Investors have shown no qualms about the future of service stations, snapping up 18 of them leased to 7-Eleven at auction on Tuesday.
The company’s second tranche of its national sale-and-leaseback campaign, conducted by Burgess Rawson, which started in 2019, drew to an end this week with a 100 per cent clearance rate.
All properties were offered with the same lease terms – a 12-year lease to 7-Eleven, plus options to 2052 with fixed compounding 3 per cent annual rent increases.
The tightest yield – 2.5 per cent – came from the sale of a service station at 1579 Pacific Highway in Wahroonga, on Sydney’s upper north shore, for $4.67 million.
“I think it’s a record, no doubt. There’s been a few low-yield sales in the [2 per cent range] but not with a brand-new lease in place,” Burgess Rawson director Billy Holderhead said.
Simon Staddon, another director at Burgess Rawson, said the Wahroonga property had received an overwhelming amount of interest during the campaign.
“It was the hero result, with multiple bidders across the board. The local market including the surrounding area of Chatswood dominated the interest we received, one of the under bidders said they lived around the corner and just wanted to own it outright but the yield just went too low [for them],” he said.
Although the site was potentially “tied up” for the next 30 years – when taking the initial lease terms and options into consideration – its future development potential and the fundamentals of Wahroonga, one of the upper north shore’s prestige postcodes, were “no doubt” the reason for the tight yield, Mr Holderhead said.
A service station in the Melbourne suburb of Wantirna secured the highest result of the day, selling for $7.13 million.
The property, at 605 Boronia Road on a 6480-square-metre site, includes 2500 square metres of vacant land.
“That property had a chunk of extra land which was leased and tied up in the leaseback but 7-Eleven had sort of made it known that they were happy to sit down with the buyer and look at recutting the deal for a complementary use there.”
Bidding for the property started at $5.5 million, with bids proceeding at a sometimes frenetic pace from there.
Further bidding pushed the price beyond the $7 million mark, resulting in a yield of 4.59 per cent.
Four service stations in the ACT were part of the portfolio, including one at 1 Mawson Place, Mawson, which sold for $4.23 million on a yield of 5.18 per cent.
The buyer of the Mawson property – a fruit farmer from regional Victoria – said the favourable lease terms and the lack of land tax in the ACT had been the deciding factor behind his purchase.
“I would have liked to buy in Victoria but the land tax would have killed me,” he said.
It wasn’t his first commercial purchase but it was the first service station he had bought.
“I looked at it yesterday. [I decided to buy] because I think it has a good return, 3 per cent increases and it’s going to be there for the next 12 years at least.”
He said the only concern he had about the purchase was the potential impact of the transition towards electric vehicles but that with the bank providing “1.5 per cent returns” and cheap lending rates, it made sense to invest in an asset with a 5 per cent return.
Mr Holderhead said the total value realisation for 7-Eleven from the most recent portfolio auction had been $78.17 million, with a blended yield of 4.83 per cent across all transactions.
He said that results had been “well above expectations” partly due to the overall market demand for service stations but also due to the lease terms in place.
“The lease structure certainly helped – there was a lot of time put in by Charter Keck Kramer, 7-Eleven, Dentons and Burgess Rawson collaborating, trying to strike the right balance between 7-Eleven and their future landlords. The rents were conservative, which helped with some affordable pricing,” he said.
Mr Staddon said that a number of bidders already owned 7-Eleven assets and were aware of the benefits of having a tenant with a national profile.
“Many parties attending and bidding already owned properties with 7 Eleven as a tenant and consequently had upmost confidence in the strength of the tenancy profile,” he said.