Convenience Drives Retail Rebranding
Across all sectors of the retail industry, merchants are being forced to refresh their brands and stores in order to remain relevant with consumers and attract new customers. The clear message from consumers has been that convenience is key. Nowhere is this more evident than in the convenience store/travel center space. More pumps. Larger stores. Increased food and drink options. Expanded shopping alternatives. These changes come from a growing demand from consumers to have a c-store and travel center be a one-stop-shop for items on the go.
This increased focus on convenience for c-store and travel center operators is leading to an increase in competition between c-stores and traditional quick- service restaurants, coffee shops and other restaurants. Some QSRs are counting on brand loyalty to slow the tide of c-store and travel center impact on sales. While brand loyalty is important to consumers, it’s no longer enough to offer loyalty or rewards programs. That is: Convenience is king and, when people believe that the Wawa or QuikTrip coffee is comparable to Starbucks or Dunkin Donuts’ coffee, for example, they will go with convenience.
And while this convenience trend is impacting QSRs, it is also impacting those c-store and travel center operators who refuse to refresh or update with convenience options. Today, for the c-store and travel center operator, it’s “do or die.” Either refresh your store, your brand, your concept and your services or risk losing market share and becoming irrelevant to your consumer base.
THE SALE LEASEBACK OPTION
For those owners and operators looking to refresh the brand and enhance their store offerings, many will look to the equity markets for partners who will capitalize the improvements. Others may look to the debt markets for a partner who can offer long-term debt to fund the necessary improvements. But for an owner of real estate, there is another option to maximize value: the sale leaseback.
We’ve seen a growing trend of owners utilizing the sale leaseback as a means of maximizing value and capitalizing growth for their larger portfolio. To employ this strategy, an owner first takes out short-term debt or identifies short-term equity partners to fund the initial improvements to the first location within their portfolio. Next, the owner sells that renovated property and executes a long-term, absolute NNN lease at closing. This process maximizes value because, all else being equal, cap rates are lower for a newly renovated asset with a long-term lease in place, as compared to an asset that hasn’t been updated or where the lease term remaining is shorter. With the proceeds from selling the first property, the c-store owner-operator can use those funds to renovate the next property and continue to execute additional sale leaseback transactions for some or all of the remaining properties in his or her portfolio. It’s important to note that the sale leaseback process can run concurrently with the construction of the expansion or improvements, thus allowing for a closing at the time construction is completed. This leaves the operator, equity partners, and debt providers with minimal exposure.
This sale leaseback strategy results in maximum proceeds for the owner— proceeds that can be used, in part, to pay off short-term equity partners or debt holders with the remaining proceeds available to fund additional growth and improvements at other locations. Any c-store or travel center owner should consider a sale leaseback strategy as a powerful financing tool to fund growth and improvements—a necessary step for surviving in today’s changing retail environment.