Rent Increases in the Lease! - Deerfield Partners · 2016-05-23 · • True NNN lease with no management responsibilities • Walgreens corporate, investment grade credit guarantees

Walgreens Pharmacy #12067 Orange County, New York

• 21+ Year NNN with extremely rare rent increases in primary term

• Store is well positioned at a high traffic crossroads known as the “Five Corners” intersection of NY 32 and NY 94; over 30,000 cars per day

• Neighboring tenants include: McDonalds, AutoZone, Advance Auto, Dunkin’ Donuts, Wendy’s, Bank of America, First Niagra Bank, and others...

• True NNN lease with no management responsibilities

• Walgreens corporate, investment grade credit guarantees the rent

DeerfieldPartnersJohn GiordaniArt Griffith(415) [email protected]

$11,300,000

5.10%Cap Rate

Rent Increases in the Lease!Extremely Rare for Walgreens

Walgreens Pharmacy #12067 Vails Gate, New York


This is a rare opportunity for an investor to acquire a Walgreens drugstore property with rent increases scheduled in the lease.While99outof100Walgreens leasesareflat for the lifeof the lease, thisdealprovidesrentincreasesandsomehedgeagainstfutureinflation.Seebelowforthescheduledrentincreases.

Investment SummaryPrice $11,300,000

CAP Rate 5.10%Avg. Annual Income $576,399

Years Guaranteed 21+ years

Demographic Snapshot

Residents Average Income

1 Mile Radius 5,177 $71,197

3 Mile Radius 31,730 $90,148

5 Mile Radius 75,115 $79,367

Rent Schedule (Guaranteed Years)

