-Lease Investment Opportunity
Most people will recognize a CVS store by its real estate – usually a highly visible, well-landscaped, hard-corner 1 to 2-acre lot with easy access – making it a favorite among net-lease investors. Stores are strategically situated in prime urban and suburban locations near other business and retail staples, and most often placed on the commuting side of traffic patterns.
Single-tenant CVS properties sell in the range of $4-7M, and though not all stores are absolute triple-net (NNN) lease properties – some are modified NNN – they require very little landlord responsibility (roof/structure/parking lot), which makes it viable to own a CVS in any state without worry, no matter where you live.
CVS Health also fulfills our recommendation to only invest in a creditworthy or investment-grade tenant with financial stability and growth potential. Most stand-alone CVS locations operate with a corporate-guaranteed, 10 to 20-year absolute NNN or double-net lease with renewal options and offer 5-6% cap rates.
To Wrap it Up – Why CVS is Our Tenant of the Quarter
Investment-grade CVS Health Corporation is taking the pharmacy-led health care industry by storm with solid growth projections, integrated needs-based products and services, and hundreds of new locations annually. For these reasons, a CVS property investment is a reliable, low or no maintenance investment with a dependable, worry-free monthly income and annual tax opportunities that preserve capital.
If you’re interested in utilizing a 1031 exchange or buying a CVS property, be sure to connect with a Westwood buyer’s advisor who will review the national market, connect with colleagues, and find off-market and developing properties that meet your lifestyle and financial goals. We are here to represent you and guide you in every step of the process – from the property search to closing – all at no charge to you. Contact us today for your no-obligation, free consultation, 314-997-5227.
