New Australian service station trust seeks funds to invest in retail outlets

The Australian Service Station Trust wants to raise up to AUD50 million (USD45 million) to invest in five gas stations on major highways in Victoria state, according to M&A Partners, the advisory firm handling the capital raising.
The stations have 15-year leases with Caltex Australia Ltd. and The Spargo Group, which operates under the BP brand. Each allows for a minimum 3% rent increase a year, offering an initial cash yield of 8%. Three of the stations will also have fast food outlets like Hungry Jack’s, the Australian franchisee of Burger King Worldwide Inc., and Archer Capital-owned Quick Service Restaurant Holdings’ Oporto.
The trust can back new stations only when they are pre-leased to major oil companies and retail food outlets, thus avoiding the risk of developing sites from the ground up on their own. Profits are forecast to be in the range of 20% a year.
The fund’s initial debt ratio will be around 53% and is expected to fall each year, with an exit expected by 2018 through an initial public offering or sale.
It is unclear whether more sophisticated investors will back the fund. Australia’s fuel demand has risen strongly in recent years on the back of the country’s growing economy, particularly from higher consumption by industrial companies, according to the Australian Institute of Petroleum, a lobby group.
However, Prime Minister Kevin Rudd said in July 2013 the China-led resources boom is over, which may crimp fuel demand growth. The unemployment rate in Australia is 5.7%, its highest in four years. It is not clear if other sectors of the economy like housing construction or consumer spending will pick up sufficiently to offset waning investment in resources.
The trust’s managing director, Tim Boyce, has a great deal of experience in the service station sector, having spent 15 years at Wesfarmers Ltd.-owned Coles Group, where he rose to become the national head of property. Boyce was also involved in Coles Express’ acquisition of the management rights to Royal Dutch Shell PLC’s Australian retail service station network, which now includes more than 630 sites.
(July 15, 2013)