Shell Oil TENANT OVERVIEW


Net Lease Advisor Tenant Shell Oil

Pros

  • Accelerated depreciation available
  • Favorable rental increases

Cons

  • Varying tenant-operators — issue of credit
  • Environmental concerns

Tenant Description

Shell is one of the largest gasoline producers and vendors in the US.

Shell Oil net lease properties offer investors the opportunity to purchase well located assets with strong brand recognition and product offerings. There are Shell-branded gas stations across the US, providing visible public presence for the market leader. Shell's parent, Royal Dutch Shell, remains one for the top three petroleum companies worldwide.

Shell tends not to operate their actual convenience stores / gas stations; rather they prefer to sign marketing agreements with various distributors and operators across the country. For the net lease investor, this means that there are a wide variety of lease types with varying strength of lease guaranties. Some of the more popular net leased Shell locations in the national market have been backed by regional distributors, offering a large corporate guaranty, signed to a 15 - 20 year absolute NNN lease. One upside to these leases is that they offer fee simple ownership of the land and building, giving the landlord significant depreciation as gas station properties are allowed to use an accelerated 15-year depreciation schedule for the building versus a typical commercial depreciation schedule of 39 years. Further, Shell net leased investments offer rental increases in the primary term, with annual increases of 1.25% - 3%, or five (5) year increases of 8% -15%.

In terms of the underlying real estate, this varies greatly between geographic regions. Many of the locations in the Northeast are older, smaller in-fill sites, generally on 0.3 - 0.6 acres. However, sites in the suburbs of metro areas across the mid-Atlantic and Southeast have been developed on larger land parcels with more gas pumps. This is primarily due to the availability of land and mass transportation, as the Northeast features a number of metro areas with superior mass transit, many MSA's have been shaped by the urban sprawl of the past 20 years, leaving a population more dependent on individual automobile transportation, creating a boom for gas stations. When evaluating separate Shell properties, it will be essential to recognize the difference between franchisee and corporate-owned units as well as gas station and C-store locations.

Royal Dutch Shell, commonly known simply as Shell, is one of the largest private sector energy companies in the world. Shell's operations stretch through all stages of the oil and gas supply chain, including the exploration and production of oil and gas, refining and marketing of liquefied natural gas as well as manufacturing, marketing, and shipping of oil products and petrochemicals. Shell competes with other "oil majors" Exxon Mobil, ConocoPhillips, Total, BP, and Chevron Texaco.

Shell sells its products to both retail as well as business customers. Shell has 45,000 retail gas stations across the world operating under a single brand name. Its products include low-sulphur diesel, lead replacement fuel, liquefied petroleum gas (LPG), and differentiated fuels, including Shell Pura, Optimax, V-Power, V-Power Racing, and V-Power Diesel. It has convenience stores at more than 10,000 locations.

Average Cap Rate
6.79%
12 mo avg with 10+ yr lease term
Average Property & Lease
Average Sale Price $1,504,383
NOI $101,856
$/Square Foot $600
Building SF 3,000
Lot Size 0.75 Acres
Lease Term 20 Years
Escalations 10% Every 5 Years
Stock Symbol RDS.A
Credit Rating
S&P A+
Moody's Aa3
Average Cap Rate Trend
7.01%
2015
7.88%
2016
Rates reflect last 12 mos, short and long-term
Recent Sales Comps
Augusta, GA 6.00%
Columbia, Sc 9.75%