SCOTTSDALE, Ariz. -- Today, we continue our overview of all of the relevant, meaningful transactions that occurred in the industry during 2012, focusing on oil company initiatives, divestiture of non-strategic assets, bankruptcies and retail initiatives, among other areas.
Oil Company Initiatives
With the closing of the sale of its retail sites in New Jersey early last year, Houston-based ExxonMobil completed its initiative of converting its company-owned and -operated stores to a branded wholesale business, with its real estate assets in the hands of other operators. BP, Houston, and some of the other major oil companies had already completed this same strategy by 2012; however, certain other oil companies were actually going in the opposite direction and were actively acquiring retail assets to operate.
Dennis L. Ruben
Divestiture of Non-strategic Assets
During 2012, several industry players, ranging from the largest operators to some of the smaller ones, evaluated their real-estate portfolios and determined that it was in their best interests to divest underperforming assets and excess real estate.
*After determining that it would be selling the majority of its operating stores to Dallas-based 7-Eleven, Prima Marketing LLC, Gibsonia, Pa., retained NRC to sell its remaining 26 operating and closed convenience stores and excess retail pad sites.
*The Pantry Inc. also continued its program of divesting non-strategic assets, retaining NRC to sell 37 non-strategic stores.
*Cumberland Farms Inc., Framingham, Mass., also made the decision to sell a number of non-strategic sites, engaging NRC to sell 20 sites in eight states.
*Finally, 7-Eleven Inc. retained NRC to sell 30 convenience store locations in upstate and western New York that had been part of the 2011 Wilson Farms acquisition. Those sites were not deemed by 7-Eleven to fit their overall strategy in those markets.
Getty Realty Corp.
It was a tumultuous year for real-estate investment trust Getty Realty Corp. In December of 2011, its major tenant, Getty Petroleum Marketing Inc. (GPMI) filed a chapter 11 bankruptcy petition. GPMI was the master tenant under a lease with Getty Realty for 797 properties, representing approximately 69% of the Getty Realty portfolio. After a number of disputes between Getty Realty and GPMI, a stipulation and order was entered by the court rejecting GPMI's master lease with Getty Realty, effective April 30, 2012, thereby allowing Getty Realty to regain possession of the properties that were the subject of the master lease. Getty Realty was able to move quickly to reposition the vast majority of those assets. Long-term triple-net leases with respect to 282 locations were entered into with affiliates of Lehigh Gas, Chestnut Petroleum, Ramoco Fuels and Sam's Food Stores, and properties were added to an existing lease with MWS Enterprises, Amherst, N.Y.
In July, Getty Realty retained NRC to divest 66 commercial and retail properties located in six Northeastern and Mid-Atlantic states. In November, Global Partners LP, Waltham, Mass., entered into a new long-term lease agreement with Getty Realty for 90 stations that had been part of their previous interim fuel supply agreement. Getty Realty also entered into a long-term lease agreement with a subsidiary of BP PLC, BP Products North America Inc., for 28 New York and New Jersey locations.
There were not many significant bankruptcy filings by industry participants during the year beyond that of Getty Petroleum Marketing Inc., discussed in the previous section. The other noteworthy bankruptcy involved Red Eagle Oil Inc., a Cody, Wyo.-based convenience store operator with 17 gas stations and convenience stores. As a result of a court-ordered sale, those stores were ultimately sold to Brad Hall & Associates Inc., Idaho Falls, Idaho.
Change in Channel of Trade
Buck's Inc., a large convenience store chain based in Omaha, Neb., with stores in Nebraska, Missouri and Illinois, retained NRC to change its channel of trade by selling the real estate at certain locations to operators while retaining the fuel supply and entering into long-term fuel supply agreements with the operators. Jumpin Jimmy's, Effingham, Ill., also announced a similar strategy with respect to its 35 retail convenience store locations.
Murphy Oil USA, El Dorado, Ark., announced an agreement with Wal-Mart Stores Inc. to build more than 200 new fuel stations at existing Wal-Mart Supercenters. The parent company, Murphy Oil Corp. (MUR), has announced its intention to spin off its retail business from its downstream assets during the first half of 2013.
A close analysis of the significant transactions in the industry in 2012 provide interesting clues for the direction of the industry in 2013. First, and perhaps most significantly, acquisition activity will continue and probably accelerate this year, as the larger companies and MLPs seek opportunities to expand their operations and cash flow.
Furthermore, the increasing level of consolidation among a few companies will make it that much more difficult for the small or midsize operator to compete effectively, thereby forcing those operators to seriously consider whether they should sell now, especially in light of the high multiples being paid for good convenience store assets.
Additionally, there will be more divestitures of nonstrategic assets, particularly by the major industry players. As the larger companies complete their acquisitions, they will quickly realize that not all of the acquired assets fit their business models and strategies, and a divestiture of a certain percentage of acquired properties will be inevitable. In addition, it will be interesting to watch what some of the major oil companies do during the months ahead, particularly Speedway, Valero and Tesoro, as well as ETP/Sunoco. All things considered, it should be another exciting and momentous year for our industry from an M&A and capital markets perspective.
[Editor's Note: Dennis L. Ruben, executive managing director of NRC Realty & Capital Advisors, LLC, will contribute an annual and quarterly column to CSP, analyzing mergers and acquisitions and key economic trends in the convenience channel. He can be reached at email@example.com. He will also headline the Capital Markets Symposium at this year's Outlook Leadership Conference, Nov. 9-12 in Scottsdale, AZ. Registration opens February 2013.]