Starts EndsYears

RemainAnnual

NNN RentPercentage

Increase

10/1/2016 9/30/2017 21 $552,000

10/1/2017 9/30/2018 20 $552,000

10/1/2018 9/30/2019 19 $552,000

10/1/2019 9/30/2020 18 $552,000

10/1/2020 9/30/2021 17 $552,000

10/1/2021 9/30/2022 16 $552,000

10/1/2022 9/30/2023 15 $578,610 4.8%

10/1/2023 9/30/2024 14 $578,610

10/1/2024 9/30/2025 13 $578,610

10/1/2025 9/30/2026 12 $578,610

10/1/2026 9/30/2027 11 $578,610

10/1/2027 9/30/2028 10 $578,610

10/1/2028 9/30/2029 9 $578,610

10/1/2029 9/30/2030 8 $578,610

10/1/2030 9/30/2031 7 $578,610

10/1/2031 9/30/2032 6 $578,610

10/1/2032 9/30/2033 5 $601,257 3.9%

10/1/2033 9/30/2034 4 $601,257

10/1/2034 9/30/2035 3 $601,257

10/1/2035 9/30/2036 2 $601,257

10/1/2036 9/30/2037 1 $601,257

21 Year Avg. Annual Rent $576,399

Asking CAP on Average Rent 5.10%

Asking Price $11,300,000

CAP Rate on 2022 Rent 5.12%

CAP Rate on 2032 Rent 5.32%



Additional Detail on Scheduled Rent Increases

Complete Rent Schedule With Option Periods

Starts Ends YearsAnnual

NNN RentPercent Increase

Effective CAP Rate

Today - 2022 10/1/2016 9/30/2022 6 $552,000

2022 - 2032 10/1/2022 9/30/2032 10 $578,610 4.8%

2032 - 2037 10/1/2032 9/30/2037 5 $601,257 3.9% 5.10%

Option 1 10/1/2037 9/30/2042 5 $625,017 4.0% 5.13%

Option 2 10/1/2042 9/30/2047 5 $650,677 4.1% 5.22%

Option 3 10/1/2047 9/30/2052 5 $678,391 4.3% 5.31%

Option 4 10/1/2052 9/30/2057 5 $708,322 4.4% 5.42%

Option 5 10/1/2057 9/30/2062 5 $740,647 4.6% 5.53%

Option 6 10/1/2062 9/30/2067 5 $775,558 4.7% 5.65%

Option 7 10/1/2067 9/30/2072 5 $813,262 4.9% 5.78%

Option 8 10/1/2072 9/30/2077 5 $853,983 5.0% 5.91%

Option 9 10/1/2077 9/30/2082 5 $897,961 5.1% 6.06%

Option 10 10/1/2082 9/30/2087 5 $957,331 6.6% 6.23%

71 Year Avg. Annual Rent $703,519

Yield on 71 Year Rent 6.23%

Asking Price $11,300,000

NNN Rent Growth Over 71 YearsToday - 2022

2022 - 2032

2032 - 2037

Option 1

Option 2

Option 3

Option 4

Option 5

Option 6

Option 7

Option 8

Option 9

Option 10 $957,331$897,961

$853,983$813,262

$775,558$740,647

$708,322$678,391

$650,677$625,017

$601,257$578,610

$552,000



Storeiswellpositionedamidstretailonhigh-trafficarterialroad

Property Details and Lease SummaryAddress 416 Windsor Highway, Vails Gate, NY

Year Built 2012Building Size 14,550 Square Feet

Lot Size 1.75 acresTenant Walgreens (NASDAQ:WBA)

Rent Start Date October 15, 2012Lease End Date October 31, 2087

Options to Terminate Tenantmayterminateeveryfive(5)years,with12monthsnotice,afterthe300th month (October 31, 2037).



Limited Drugstore Competition in Vails GateWith Walgreens pending acquisition of Rite Aid, investors are looking closely at the competitive landscape in each local market prior to making purchase decisions. In this case, an investor can confidently presume that the subject Walgreens will remain open and operating. Looking at the map below, you can see that the subject Walgreens is a superior location to the Rite Aid down the street. In fact, the Rite Aid isn’t even a corner location. We’d expect the Rite Aid to be closed in this market.



Store Front

“Five Corners” Intersection



Photos of Neighboring Retailers



Site Plan



About Walgreens Boots AllianceWalgreensBootsAllianceisthefirstglobalpharmacy-led,healthandwellbeingenterpriseintheworld.Our purpose is to help people across the world lead healthier and happier lives. Walgreens Boots Alliance was created through the combination of Walgreens and Alliance Boots in December 2014. This transaction brought together two leading companies with iconic brands, complementary geographic footprints, shared values and a heritage of trusted healthcare services through pharmaceutical wholesaling and community pharmacy care, dating back more than 100 years.

The Company, with a presence in more than 25 countries, employs over 370,000 people and is the largest retail pharmacy, health and daily living destination in the USA and Europe.

The Company’s size, scale, and expertise will help us to expand the supply, and address the rising cost of, prescription drugs in the USA and worldwide.

Byleveragingtheseadvantagesandopportunities,aswellasthefullbenefitofourbestpracticesandexpertise,WalgreensBootsAlliancewillbepositionedtocreatesubstantialincrementalefficiency,synergy and growth opportunities.

The creation of Walgreens Boots Alliance provides an opportunity to further accelerate the development of a fully integrated, global platform for the future to provide innovative ways to address health and wellnesschallenges.OurCompanyiswellpositionedtoexpandcustomerofferingsinexistingmarketsand become the health and wellbeing partner of choice in emerging markets.



Walgreens Boots Alliance -- Segment Structure

8

Walgreens Boots Alliance – Segment Structure

The largest retail pharmacy chain in Europe

A leading global pharmaceutical wholesaler

and distributor

A leading drugstore chain in the USA

The first global pharmacy-led, health and wellbeing enterprise in the world



Walgreens Boots Alliance -- Retail Pharmacy USA DivisionThe Retail Pharmacy USA Division’s principal retail pharmacy brands are Walgreens and Duane Reade. Together, they form the largest drugstore chain in the USA.

This Division operates 8,240 drugstores in 50 states, the District of Columbia, Puerto Rico and the US VirginIslands.AsofAugust2014,approximately76%ofthepopulationoftheUSAliveswithinfivemilesof a Walgreens.

