Tired Old Soldiers and Capital Needs


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Over the past five years, thousands of U.S. retail gas and convenience store assets, previously owned by major and regional oil companies, have been purchased. Some locations have been purchased by existing operators, and many have been gobbled up by fuel distribution companies large and small.

So where am I going with this basic, well-known information as a backdrop? Well, it is my hope that when buyers ran their investment models on these assets before making their monetary offers, they accounted for the need in the future to replace MPDs and interior equipment, and upgrade buildings, canopies, lighting, pump pads, curbing, paving and IDsigns. What is indisputable is that most of these sites pre-sale were basically maintained. While there were the occasional post-1998-built sites such as ExxonMobil On the Run locations, most had not seen significant capital improvements in many years. The majority of sites that were acquired were vintage 1980s or earlier mart or service-bay locations.

Five Steps to Take

With these producing assets in your portfolio, what should you do from the perspective of future development? How can you effectively maximize sales and profit from each location?

  1. Develop Site-by-Site Analysis: Prep area template on how to view each site, containing a long list of key financial and other data, in addition to the standard volume, margin and cash-flow history. Be sure to include pictures of the site either recently taken or from Google Maps if still current, as well as trade area maps with key competitors noted.
  2. Prepare Your Market Plan: The key here is to be in a position to analyze and make actionable decisions for each site based on the data in front of you. Is this site a long-term keeper? Is the facility noncompetitive? Has the competition made recent upgrades to buildings, canopies and equipment? Is the immediate retail area strong and sustainable? If the answer to at least one of these questions is yes, you must develop an upgrade plan to remain competitive and grow volume and sales.
  3. Volume, Volume, Volume: Most critical is to determine the right investments to make from a return standpoint. First and foremost, the single greatest return from any retail gas location is the MPD. Adding new and/or replacing old dispensers will, generally speaking, produce a hurdle-rate-type return. A new MPD has a 20-year asset life. However, in years 14 and beyond, the dispenser will begin to require significantly higher maintenance and repair than in the previous 13 years. If you have these “tired old soldiers” in your forecourt, consider replacing them. There will be some salvage value, which you can apply. Replacing three-hose dispensers with single-hose dispensers is a no-brainer. Other equipment investments to be studied for upgrade include new canopies and illuminated canopy wraps, exterior LED lighting, LED price signs, interior coffee bars, coolers/freezers, merchandisers and lighting. Done properly and marketed, these items have a quick payback.
  4. Zoning Requirements: Make sure that whatever you decide to do, check with your architect/planner for any modifications requiring planning board approval. While you need not secure approval to replace MPDs, a new LED price sign may require the endorsement of the municipality. The addition of a new building on the property for a QSR will certainly require full planning board review and approvals as a mixed-use site
  5. Financing: The world of financing anything, especially retail gasoline site development and improvements, drastically changed in 2008; it remains severely challenged, despite an improving economy. Forget national and more than 90% of regional and local bank lenders. Seeking approval for an equipment loan, canopy and/or building upgrades, construction or—heaven forbid—new tanks is like waiting in a blizzard for a bus that will not be arriving. For this reason, we have recently developed relationships with specialty lenders and equipment finance companies and can help navigate their requirements, even for tanks, construction and other “soft” costs. 

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