Sante Properties, L.P., the real estate spin-off of Rx Drug Mart, is selling the portfolio of properties which comprise its entire holdings. They’re located in commercial nodes of suburban and rural markets and total 81,314 square feet of net rentable area.
“It was an arm’s-length entity that was set up with the sole purpose of helping us acquire pharmacies and properties,” Rx Drug Mart chief executive officer Chris Gardner told RENX of the rationale behind creating Sante. “Quite often when pharmacy owners retire, they’ve often acquired their building over time as well.”
The properties are available as one large package, in clusters or individually.
“Interest has been phenomenal to date from high-net-worth private investors, along with select institutional groups seeking safe and stable yield,” Elliot Medoff, JLL executive vice-president of capital markets for Ontario, told RENX. “JLL expects multiple offers on both individual assets and on a portfolio basis.”
JLL will be taking bids for the properties until mid- to late November, according to Medoff.
Selling points of the pharmacy properties
While Rx Drug Mart is the anchor tenant in all of the properties, a few of the holdings also include other retail or residential tenants. The tenants are solely responsible for operating expenses, realty taxes and non-structural repairs and maintenance for the stable, income-producing properties.
Rx Drug Mart benefits from a lack of competition within its under-serviced secondary market and rural locations, which make up about 75 per cent of its portfolio, in many cases.
As such, it’s deeply entrenched within each community and has a loyal customer base, the company says.
Access to primary health care providers is a challenge in many small communities, and pharmacies can help fill that gap.
“These sites provide an invaluable service to communities,” said Gardner. “It’s not just a pharmacy, it’s a health hub.”
Rx Drug Mart is administering flu shots in its locations across Canada and conducting coronavirus testing in Alberta. Gardner believes it will likely provide COVID-19 vaccine shots when they become available.
Pharmacies are uniquely insulated from major economic uncertainties due to the nature of the products and services they provide. As essential service providers, they remained open during government-imposed COVID-19 business shutdowns.
“We’ve been open and really haven’t missed a beat,” said Gardner. “And in some cases we’ve benefited a little bit through COVID, with shopping being restricted and essential services only being open.”
Rx Drug Mart is a long-term tenant
The properties are being sold to provide capital for long-term core pharmacy business growth for Rx Drug Mart.
“We would rather grow quicker on the pharmacy side by finding good partners to be our landlords and help us when we come across a great location that we want to be in,” said Gardner. “We wouldn’t want to buy a store that’s not going to be around for decades.”
The properties offer new 10- or 15-year leasebacks to Rx Drug Mart.
“Rx Drug Mart intends to remain a long-term tenant of the properties and have a strategic relationship with the portfolio buyers,” said Gardner.
Rx Drug Mart’s rapid growth
Persistence Capital Partners is one of the founders of Rx Drug Mart and its lead equity sponsor. Canada’s only private equity firm focused exclusively on high-growth opportunities in health care seeded the business with funds when it started in 2015 with one pharmacy.
Rx Drug Mart owned eight pharmacies by the end of 2016. Gardner joined the company as vice-president in 2017, the year rapid expansion began, after spending 23 years in progressively senior roles at Shoppers Drug Mart.
He was promoted to his current position in February 2019.
Rx Drug Mart has achieved an annual growth rate of 13,940 per cent over the past three years, making it Canada’s fastest-growing company as of September, according to The Globe and Mail.
Rx Drug Mart now operates 131 stores across Canada and has the third-largest market share in the sector behind Shoppers Drug Mart and Rexall Pharmacy Group. It’s Canada’s largest independent pharmacy chain outside of Quebec.
Rx Drug Mart acquired 12 stores in Oshawa, Whitby, Ajax and Kingston, Ont. from 110-year-old Lovell Drugs, the oldest independent pharmacy chain in Canada, in February. It was being run by the third generation of Lovell family members who were in their 70s, didn’t have a fourth generation to take over and wanted to sell and retire.
“What was important to them was selling the business to someone that was going to be a good custodian and a good operator of their network, and preserve their name on the door and their legacy and their reputation in those communities,” said Gardner.
Rx Drug Mart acquired a further 35 pharmacies across Western Canada in September. Gardner said more information about that purchase would be announced soon.
Many young pharmacists aren’t interested in becoming business owners and operators and taking over pharmacies from aging owners looking to get out, according to Gardner. That has paid dividends for his company.
“We’ve really found a real sweet spot for us to grow. We’re in the right place at the right time and we’ve been able to build a really good reputation in the independent pharmacy world of being a really good custodian of pharmacies when people want to retire.
“They know that we value the business appropriately and fairly.
“Equally as important is the legacy that they leave and ensuring that their staff can continue on in the same way and that their patients are looked after in the same way and there’s no disruption. Some pharmacy owners don’t like to sell to big pharmacy chains.”