The company sells prescription and non-prescription drugs, as well as general merchandise, including householditems,convenienceandfreshfoods,personalcare,beautycare,photofinishingandcandy.They provide customers with convenient, omni-channel access to consumer goods and services, pharmacy, and health and wellness services in communities across America.

The company’s websites, which include Walgreens.com and drugstore.com, receive an average of approximately 60 million visits per month. Integrated with an e-commerce platform, the Walgreens mobileapplicationallowscustomerstorefillprescriptionsthroughscantechnology,receivetextmessagesalertingwhenarefillisdueandotherfront-endfunctionality,suchasphotoandshoppingfeatures.

Prescription drugs account for 64 percent of sales, while retail products are 36 percent. Overall, WBA filledapproximately699millionprescriptionsin2014.

3Q15 Financial Performance – Retail Pharmacy USA

9

GAAP $ million

3Q15 Financial Performance – Retail Pharmacy USA

Non-GAAP* $ million

* Non-GAAP financial measures – See attached Appendix.

Total Sales $20,425 Gross Profit $5,527 SG&A $4,494 Operating Income $1,033

Operating Margin 5.1%

Adjusted Gross Profit $5,596

Adjusted SG&A $4,268

Adjusted Operating Income $1,328

Adjusted Operating Margin 6.5%



Item 1B. Unresolved Staff Comments

There are no unresolved written comments that were received from the SEC Staff 180 days or more before theend of our fiscal year relating to our periodic or current reports under the Securities Exchange Act of 1934.

Item 2. Properties

The Company’s locations, including drugstores, infusion and respiratory service facilities, specialty pharmaciesand mail service facilities at August 31, 2014 and 2013 are listed below.

2014 2013 2014 2013 2014 2013

Alabama 115 113 Louisiana 154 152 Oklahoma 117 121Alaska 8 7 Maine 15 15 Oregon 77 80Arizona 250 258 Maryland 89 80 Pennsylvania 131 138Arkansas 83 78 Massachusetts 168 185 Rhode Island 26 29California 646 663 Michigan 232 232 South Carolina 110 119Colorado 160 172 Minnesota 154 164 South Dakota 14 14Connecticut 95 125 Mississippi 78 79 Tennessee 254 271Delaware 65 66 Missouri 219 221 Texas 712 729District of Columbia 6 5 Montana 14 14 Utah 48 45Florida 861 881 Nebraska 60 62 Vermont 3 4Georgia 204 208 Nevada 84 92 Virginia 141 149Hawaii 19 17 New Hampshire 32 36 Washington 139 140Idaho 40 42 New Jersey 191 215 West Virginia 17 23Illinois 610 620 New Mexico 69 68 Wisconsin 228 234Indiana 201 218 New York 486 527 Wyoming 11 11Iowa 70 72 North Carolina 263 221 Guam 0 1Kansas 70 72 North Dakota 1 1 Puerto Rico 120 118Kentucky 98 103 Ohio 250 272 U.S. Virgin Islands 1 0

TOTAL 8,309 8,582

The Company owned approximately 20% of its retail drugstore locations and leased the remaining locations atAugust 31, 2014. The leases are for various terms and periods. See Note 3 to the Company’s ConsolidatedFinancial Statements in Part II, Item 8 of this Form 10-K. Net retail selling space remained consistent at89 million square feet at August 31, 2014 and 2013. Approximately 20% of Company stores have been opened orremodeled during the past five years, including our “Well Experience” store format in over 700 locations,including a market-wide transformation in the Indianapolis area and new flagship stores in select marketsincluding Boston, Chicago, Los Angeles, New York City, San Francisco, Washington, D.C., Las Vegas andPuerto Rico.

As of August 31, 2014:

• The Company’s retail store operations were supported by 19 major distribution centers with a total ofapproximately 11 million square feet of space, of which 13 locations are owned. The remaining spaceis leased. All distribution centers are served by modern systems for order processing control and rapidmerchandise delivery to stores. In addition, the Company uses public warehouses and third partywholesalers to handle certain distribution needs. As of August 31, 2014, AmerisourceBergendistributed substantially all of the Company’s branded and generic pharmaceutical products.

