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Speaker 1: Welcome to the Fear and Greed Business Interview. I'm Suan Alma.

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Speaker 1: We like talking about all kinds of asset classes on

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Speaker 1: this podcast, but I don't think we've ever talked about

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Speaker 1: the service stations. The Texas Convenience Retail Rate is an

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Speaker 1: ASX listed real estate investment trust that owns a portfolio

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Speaker 1: of about one hundred service stations and convenience retail assets.

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Speaker 1: Remember this is general information only, and you should seek

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Speaker 1: professional advice before making investment decisions. Jason Wheat is the

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Speaker 1: fund manager for the Dexas Convenience Retail ret Jason, Welcome

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Speaker 1: to Fear and Greed.

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Speaker 2: Thanks for having me pleasure to be here.

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Speaker 1: Why service stations? What makes service stations so attractive?

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Speaker 2: It's a good question, Sean. I guess the broader macro

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Speaker 2: environment backdrop is one where we've elevated cost of living

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Speaker 2: that's impacting people's ability to spend relative to how they

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Speaker 2: had gotten used to During the pandemic, the access to

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Speaker 2: interest rates was high, our rates were low, and we're

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Speaker 2: in a very different environment now over the last couple

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Speaker 2: of years. And what you get when you invest, I

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Speaker 2: guess in a portfolio of what we'd like to call

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Speaker 2: is fuel inconvenience service centers is an underlying real estate

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Speaker 2: base where tenants are providing nondiscretionary goods and services, which

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Speaker 2: is good at this point in the economy. But you're

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Speaker 2: also getting exposure to underlining real estate that's land rich,

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Speaker 2: provides prospects for evaluation growth over time. And we're also

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Speaker 2: in an environment where fuel on convenience operators are heavily

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Speaker 2: investing in their businesses and in their networks. And there

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Speaker 2: have been some really meaningful transactions that have taken place

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Speaker 2: across that landscape over the last couple of years that

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Speaker 2: demonstrate a really strong intent on the part of those

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Speaker 2: operators to increase, slash improve their convenience retail offering, which

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Speaker 2: will ultimately serve to enhance their customer experience over time,

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Speaker 2: irrespective if we're the shift and the energy mixed ultimately lands.

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Speaker 1: Okay, So with few inconvenience, what are we talking about?

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Speaker 1: Are we talking the big sort of service centers that

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Speaker 1: we see on freeways. Are we talking about the local

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Speaker 1: survey down the road? What are we what kind of

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Speaker 1: properties are you looking for?

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Speaker 2: I think we're talking about a combination of all the above.

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Speaker 2: Seuan you know, I think well, with our portfolio, at

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Speaker 2: least we have sixty percent exposure to metro service stations,

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Speaker 2: which the ones that you would typically be driving past

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Speaker 2: on your way to and from work or taking kids

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Speaker 2: to sport. We also have about twenty to twenty five

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Speaker 2: percent exposure to highway sites, which are some of those

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Speaker 2: more key arterial routes where you know commuters will travel

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Speaker 2: some distance typically to go to work, or you know

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Speaker 2: typically roots that traders will use daily as well. And

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Speaker 2: that's a common of fuel and convenience service centers that

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Speaker 2: we're talking about today, and they all have their play

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Speaker 2: their role in terms of the existing network that exists

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Speaker 2: within Australia. And for example, DC has exposured about eight

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Speaker 2: percent of the Aussie car fleet in the market. So

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Speaker 2: that's a significant sort of footprint that we have, and

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Speaker 2: it's those highway and metro service centers primarily that are

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Speaker 2: getting exposure to that kind of traffic flow.

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Speaker 1: Okay, you'll have to explain that to me. So eight

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Speaker 1: percent of cars would use one of your owned properties.

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Speaker 1: Is that what that means?

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Speaker 2: Eight percent of our cars would be driving past our

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Speaker 2: properties every day? Yeah?

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Speaker 1: Yeah, okay, Okay, Now a big part of it, of

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Speaker 1: course is leasing the property. So who are the tenants

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Speaker 1: that you have? And I mean I'm kind of a

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Speaker 1: bit of a director Dix because I know the enter

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Speaker 1: that part. But why are they good to have those

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Speaker 1: sorts of tenants? So first up, who are the tenants

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Speaker 1: and why is it good to have those guys?

