The income approach for gas station going-concerns allows for two options – gross profit multiplier (GPM) and overall capitalization rate (OCR).
Each approach requires breaking business down into component parts (profit centers) – fuel, convenience store, food service, carwash, etc.
Gross sales for each profit center are then projected forward 12-months (stabilized operation).
Gross sales by profit center less cost of goods by profit center equals gross profit.
Gross profit is then reconstructed (adjusted) to exclude expense items not consider in fee simple going-concern value such as leases, rents, owner’s draw, debt service, etc.
Historically, GPM for gas/c-store has interval of 3.0 to 6.0.
Selection of GPM is subjective and a function of geography (i.e. type of business district, freeway, rural), density (i.e. existing versus supportable stores), brand versus unbranded and market trends.
Concluded value may also have to be adjusted for fuel rebates, supplier agreements, right of first refusal, etc.
OCR approach uses reconstructed earnings from GPM method less operating expenses by profit center equals net operating income.
NOI / OCR = value indication
OCR has interval of around 8.0% to 12.0% but is extremely sensitive to market conditions.
For example, real estate values trending downward or deflated warrant higher OCR, etc.
Concluded value may also have to be adjusted for compliance issues (i.e. storage tanks).
Fee simple going-concern value for gas/c-store is not as straightforward as free-standing carwash and requires considerably more data and rigorous analysis.
Opinion of value is typically used as sanity test before spending more money on summary appraisal.
