Welcome to the Fear and Greed Business Interview. I'm Suan Alma. We like talking about all kinds of asset classes on this podcast, but I don't think we've ever talked about the service stations. The Texas Convenience Retail Rate is an ASX listed real estate investment trust that owns a portfolio of about one hundred service stations and convenience retail assets. Remember this is general information only, and you should seek professional advice before making investment decisions. Jason Wheat is the fund manager for the Dexas Convenience Retail ret Jason, Welcome to Fear and Greed.

Welcome to the Fear and Greed Business Interview. I'm Suan Alma. We like talking about all kinds of asset classes on this podcast, but I don't think we've ever talked about the service stations. The Texas Convenience Retail Rate is an ASX listed real estate investment trust that owns a portfolio of about one hundred service stations and convenience retail assets. Remember this is general information only, and you should seek professional advice before making investment decisions. Jason Wheat is the fund manager for the Dexas Convenience Retail ret Jason, Welcome to Fear and Greed.

Thanks for having me pleasure to be here.

Thanks for having me pleasure to be here.

Why service stations? What makes service stations so attractive?

Why service stations? What makes service stations so attractive?

It's a good question, Sean. I guess the broader macro environment backdrop is one where we've elevated cost of living that's impacting people's ability to spend relative to how they had gotten used to During the pandemic, the access to interest rates was high, our rates were low, and we're in a very different environment now over the last couple of years. And what you get when you invest, I guess in a portfolio of what we'd like to call is fuel inconvenience service centers is an underlying real estate base where tenants are providing nondiscretionary goods and services, which is good at this point in the economy. But you're also getting exposure to underlining real estate that's land rich, provides prospects for evaluation growth over time. And we're also in an environment where fuel on convenience operators are heavily investing in their businesses and in their networks. And there have been some really meaningful transactions that have taken place across that landscape over the last couple of years that demonstrate a really strong intent on the part of those operators to increase, slash improve their convenience retail offering, which will ultimately serve to enhance their customer experience over time, irrespective if we're the shift and the energy mixed ultimately lands.

It's a good question, Sean. I guess the broader macro environment backdrop is one where we've elevated cost of living that's impacting people's ability to spend relative to how they had gotten used to During the pandemic, the access to interest rates was high, our rates were low, and we're in a very different environment now over the last couple of years. And what you get when you invest, I guess in a portfolio of what we'd like to call is fuel inconvenience service centers is an underlying real estate base where tenants are providing nondiscretionary goods and services, which is good at this point in the economy. But you're also getting exposure to underlining real estate that's land rich, provides prospects for evaluation growth over time. And we're also in an environment where fuel on convenience operators are heavily investing in their businesses and in their networks. And there have been some really meaningful transactions that have taken place across that landscape over the last couple of years that demonstrate a really strong intent on the part of those operators to increase, slash improve their convenience retail offering, which will ultimately serve to enhance their customer experience over time, irrespective if we're the shift and the energy mixed ultimately lands.

Okay, So with few inconvenience, what are we talking about? Are we talking the big sort of service centers that we see on freeways. Are we talking about the local survey down the road? What are we what kind of properties are you looking for?

Okay, So with few inconvenience, what are we talking about? Are we talking the big sort of service centers that we see on freeways. Are we talking about the local survey down the road? What are we what kind of properties are you looking for?

I think we're talking about a combination of all the above. Seuan you know, I think well, with our portfolio, at least we have sixty percent exposure to metro service stations, which the ones that you would typically be driving past on your way to and from work or taking kids to sport. We also have about twenty to twenty five percent exposure to highway sites, which are some of those more key arterial routes where you know commuters will travel some distance typically to go to work, or you know typically roots that traders will use daily as well. And that's a common of fuel and convenience service centers that we're talking about today, and they all have their play their role in terms of the existing network that exists within Australia. And for example, DC has exposured about eight percent of the Aussie car fleet in the market. So that's a significant sort of footprint that we have, and it's those highway and metro service centers primarily that are getting exposure to that kind of traffic flow.