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Speaker 2: Sure? So, our okay tenants reflect a mix of the

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Speaker 2: likes of Chevron, which we have just around about thirty percent,

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Speaker 2: exposure to Viva Energy, which is you might associate as

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Speaker 2: being the old so the Cole's Express and they're currently

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Speaker 2: undertaking a rebranding piece which I'll talk to in a minute.

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Speaker 2: Seven eleven is another key tenant of ours, and BP

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Speaker 2: to name a few. So they are the key major

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Speaker 2: fuel tenancies that we have exposure to. But we also

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Speaker 2: have a number of quick service restaurant style tenants within

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Speaker 2: our portfolio as well, so names that are very familiar

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Speaker 2: and the likes of McDonald's, KFC, Huncry Jacks because Gomez,

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Speaker 2: Krispy Kreme's, those sorts of tenants are also located within

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Speaker 2: our portfolio quite a meaningful way in terms of what

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Speaker 2: those major fuel operators are doing, and to call out

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Speaker 2: a couple of examples, I mean Viva Energy over the

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Speaker 2: last twelve months has made a one point two billion

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Speaker 2: dollar acquisition of On the Run Group, which is the

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Speaker 2: South Australian based convenience retailer's with a view of transforming

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Speaker 2: it's convenience retail offering from one that was in the

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Speaker 2: old days what will be known as the old days

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Speaker 2: as the coals Express format, into one that is much

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Speaker 2: more modernized, has a much more extensive offering of full

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Speaker 2: line groceries, but also on the go goods which are

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Speaker 2: high margin style goods that are highly profitable, or with

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Speaker 2: a view to basically transform the way in which it

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Speaker 2: drives profits from these sites. And traditionally most profits have

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Speaker 2: been driven by fuel, but On the Run Group, this

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Speaker 2: group that Viva has acquired is basically delivering profits that's

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Speaker 2: the exact opposite of that, whereby seventy percent of gross

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Speaker 2: profits are driven by convenience retail sales with about thirty

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Speaker 2: percent of fuel. So it's all part of a broader

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Speaker 2: fuel operator moved to reduce reliance on fuel sales over time,

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Speaker 2: and that's ultimately delivered by the convenience retail offering and

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Speaker 2: the strength of they're offering. Our other tenets such as

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Speaker 2: seven to eleven have also undergone a shift in ownership domestically,

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Speaker 2: so they've recently been brought out by the Japanese parent

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Speaker 2: company called seven and nine Holdings, and what they bring

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Speaker 2: to Australia is capability and no how across eighty thousand

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Speaker 2: stores globally and about ten different comedians retail style formats,

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Speaker 2: it too can apply to this country and ultimately transform

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Speaker 2: how profits are currently generated here in Australia and to

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Speaker 2: modernize that. Essentially, BP just calling out another example within

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Speaker 2: the last couple of weeks acquired a domestic commedian's retail

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Speaker 2: operator again with a view to doing the same thing.

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Speaker 2: So multiple examples within the Australian fuel and convenience sector

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Speaker 2: that demonstrate again very strong intent to reshape their offerings

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Speaker 2: provide greater convenience retail service and they are all sharing

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Speaker 2: out significant amounts of capital to achieve that.

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Speaker 1: Stay with me, Jason, we'll be back in a minute.

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Speaker 1: I'm speaking to Jason and Wheat fund manager for the

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Speaker 1: Dexis Convenience Retail Rouate. So if you're investing in Dexis

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Speaker 1: Convenience Retail, you are buying into the argument that petrol

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Speaker 1: sales will continue, but convenience on the run, that type

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Speaker 1: of shopping won't be going backwards and indeed perhaps will

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Speaker 1: outdo market growth more generally. And that's kind of how

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Speaker 1: I should think about it, is it, Jason?

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Speaker 2: I think it's pretty close to how you should be

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Speaker 2: thinking about it. Sure, I guess it's all with a

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Speaker 2: noterstanding of the broader backdrop, that is, there is a

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Speaker 2: shift in the energy mix. There's no denying that the

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Speaker 2: extent to which alternative energy vehicles make up the Australian

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Speaker 2: car fleet will change over time. And what you get

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Speaker 2: in something like DXC is exposure to a tenant base

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Speaker 2: that is acutely aware of that, and he's evolving their

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Speaker 2: offering that has regard to that shift in the energy mix.

