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Petrol stations

Discussion in 'Commercial Property' started by Eugene82, 16th Sep, 2016.

  1. Eugene82

    Eugene82 Active Member

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    Hi everyone,

    I have never done anything with commercial property. Just seen a post of someone buying a petrol station for 4.8mil in Sydney that brings 240k pa rent.
    Can someone please take me through the numbers? How does that work out, what's the catch? Or at least where can I read up on it?

    Thank you :)
     
  2. Scott No Mates

    Scott No Mates Well-Known Member

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    Too little information about the deal in Primespace.
    • Was it a net rent?
    • What are the annual reviews?
    • Market review dates?
    • Rent review mechanism?
    • Who is responsible for site remediation of petrochemical pollutants?
    • What is the baseline contamination report indicating?
    • Is the term comprised of options?
    • Will petrol be outdated in 20 years?
    • What is in the usage clause?
    5% is too low a return for the underlying risk.
     
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  3. Eugene82

    Eugene82 Active Member

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  4. Blueskies

    Blueskies Well-Known Member

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    Agree with @Scott No Mates yield seems a bit low for the risk.

    I was looking at the Viva energy REIT that was listed a few weeks back. Yield was 5.8% with contracted rental increases of 3%. That was on a basket of >400 servos too so much greater diversification.
     
  5. Scott No Mates

    Scott No Mates Well-Known Member

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    @Blueskies - just be aware that REITs are a hybrid and don't follow movements either the ASX or property markets religiously. They generally trade at a discount to asset value.

    It may have an advantage of diversity of location of the assets ie in all areas of the country however you will want to consider the risks of this type of tenant and whether global factors affecting the business may affect the share price.
     
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  6. mikey7

    mikey7 Well-Known Member

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    The other thing to consider is the maintenance.
    I heard somewhere that they are required to rip out the underground tanks every 10 years and do a full replacement.
    I can't imagine that be cheap to do.
     
  7. wobbycarly

    wobbycarly Well-Known Member

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    Nah, that's rubbish - your source is wrong or you misheard. As long as the tanks are holding fuel and not letting in water, they can stay. (I worked in the industry for nearly 20 years, and never saw a tank replaced "just because" after ten years.) However, the regular maintenance is still a very valid point!
     
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  8. bumskins

    bumskins Well-Known Member

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    I believe that servo was fully gutted with everything replaced about 2.5-3 years ago, including tanks, bowsers, main building etc.
     
  9. Proprieta

    Proprieta New Member

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    The service station must have a long lease 10, possibly 20 years with a decent sized fuel company. A number of these leases cover all outgoings, plus allow for remediation of any environmental issues.

    If there are fixed rental increases to either CPI or a % then overall it can be a relatively attractive deal given the long term secure cashflows.

    I find that some SMSF's are happy to buy commercial properties with a long lease profile & solid tenant but a moderate yield as they are securing a cashflow, which they are more interested in then a capital gain.
     
  10. Ross Forrester

    Ross Forrester Well-Known Member Business Member

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    5% is too low a yield for commercial - even if it was a bear city office that is leased to a bank long term it is too low.

    I am seeing some assets sell for Sicily prices but that is moreso SMSF money that is simply missing the risks of commercial.
     
  11. Beano

    Beano Well-Known Member

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    What is a bear city office and a Sicily price ? ...i have not heard of that term before
    I have brought at low yields of 2pc but the market rental was a lot higher
     
  12. Cactus

    Cactus Well-Known Member

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    I don't know, but I've always wanted to go. I never seem to get any further south than the Amalfi Coast. Must be all the Bears in the city.
     
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  13. Beano

    Beano Well-Known Member

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    I think the bear city office is where the bears work ...at the moment only the bulls are busy working
    If you don't accept the Sicily price you unlikely to be alive in a days time. ..i hope no one offers me a Sicily price.
     
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  14. Scott No Mates

    Scott No Mates Well-Known Member

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  15. wobbycarly

    wobbycarly Well-Known Member

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    (Unless you guys forgot to use the backward italic sarcasm font) I think a Sicily price is a case of autocorrect-itis where "silly" became "Southern Italian with Mafia connotations".

    And bear = bare