• The Company operated 34 principal office facilities containing approximately three million square feet,of which 13 locations were owned. The Company operated two mail service facilities containingapproximately 237 thousand square feet, one of which was owned.

• The Company owned 16 strip shopping malls containing approximately 500 thousand square feet.

31

Walgreens Properties Nationwide



Income Statements Trailing 5 Years



Demographics - 1 Mile Radius

Demographic and Income ProfileVails Gate, New York Prepared by EsriRing: 1 mile radius Latitude: 41.45377

Longitude: -74.05906

AreaStateUSA

Trends 2015-2020Trends 2015-2020

Ann

ual Rat

e (i

n pe

rcen

t) 2.5

2

1.5

1

0.5

0Population Households Families Owner HHs Median HH Income

20152020

Population by AgePopulation by Age

Perc

ent

12

10

8

6

4

2

00-4 5-9 10-14 15-19 20-24 25-34 35-44 45-54 55-64 65-74 75-84 85+

2015 Household Income 2015 Household Income

<$15K5.7%

$15K - $24K11.7%

$25K - $34K11.7%

$35K - $49K16.2%

$50K - $74K17.6%

$75K - $99K15.2%

$100K - $149K15.3%

$150K - $199K3.5%

$200K+2.9%

2015 Population by Race2015 Population by Race

Perc

ent

60555045403530252015105

White Black Am. Ind. Asian Pacific Other Two+

2015 Percent Hispanic Origin: 25.4%

Source: U.S. Census Bureau, Census 2010 Summary File 1. Esri forecasts for 2015 and 2020.

March 07, 2016

©2015 Esri Page 2 of 6



Demographics - 1 Mile RadiusDemographic and Income ProfileVails Gate, New York Prepared by EsriRing: 1 mile radius Latitude: 41.45377


Summary Census 2010 2015 2020Population 4,967 5,177 5,390Households 2,022 2,108 2,195Families 1,271 1,315 1,364Average Household Size 2.44 2.44 2.44Owner Occupied Housing Units 1,106 1,154 1,208Renter Occupied Housing Units 916 954 987Median Age 38.5 39.7 39.9

Trends: 2015 - 2020 Annual Rate Area State NationalPopulation 0.81% 0.42% 0.75%Households 0.81% 0.46% 0.77%Families 0.73% 0.39% 0.69%Owner HHs 0.92% 0.19% 0.70%Median Household Income 2.81% 2.84% 2.66%

2015 2020 Households by Income Number Percent Number Percent

<$15,000 120 5.7% 111 5.1%$15,000 - $24,999 247 11.7% 206 9.4%$25,000 - $34,999 247 11.7% 233 10.6%$35,000 - $49,999 342 16.2% 331 15.1%$50,000 - $74,999 372 17.6% 357 16.3%$75,000 - $99,999 321 15.2% 397 18.1%$100,000 - $149,999 323 15.3% 388 17.7%$150,000 - $199,999 74 3.5% 96 4.4%$200,000+ 62 2.9% 77 3.5%

Median Household Income $54,842 $62,984Average Household Income $71,197 $79,854Per Capita Income $28,326 $31,791

Census 2010 2015 2020 Population by Age Number Percent Number Percent Number Percent

0 - 4 327 6.6% 319 6.2% 321 6.0%5 - 9 360 7.2% 366 7.1% 357 6.6%10 - 14 325 6.5% 327 6.3% 343 6.4%15 - 19 312 6.3% 292 5.6% 294 5.5%20 - 24 277 5.6% 299 5.8% 270 5.0%25 - 34 643 12.9% 700 13.5% 750 13.9%35 - 44 738 14.9% 686 13.3% 713 13.2%45 - 54 700 14.1% 716 13.8% 704 13.1%55 - 64 561 11.3% 629 12.1% 675 12.5%65 - 74 376 7.6% 458 8.8% 535 9.9%75 - 84 247 5.0% 269 5.2% 309 5.7%