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Speaker 2: And you can see in the more recent results of

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Speaker 2: the likes of listed fuel operators like Fever Energy and

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Speaker 2: Ampole their convenience retail financial results demonstrate that that shift

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Speaker 2: is easy in action and they are maintaining or growing

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Speaker 2: their margins I should say that are being generated through the.

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Speaker 1: Shops, the introduction of charging stations and evs. Then all

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Speaker 1: these guys presumably are part of that process, but does

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Speaker 1: it introduce whole new competitors into the market that were

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Speaker 1: never there before.

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Speaker 2: It's a good question. There are a number of third

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Speaker 2: party ev operators in the market right now, and I

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Speaker 2: think they've played a significant role in working alongside or

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Speaker 2: doing pilot programs with a number of fuel operators to

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Speaker 2: better understand the economics of installing EV charging services across

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Speaker 2: the country. And I think what especially of the last

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Speaker 2: two years, fuel operators in general have begun to understand

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Speaker 2: is that it is commercially viable such that they want

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Speaker 2: to own the commerce themselves. So I think you've seen

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Speaker 2: the likes of Ampile, which have been something of a

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Speaker 2: leader in that regard and have probably the most ambitious

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Speaker 2: EV charging rollout strategy in the market. But you're now

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Speaker 2: seeing that followed by the likes of Viva Energy now

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Speaker 2: that have its own rollout programs whereby they are owning

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Speaker 2: the boxes, they're controlling the commerce, they're making their own

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Speaker 2: connections to the grid, and that's a really positive indication

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Speaker 2: that fuel operators are not necessarily run on third party

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Speaker 2: operators to get that provision of service to the sites.

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Speaker 2: They're doing it themselves and they're investing on the back

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Speaker 2: of that.

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Speaker 1: So in a sense for dexis, I mean, EV's clearly

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Speaker 1: a challenge, no one's going to argue that, but potentially

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Speaker 1: an opportunity as well.

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Speaker 2: Undoubtedly an opportunity, and it closely that shift the energy mix.

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Speaker 2: What it means for the propensity for EV charged vehicles

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Speaker 2: turning into a service station is all completely aligned with

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Speaker 2: the concerted efforts on the part of fuel operators to

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Speaker 2: enhance the convenience retail offer because what you get with

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Speaker 2: people charging their cars is longer dull times and the

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Speaker 2: potential to pick up incremental basket expenditure when they're in

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Speaker 2: the stores. That's why you're seeing much more by way

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Speaker 2: of evolution in offerings that extend to full line groceries,

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Speaker 2: for example, whereby instead of someone coming into a store

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Speaker 2: and spending on average excluding fuel and average basket size

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Speaker 2: of about twelve dollars, which is currently the average consumer spend,

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Speaker 2: and looking to increase that basket expenditure, whereby they can

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Speaker 2: also attract very strong gross margins attached to that. So

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Speaker 2: that is the move that the industry is following, and

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Speaker 2: there's very good examples already in Australia and again pointing

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Speaker 2: to the OTR acquisition or on the Run group which

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Speaker 2: is South Australian based, whereby they've already demonstrated that significant

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Speaker 2: proportion of gross margins that have been generated by the

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Speaker 2: shop are coming from convenience retail sales. The Australian consumers

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Speaker 2: already demonstrated that it can change the way it spends

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Speaker 2: within these service centers is based on the offering and

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Speaker 2: that's what a number of these operators are trying to

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Speaker 2: scale up or scale out rather across their national networks.

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Speaker 1: It's gonna be fascinating to watch. Jason, thank you for

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Speaker 1: talking to Fear and Greed.

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Speaker 2: Thank you Sean, Thanks you Tom.

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Speaker 1: That was Jason Wheat, fund manager for the Dexas Convenience

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Speaker 1: Retail rout This is the Fear and Greed Business Interview.

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Speaker 1: Remember this is general information only and you should always

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Speaker 1: seek professional advice before making investment decisions. Join us every

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Speaker 1: morning for the full episode of Fear and Greed Business

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Speaker 1: Years for people who make their own decisions. I'm Sean Elm.

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Speaker 1: Enjoy your day.