M&As dominate the headlines for the convenience-store (C-Store) sector. For instance, 7-Eleven, offering everything from Big Gulps to gas (that is not a comment on their food offerings) now tops the list of stores by number since it bought some 1,000 units from Sunoco last year. With a AA-minus credit rating, 7-Eleven now operates 9200 shops.
Speedway comes in at #3, with 3900 stores, more than 1000 of which were picked up from Andeavor, and it boasts a BBB credit rating. (Interestingly, the transaction knocked Andeavor off the list entirely. It was #7 last year.) EG Group secured this year’s #8 spot with 939 locations, the bulk of these the result of purchasing 784 Kroger gas stations and mini-marts.
What does all of this mean for cap rates? We have reported on the relative stability of cap rates since Q4 of last year. This, despite the fact that the 10-Year Treasury declined over the past two quarters.
The 12-month sector average stands at 5.67%, with specific brands clustered tightly around that. Sheetz logs in at 5.84%, 7-Eleven at 5.33% and WaWa at 4.73%. Given the investment-grade nature of those brands, along with the corporate guarantees that are part of their lease structures, they are all good bets.
That cap-rate stability is evident also in the meager variations when they are measured by remaining lease term. Sheetz showed the biggest variation, and that by only by a 31-basis-point (bp) dip for leases with more than 10 years remaining. Ditto 7-Eleven with only a 16-point slip. WaWa was virtually unchanged.
Taken on a regional basis, we have been tracking high C-Store demand in the Mid-Atlantic and Florida, leading to lower cap rates—5.25% and 5.23% respectively. Interestingly, neighboring regions—specifically the South and the Southeast—logged the highest cap rates: 7.57% and 6.98% respectively. But again, given the watchword for the national net lease market generally, we are not seeing wild swings.
Taken as a whole, the sector offers investors an attractive price point, with the average sale price for the past 12 months hovering around $3 million.
We should make note here of the transition taking place—slowly—in automotive technologies. The expectation is for the C-Store sector to hold its value, even as the automotive industry begins to transition to electric from gas. Indeed, the switch in fuels can represent an opportunity for forward-thinking tenants. Built into their model and further ensuring long-term value is the sort of immediate-need, impulse-buy product offerings that are essentially internet-proof.
These are essential truths of what the C-Store sector is and what it could be. And they represent the long-term value of the market.