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    C-store, Gas Station Properties are Investors' Preferred Choice

    Average cap rates in the segment reach new highs and continue to edge upward.

    ORLANDO -- Despite the overall sluggish trend in market transactions, sales of convenience store/gas station properties were relatively strong last year, according to the first half 2009 single-tenant retail report from Marcus & Millichap Research Services.

    Rising average cap rates for the niche in 2008 reached their highest since 2002, and is one factor credited with fueling an increase in transactions, GlobeSt.com reported.

    "In 2008, sales velocity ... surpassed the levels recorded in the prior year, as investors were attracted to the sector’s cap rates, which increased roughly 80 basis points in that time to the low 8 percent range," the Marcus & Millichap report stated. "As profitability among operators continues to accelerate, these properties will likely remain a preferred choice among investors."

    That said, sales transactions slowed in the latter part of the year and have yet to show significant signs of picking up thus far in 2009, Steve Horn, senior vice president of acquisitions for Orlando-based National Retail Properties Inc., told GlobeSt.com.

    At the same time, however, cap rates in the segment are moving in the opposite direction. "Cap rates have edged upward in the c-store industry," Horn said.

    The c-store segment is one area of retail National Retail Properties continues to be particularly bullish about. Horn noted convenience stores typically have very solid real estate—hard corners and signalized corners, for instance—and the relatively small individual property price means diversification can be easily gained with multiple purchases.

    "We’re actively looking at acquisitions in all [retail] industries, but we’re particularly interested in convenience stores and movie theaters," Horn said. He added the more modern c-store formats—those that have expanded capability for foodservice—are most desirable today, since higher margin foodservice means the tenant has a greater ability to pay rent.

    At the end of 2008, there were more than 144,000 convenience stores in the U.S., a 1 percent decline from the nation’s 2007 c-store count. While single-store operators account for 62 percent of the industry, they also represented the bulk of last year’s decline in the overall number of c-stores operating in the country.

    Larger operators continue to grow their market share. Dallas-based 7-Eleven Inc., for example, announced last month what it termed "aggressive expansion" plans in the U.S. and Canada, saying it expects to add more than 200 stores this year. “Plans call for the company to accelerate store development over the next several years through organic growth, acquisitions and its business conversion program,” the chain said in an announcement. "7-Eleven has a multi-pronged approach to growth that includes in-line, end-cap space in shopping centers, freestanding stores, urban locations in light industrial sites, city residential areas and suburbia."

    Sanford, N.C.-based The Pantry Inc. is another c-store operator that continues to grow through acquisitions. Back in April, The Pantry agreed to buy 40 convenience stores, including the underlying real estate of 32 of the locations, from Herndon Oil Corp. The majority of the properties are located in the Mobile, Ala., area, with several in Florida, Louisiana and Mississippi.

    Also in April, Quebec-based Alimentation Couche-Tard Inc. inked a deal with Exxon Mobil Corp. to buy its On the Run c-store franchise system in the U.S., as well as 43 of its company-owned and operated sites in the Phoenix market. As part of the agreement, Couche-Tard purchased the land and buildings of 33 locations, and assumed or entered into new leases for the remaining 10 locations.

    Both The Pantry and Couche-Tard said they will pay for their acquisition with available cash on hand. Both have done sale-leaseback transactions in the past.

    And in theory, sale-leasebacks could continue to be a way to fund future growth in an industry that continues to find itself in the hands of fewer and larger operators.

    "Consolidation is still happening within the industry" albeit currently at a slower pace than in prior years, National Retail Properties’ Horn noted in the report.

    Related News:

    Couche-Tard Acquires On the Run Network

    The Pantry Acquires 40 Stores from Herndon Oil

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