85+ 101 2.0% 116 2.2% 118 2.2%Census 2010 2015 2020

Race and Ethnicity Number Percent Number Percent Number PercentWhite Alone 3,275 65.9% 3,276 63.3% 3,247 60.3%Black Alone 736 14.8% 817 15.8% 904 16.8%American Indian Alone 10 0.2% 11 0.2% 11 0.2%Asian Alone 306 6.2% 330 6.4% 360 6.7%Pacific Islander Alone 2 0.0% 3 0.1% 3 0.1%Some Other Race Alone 445 9.0% 516 10.0% 606 11.2%Two or More Races 193 3.9% 224 4.3% 258 4.8%

Hispanic Origin (Any Race) 1,134 22.8% 1,314 25.4% 1,535 28.5%Data Note: Income is expressed in current dollars.


March 07, 2016







AreaStateUSA

Trends 2015-2020Trends 2015-2020

Ann

ual Rat

e (i

n pe

rcen

t) 2.5

2

1.5

1

0.5


20152020


Perc

ent

14

12

10

8

6

4

2

00-4 5-9 10-14 15-19 20-24 25-34 35-44 45-54 55-64 65-74 75-84 85+


<$15K5.6%

$15K - $24K6.7%

$25K - $34K8.0%

$35K - $49K12.1%

$50K - $74K17.2%

$75K - $99K15.5%

$100K - $149K21.0%

$150K - $199K8.4%

$200K+5.4%


Perc

ent

70

60

50

40

30

20

10

0White Black Am. Ind. Asian Pacific Other Two+



March 07, 2016




Demographics - 3 Mile RadiusDemographic and Income ProfileVails Gate, New York Prepared by EsriRing: 3 mile radius Latitude: 41.45377


Summary Census 2010 2015 2020Population 31,192 31,730 32,514Households 11,811 12,063 12,381Families 8,201 8,326 8,519Average Household Size 2.62 2.61 2.61Owner Occupied Housing Units 8,582 8,669 8,848Renter Occupied Housing Units 3,229 3,394 3,534Median Age 40.3 41.2 41.4



<$15,000 677 5.6% 584 4.7%$15,000 - $24,999 813 6.7% 591 4.8%$25,000 - $34,999 970 8.0% 833 6.7%$35,000 - $49,999 1,458 12.1% 1,386 11.2%$50,000 - $74,999 2,079 17.2% 1,920 15.5%$75,000 - $99,999 1,865 15.5% 2,057 16.6%$100,000 - $149,999 2,538 21.0% 2,936 23.7%$150,000 - $199,999 1,015 8.4% 1,299 10.5%$200,000+ 649 5.4% 774 6.3%



0 - 4 1,842 5.9% 1,745 5.5% 1,774 5.5%5 - 9 2,150 6.9% 2,056 6.5% 1,946 6.0%10 - 14 2,235 7.2% 2,157 6.8% 2,064 6.3%15 - 19 2,149 6.9% 2,039 6.4% 1,950 6.0%20 - 24 1,595 5.1% 1,823 5.7% 1,673 5.1%25 - 34 3,442 11.0% 3,626 11.4% 4,143 12.7%35 - 44 4,502 14.4% 4,104 12.9% 4,264 13.1%45 - 54 5,163 16.6% 4,905 15.5% 4,410 13.6%55 - 64 3,901 12.5% 4,346 13.7% 4,672 14.4%65 - 74 2,142 6.9% 2,788 8.8% 3,281 10.1%75 - 84 1,484 4.8% 1,458 4.6% 1,629 5.0%

