Two questions on service station appraisals

[Gobears81]

Guys

I am appraising a service station and have decent data on EBITDA multipliers for this area. One thing that I have struggled with in in the past is that the owner only provides gross margins for fuel and in-store sales, but not EBITDA. I understand that this type of margin can vary by location, particularly for fuel sales, as well as by larger or smaller platforms (or older vs newer). But what has your experience been on the difference between gross margins and EBITDA?

Also, some operators seem to neglect reporting lottery sales for appraisal purposes, but I often see it discussed on offering sheets for properties which are listed. Have you typically seen lottery sales significantly affect the profitability of a store?

Thanks

 

[Pittsburgh Pete]

Guys

I am appraising a service station and have decent data on EBITDA multipliers for this area. One thing that I have struggled with in in the past is that the owner only provides gross margins for fuel and in-store sales, but not EBITDA. I understand that this type of margin can vary by location, particularly for fuel sales, as well as by larger or smaller platforms (or older vs newer). But what has your experience been on the difference between gross margins and EBITDA?

Also, some operators seem to neglect reporting lottery sales for appraisal purposes, but I often see it discussed on offering sheets for properties which are listed. Have you typically seen lottery sales significantly affect the profitability of a store?

Thanks

The going concern value certainly--certainly not the real estate. Lottery sales can be a significant source of income--gets even better if they sell a winner (at least here in PA).

 

[PL1957]

I've often found Gross Profit Multipliers more relevant than EBITDA multiples. I think it's because it's much easier to verify income (sales) than expenses.

 

[CANative]

I get a freaking gas station/c-store to do a couple of times a month. I hate them. But I do get an opportunity to study their financials.

No two are the same in the formats they use or the way they structure their income and expense statements. Most fudge them and use goofy expenses (like "bad gas - ($180,000)). Some don't include labor expenses because they operate and manage the business themselves. Some expense off labor which are just payments to themselves or their family or friends.

I don't see how relevant using EBITDA as a multiplier can be. It's not really a financial metric. It's really a metric to use to compare profitability between different companies.

 

[KHS445]

A fairly regular client of ours who has 100+ c-store locations typically looks at the gallons sold and gross inside sales, with some review of what makes up the inside sales along with reported gross margins. They feel gallons are more accurate than dollars due to the fluctuation in gas prices. On the inside once they know the rough product breakdown they apply their expected margin and then figure out an offering price. Obviously adjustments are made based on the age and type of equipment, condition of improvements, etc.

 

[Gobears81]

I've often found Gross Profit Multipliers more relevant than EBITDA multiples. I think it's because it's much easier to verify income (sales) than expenses.

That is a good point. I will aim to go that route from now on

I don't see how relevant using EBITDA as a multiplier can be. It's not really a financial metric. It's really a metric to use to compare profitability between different companies.

I've been quoted good data by service station brokers in the past, and ever since, I've always attempted to compile data in that fashion. Maybe it isn't entirely appropriate, and perhaps I'll just shift to the gross margin multipliers like discussed above.

 

[Abester]

Why not just use the price per square foot analysis and be done with it?

 

[Terrel L. Shields]

(like "bad gas - ($180,000)).

I wonder how many times that is code word for leaking underground storage tank....

I quit C stores years ago. It's too much work for what banks are willing to pay. And if they agree to Real Estate only value, then the owner & LO screams their bloody head off.

 

[PL1957]

I quit C stores years ago. It's too much work for what banks are willing to pay. And if they agree to Real Estate only value, then the owner & LO screams their bloody head off.

If you do a lot of C-stores and have the data sources, it's just about the easiest thing out there to do because so many people do them badly. I used to be able to knock one one out in a day, day and a half.

 

[MNRural]

Service Station.......haven't heard that term for decades.