Here's One Type of Retailer That's Buying Up Store Properties in the Pandemic
Israel-based Arko Holdings, in the process of getting bought by an American acquisition firm, is buying up U.S. gas station-convenience stores in a sign of confidence in a type of retail property that's generating more foot traffic in the pandemic.
Closely held Arko said its Richmond, Virginia-based subsidiary, GPM Investments, agreed to buy at least 60 self-operated convenience stores that also have gas pumps in the Midwest for $100 million, plus the value of inventory and cash in the stores. The deal includes the potential to acquire four additional stores from the same seller, which Arko did not identify.
The growth comes as COVID-19 forces consumers to shift from sit-down dining to grab-and-go options, Darrell Martin, a senior valuation specialist with Colliers International Valuation & Advisory Services in San Diego, told CoStar in an interview.
“Quick, fresh viable meal options are driving increased service station profitability,” Martin said.
The demand for convenience store real estate runs counter to the struggles of retailers that have higher overhead from bigger spaces, such as department store chains with fewer walk-in customers during the coronavirus. The issue of excess property is also hitting restaurants that have large dining rooms that aren't drawing customers who want to eat inside in the pandemic.
In contrast, convenience store owners with their limited space and real estate overhead costs are expanding their portfolios. And another dynamic is at play for gasoline-selling stores, with chains seeking more geographic diversity as automobiles become more environmentally friendly, according to Martin.
“As markets change from petroleum products to hydrogen and electricity, they are buying the corners where there will be demand for the new fuels,” he said.
The deal comes after GPM’s completed acquisition last month of about 1,500 service stations from Empire Petroleum Partners. The two purchases have doubled the firm’s portfolio to more than 3,000 locations. CoStar News reached out to Arko and GPM for comment but did not immediately hear back.
Across the industry, the largest recent convenience store expansion was announced in August, when the Japan-based parent of 7-Eleven stores said it plans to bulk up with a $21 billion cash purchase of 3,800 Speedway gas stations in the United States and Canada. When the deal is completed next year, 7-Eleven’s already wide North American footprint will expand to more than 14,000 locations with a presence in 47 of the top 50 metropolitan areas.
Arko and GPM’s rapid growth have made them a target themselves. The firms agreed to merge with Haymaker Acquisition II, a publicly traded special-purpose acquisition company, known as a SPAC or "blank check firm."
“We believe we have a long runway of growth in this attractive and fragmented industry and look forward to building on our track record of success as we look towards the completion of our business combination and resulting Nasdaq listing,” Arie Kotler, chairman and CEO of Arko Holdings, said in a statement.
Haymaker raised $400 million in a public offering in the summer of 2019 to be used toward a future acquisition. In addition to that capital, last week it received a $100 million investment commitment from computer pioneer Michael Dell’s MSD Partners to help support Arko’s future growth.
Haymaker was formed by Steven Heyer, its CEO and chairman, and his brother Andrew Heyer, its president.
“MSD Partners has a deep understanding of the convenience store industry and the very attractive multi-pronged growth opportunity for the combined company. They recognize the material long-term earnings potential of our store remodel program, combined with recently higher fuel margins,” Andrew Heyer said in a statement. “As we move towards the closing of the transaction, this investment positions us well to continue to focus on driving many of the value creation activities we have planned.”
Among the value-creation initiatives, GPM this month announced plans to remodel 360 of its sites in key locations across the country over the next three to five years.
The remodeled stores are designed to feature expanded offerings with grab-and-go prepared meals, walk-in beer coolers, frozen food and enhanced drink lineups.