85+ 587 1.9% 683 2.2% 708 2.2%Census 2010 2015 2020

Race and Ethnicity Number Percent Number Percent Number PercentWhite Alone 24,651 79.0% 24,273 76.5% 23,946 73.7%Black Alone 2,811 9.0% 3,162 10.0% 3,557 10.9%American Indian Alone 76 0.2% 81 0.3% 85 0.3%Asian Alone 985 3.2% 1,087 3.4% 1,221 3.8%Pacific Islander Alone 15 0.0% 18 0.1% 20 0.1%Some Other Race Alone 1,620 5.2% 1,900 6.0% 2,270 7.0%Two or More Races 1,035 3.3% 1,209 3.8% 1,414 4.3%



March 07, 2016







AreaStateUSA

Trends 2015-2020Trends 2015-2020

Ann

ual Rat

e (i

n pe

rcen

t)

3

2.5

2

1.5

1

0.5


20152020


Perc

ent

14

12

10

8

6

4

2

00-4 5-9 10-14 15-19 20-24 25-34 35-44 45-54 55-64 65-74 75-84 85+


<$15K10.4%

$15K - $24K8.4%

$25K - $34K9.3%

$35K - $49K12.2%

$50K - $74K17.7%

$75K - $99K13.5% $100K - $149K

17.1%

$150K - $199K6.9%

$200K+4.5%


Perc

ent

605550454035302520151050

White Black Am. Ind. Asian Pacific Other Two+



March 07, 2016







Summary Census 2010 2015 2020Population 74,362 75,115 76,550Households 25,725 26,021 26,549Families 18,121 18,226 18,538Average Household Size 2.84 2.84 2.84Owner Occupied Housing Units 15,560 15,567 15,778Renter Occupied Housing Units 10,165 10,455 10,771Median Age 35.2 35.8 36.7



<$15,000 2,719 10.4% 2,552 9.6%$15,000 - $24,999 2,192 8.4% 1,680 6.3%$25,000 - $34,999 2,423 9.3% 2,159 8.1%$35,000 - $49,999 3,171 12.2% 3,054 11.5%$50,000 - $74,999 4,612 17.7% 4,290 16.2%$75,000 - $99,999 3,509 13.5% 3,935 14.8%$100,000 - $149,999 4,445 17.1% 5,104 19.2%$150,000 - $199,999 1,790 6.9% 2,392 9.0%$200,000+ 1,159 4.5% 1,383 5.2%



0 - 4 5,380 7.2% 5,146 6.9% 5,217 6.8%5 - 9 5,486 7.4% 5,381 7.2% 5,110 6.7%10 - 14 5,615 7.6% 5,432 7.2% 5,354 7.0%15 - 19 5,953 8.0% 5,580 7.4% 5,332 7.0%20 - 24 5,141 6.9% 5,464 7.3% 4,988 6.5%25 - 34 9,459 12.7% 9,814 13.1% 10,560 13.8%35 - 44 10,225 13.8% 9,472 12.6% 10,027 13.1%45 - 54 10,931 14.7% 10,515 14.0% 9,730 12.7%55 - 64 7,993 10.7% 8,921 11.9% 9,507 12.4%65 - 74 4,384 5.9% 5,488 7.3% 6,465 8.4%75 - 84 2,714 3.6% 2,696 3.6% 3,030 4.0%

85+ 1,079 1.5% 1,208 1.6% 1,228 1.6%Census 2010 2015 2020

Race and Ethnicity Number Percent Number Percent Number PercentWhite Alone 47,798 64.3% 46,539 62.0% 45,503 59.4%Black Alone 12,637 17.0% 13,295 17.7% 14,056 18.4%American Indian Alone 597 0.8% 594 0.8% 605 0.8%Asian Alone 1,569 2.1% 1,704 2.3% 1,888 2.5%Pacific Islander Alone 47 0.1% 53 0.1% 57 0.1%Some Other Race Alone 8,837 11.9% 9,734 13.0% 10,883 14.2%Two or More Races 2,877 3.9% 3,195 4.3% 3,558 4.6%



March 07, 2016


Documents

Rent Increases in the Lease! - Deerfield Partners · 2016-05-23 · • True NNN lease with no management responsibilities • Walgreens corporate, investment grade credit guarantees