Illustrative example. This page walks through a hypothetical 1031 exchange into a CVS net lease property in the Phoenix area to show how the numbers and diligence work. It does not describe a specific closed transaction or client, and the figures are examples, not results. Updated October 4, 2026.
A common path into net lease real estate is an investor who sells rental homes and uses a 1031 exchange to buy a single-tenant property leased to a national, investment grade tenant. The example below follows that path with a CVS pharmacy, using a $2.3 million purchase price and a 7.25% cap rate. For the framework behind tenant credit, see our investment grade guide.
The Example Property
| Property | Freestanding CVS Pharmacy, Phoenix metro (hypothetical) |
| Purchase Price | $2,300,000 |
| Cap Rate | 7.25% |
| Net Operating Income | $166,750 per year (about $13,896 per month) |
| Remaining Lease Term | 12 years, plus four five-year renewal options |
| Rent Increases | 10% at each renewal option (flat during the remaining primary term) |
| Tenant Credit | CVS Health, BBB/Baa3, if CVS Health guarantees the lease |
A 7.25% cap rate with 12 years remaining would be above the current market median: across the active CVS listings we track as of October 2, 2026, leases with 10 or more years left ask a median of about 6.0%, and all CVS listings about 6.5%. A higher cap rate usually reflects a weaker location, above-market rent, or lease terms that need a closer look.
What the Investor Wanted
- Passive income with no day-to-day property management
- Investment grade credit behind the rent
- A single tenant instead of multi-tenant management
- A replacement property that could close inside the 1031 deadlines
Diligence Checklist for a Property Like This
- Tenant and guarantor: confirm which CVS entity signed the lease and whether CVS Health Corporation guarantees it.
- Lease type: confirm who pays taxes, insurance, and maintenance, and who owns roof, structure, and parking lot responsibility.
- Rent schedule: many CVS leases have flat rent through the primary term, with increases only at renewal.
- Location: traffic counts, access, competing pharmacies nearby, and household incomes from a current third-party demographic report.
- Rent versus market: compare the CVS rent with what a replacement tenant would pay for the same building.
- Store performance: request any sales information available and check whether the location has appeared in closure reporting.
The Numbers
Income. At $2.3 million and a 7.25% cap rate, net operating income is $166,750 a year, or about $13,896 a month.
Financing (if used). At 70% loan to value ($1.61 million), a 6.5% interest rate, and 25-year amortization, annual debt service would be about $130,450, a debt service coverage ratio of about 1.28x. Actual loan terms depend on the lender, the lease, and market rates at the time.
Depreciation. Land is not depreciable, and in a 1031 exchange the investor’s basis in the new property generally carries over from the property sold, adjusted for any additional cash or debt. For example, if $1.6 million of basis were allocated to the building, 39-year straight-line depreciation would be about $41,000 a year; carried-over basis from a highly appreciated relinquished property can make the actual figure much lower. A cost segregation study may accelerate part of the deduction. An investor’s tax adviser should calculate the real numbers.
Tax deferral. Exchanging into the CVS defers the capital gain on the rental homes, provided the exchange meets the 45-day identification and 180-day completion rules (the completion deadline can be earlier if the tax return due date comes first).
State tax. Arizona taxes nonresidents on Arizona-source income, including rent from Arizona property, at its flat individual rate (2.5%). An investor living in another state should expect to file in Arizona and check whether the home state gives a credit.
CVS Credit and the Bond Comparison
CVS Health is rated BBB by S&P and Baa3 by Moody’s, reported $402.1 billion of total revenue in 2025, and had approximately 9,000 retail locations at December 31, 2025, according to its 10-K. Its 5.450% senior notes due 2035 priced to yield 5.453% in August 2025; with Treasury yields higher since, they would yield roughly 6.4% today if CVS’s credit spread were unchanged. A 7.25% cap rate would be roughly 85 basis points above that estimate, before considering depreciation, 1031 treatment, and the risks of owning a single building. Full analysis: CVS Health bonds vs. NNN.
Similar Healthcare NNN Tenants, by Credit
| Tenant | Rating (S&P / Moody’s) | Status |
|---|---|---|
| CVS Health | BBB/Baa3 | Investment grade |
| Fresenius Medical Care | BBB-/Baa3 | Investment grade |
| Walgreens | No public rating (private since August 2025) | Not rated |
| DaVita | BB | Below investment grade |
| Concentra | BB (S&P) | Below investment grade |
| Select Physical Therapy | no verified rating (parent Select Medical, S&P) | Below investment grade; an operating brand of Select Medical, not a REIT |
Ratings per our tenant ratings database. Rite Aid closed its remaining stores in 2025 and is no longer an active pharmacy tenant.
Considering a Healthcare NNN Purchase?
We source pharmacy, dialysis, urgent care, and outpatient NNN properties nationally across the credit spectrum, and we label each tenant’s actual rating and guarantor before you commit. Request a buyer consultation and tell us your exchange timeline, target yield, and credit requirements.
