1031 Exchange for a Pharmacy Net Lease (NNN) Property

Chain filings show a shrinking store base, and most of those stores are someone else's leased real estate

CVS Health's 2025 Form 10-K shows its store count falling from 9,135 to 8,979 during 2025 after 243 closures, following 299 in 2024 and 318 in 2023, and reports that in September 2024 it planned to close 271 stores in 2025. The same filing says about 4% of its more than 7,000 retail stores were owned and that it leases most stores with initial terms typically of 15 to 25 years.

Walgreens' last annual report, the fiscal 2024 Form 10-K, listed 8,560 U.S. retail pharmacy locations, about 3% owned, with U.S. initial lease terms typically 10 to 25 years, and disclosed a board-approved plan to close approximately 900 to 1,000 additional underperforming stores. Its August 28, 2025 Form 8-K reports the completion of a merger that made it a wholly owned subsidiary of a private-equity-affiliated parent.

That last point matters to a landlord. A tenant that no longer files with the SEC no longer publishes audited financials, so your buyer's lender and your buyer will ask what the lease entitles them to see. Check your lease for a financial-reporting clause before you list.

A closed store can keep paying rent, and the lease and the bankruptcy code decide for how long

A chain that closes a store it leases usually keeps paying rent until the lease ends unless the lease gives it an exit, which is why remaining term is the first number a buyer asks for. Read the go-dark, assignment and recapture clauses: some leases let the tenant stop operating while paying rent, sublet the box, or terminate early on notice.

Bankruptcy changes the arithmetic. Under 11 U.S.C. 365(d)(4), a bankrupt tenant's unexpired nonresidential lease is deemed rejected unless assumed within 120 days of the order for relief or by plan confirmation, with one 90-day extension available for cause and further extensions only with the landlord's written consent. If the lease is rejected, 11 U.S.C. 502(b)(6) caps the landlord's damages claim at the rent for the greater of one year or 15 percent of the remaining term, not to exceed three years.

Hypothetical: a store pays $400,000 a year with 10 years left when the tenant rejects the lease. The capped claim is 1.5 years of rent, $600,000, an unsecured claim paid at whatever the estate pays creditors, against $4,000,000 of rent you expected. Model your own lease with your CPA and bankruptcy counsel before you price the sale.

Sell while the term is long, because the tax is the same at any price but the equity you must replace is not

The tax side is ordinary. The building is nonresidential real property depreciated over 39 years, its straight-line depreciation is unrecaptured section 1250 gain taxed at up to 25% on a cash sale, and the rest is long-term capital gain, with the 3.8% net investment income tax on top for many sellers. A complete exchange defers all of it, and Treas. Reg. section 1.1031(a)-3 treats a store as a listed building, so there is no allocation problem.

The pricing side is where timing shows. A buyer of a store with three years left is buying a renewal decision, and in a market where the tenant has a closure program, that buyer prices the vacancy case. Net-lease REITs still own the format: Agree Realty's 2025 Form 10-K shows pharmacy at 3.6% of its annualized base rent and CVS at 2.9%, alongside a portfolio-wide weighted average remaining lease term of about 7.8 years.

If the tenant offers an extension before you sell, compare the price uplift against the rent concessions it asks for. Our single-tenant net lease page covers how remaining term and rights of first refusal interact with a sale.

Replacement options that reduce single-tenant retail risk

Many drugstore owners exchange out of the format rather than into another store. A diversified net-lease or multifamily Delaware Statutory Trust spreads the equity, but Rev. Rul. 2004-86 bars the trustee from re-leasing except on a tenant's bankruptcy or insolvency, so read how the sponsor handles a vacancy. Our pages on DST master lease risk and what happens when a sponsor or master tenant fails cover those structures.

• Another pharmacy: familiar lease, same closure risk, shorter terms on many listings.
• Diversified net-lease DST: many tenants, no management, no ability to re-lease freely.
• Grocery-anchored or industrial: different demand drivers, more active management if owned directly.

Buying a pharmacy net lease as replacement property: closure lists, store sales and the lease's exits before day 45

Check the store against the chain's most recent disclosures and any closure lists the chain or a bankruptcy court has published. Ask the seller for whatever sales reporting the lease requires, and look at the trade area for a competing pharmacy that recently closed, which can raise prescription volume, or a new one that opened.

Read the lease for the clauses that end rent before the term does: early termination options, go-dark rights, co-tenancy if the store sits in a center, and assignment rights that could leave a weaker operator in place. Underwrite the building as a vacant box, since a large drive-through store on a corner parcel is valued very differently by the next user than by the pharmacy.

Identify a backup. The three-property rule in Reg. section 1.1031(k)-1(c)(4) lets you name the store and two alternatives, and a written revocation can change them until day 45. The dollar store net lease page covers a related format with much shorter leases.