I recently had the opportunity to lecture the final-year BSc Property Studies students at the University of Witwatersrand and give a presentation to Shell South Africa about Filling Stations, a topic I’m deeply passionate about. I work in the property valuation industry and often assess the value of filling sites for rental and sales purposes.
Unlike conventional commercial properties, trade-related properties require a different approach, as rental rates depend primarily on a site’s performance. Two components drive the value of a filling station. The first is the operating entity, responsible for the operations that largely influence performance, and the second is the property-owning entity. As valuers, we focus on the property-owning entity when determining the rental or value of a specific site.
My recent observations have shown that landlords’ rents are often significantly higher or lower than market rates. These anomalies significantly affect balance sheet returns and cash flows, which could lead to incorrect valuations since these properties are classified as trade-related.
For trade-related properties, the level of profits is determined by sales levels, and the profits determine the price someone is willing to pay for the property and the opportunity to obtain the profits. Therefore, it can be said that the property’s value can be determined from knowledge of the profits. Ownership is crucial, as rentals are allocated according to land, buildings, equipment, tanks, pumps, etc. These are usually detailed in the head leases, notarial lease agreements, supply agreements, etc., and must be carefully examined to avoid over or undervaluing the components owned by the property-owning entity.
The introduction of the Regulatory Accounting System (RAS) in South Africa by the Department of Mineral & Energy aimed to ensure fair compensation for assets and operational activities for the right person/entity. This is primarily determined by the Benchmark Service Station (BSS) matrix, which is reviewed annually by the Department of Mineral & Energy. It was introduced to address fuel companies’ dominance and prevent operators’ deprivation. The essence of RAS is to ensure that the owner of an asset, whether a retailer or an oil company, is compensated for that asset. Implementing RAS essentially removed some uncertainty when determining value, but it is not the only factor in determining a site’s value. Numerous factors are considered, with RAS being the only consideration.
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