I am interested in buying a C-store. I have some general information on it but not much more yet. I know the average monthly gallons pumped, retail gross, and lottery commissions. The real estate is included in the sale with 7 years left on the oil contract. I was wondering if there was an industry standard or other valuation method so I can get a ballpark for an offer. I have a good grasp on the real estate market where is located but not sure how to value using an income approach. Any help greatly appreciated.
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C-Store Valuation
- Thread starter Buzzie8
- Start date
robert roman
Bob Roman
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.
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.
robert roman
Bob Roman
Yes and more or less.
As you can see from snapshot, multiple facilities site is a complicated affair even when developing opinion of value let alone a full-blown appraisal.
I would not advise simply choosing the midpoint as a sanity test because this can and often does result in egregious errors.
As you can see from snapshot, multiple facilities site is a complicated affair even when developing opinion of value let alone a full-blown appraisal.
I would not advise simply choosing the midpoint as a sanity test because this can and often does result in egregious errors.