I think we're talking about a combination of all the above. Seuan you know, I think well, with our portfolio, at least we have sixty percent exposure to metro service stations, which the ones that you would typically be driving past on your way to and from work or taking kids to sport. We also have about twenty to twenty five percent exposure to highway sites, which are some of those more key arterial routes where you know commuters will travel some distance typically to go to work, or you know typically roots that traders will use daily as well. And that's a common of fuel and convenience service centers that we're talking about today, and they all have their play their role in terms of the existing network that exists within Australia. And for example, DC has exposured about eight percent of the Aussie car fleet in the market. So that's a significant sort of footprint that we have, and it's those highway and metro service centers primarily that are getting exposure to that kind of traffic flow.

Okay, you'll have to explain that to me. So eight percent of cars would use one of your owned properties. Is that what that means?

Okay, you'll have to explain that to me. So eight percent of cars would use one of your owned properties. Is that what that means?

Eight percent of our cars would be driving past our properties every day? Yeah?

Eight percent of our cars would be driving past our properties every day? Yeah?

Yeah, okay, Okay, Now a big part of it, of course is leasing the property. So who are the tenants that you have? And I mean I'm kind of a bit of a director Dix because I know the enter that part. But why are they good to have those sorts of tenants? So first up, who are the tenants and why is it good to have those guys?

Yeah, okay, Okay, Now a big part of it, of course is leasing the property. So who are the tenants that you have? And I mean I'm kind of a bit of a director Dix because I know the enter that part. But why are they good to have those sorts of tenants? So first up, who are the tenants and why is it good to have those guys?

Sure? So, our okay tenants reflect a mix of the likes of Chevron, which we have just around about thirty percent, exposure to Viva Energy, which is you might associate as being the old so the Cole's Express and they're currently undertaking a rebranding piece which I'll talk to in a minute. Seven eleven is another key tenant of ours, and BP to name a few. So they are the key major fuel tenancies that we have exposure to. But we also have a number of quick service restaurant style tenants within our portfolio as well, so names that are very familiar and the likes of McDonald's, KFC, Huncry Jacks because Gomez, Krispy Kreme's, those sorts of tenants are also located within our portfolio quite a meaningful way in terms of what those major fuel operators are doing, and to call out a couple of examples, I mean Viva Energy over the last twelve months has made a one point two billion dollar acquisition of On the Run Group, which is the South Australian based convenience retailer's with a view of transforming it's convenience retail offering from one that was in the old days what will be known as the old days as the coals Express format, into one that is much more modernized, has a much more extensive offering of full line groceries, but also on the go goods which are high margin style goods that are highly profitable, or with a view to basically transform the way in which it drives profits from these sites. And traditionally most profits have been driven by fuel, but On the Run Group, this group that Viva has acquired is basically delivering profits that's the exact opposite of that, whereby seventy percent of gross profits are driven by convenience retail sales with about thirty percent of fuel. So it's all part of a broader fuel operator moved to reduce reliance on fuel sales over time, and that's ultimately delivered by the convenience retail offering and the strength of they're offering. Our other tenets such as seven to eleven have also undergone a shift in ownership domestically, so they've recently been brought out by the Japanese parent company called seven and nine Holdings, and what they bring to Australia is capability and no how across eighty thousand stores globally and about ten different comedians retail style formats, it too can apply to this country and ultimately transform how profits are currently generated here in Australia and to modernize that. Essentially, BP just calling out another example within the last couple of weeks acquired a domestic commedian's retail operator again with a view to doing the same thing. So multiple examples within the Australian fuel and convenience sector that demonstrate again very strong intent to reshape their offerings provide greater convenience retail service and they are all sharing out significant amounts of capital to achieve that.

Sure? So, our okay tenants reflect a mix of the likes of Chevron, which we have just around about thirty percent, exposure to Viva Energy, which is you might associate as being the old so the Cole's Express and they're currently undertaking a rebranding piece which I'll talk to in a minute. Seven eleven is another key tenant of ours, and BP to name a few. So they are the key major fuel tenancies that we have exposure to. But we also have a number of quick service restaurant style tenants within our portfolio as well, so names that are very familiar and the likes of McDonald's, KFC, Huncry Jacks because Gomez, Krispy Kreme's, those sorts of tenants are also located within our portfolio quite a meaningful way in terms of what those major fuel operators are doing, and to call out a couple of examples, I mean Viva Energy over the last twelve months has made a one point two billion dollar acquisition of On the Run Group, which is the South Australian based convenience retailer's with a view of transforming it's convenience retail offering from one that was in the old days what will be known as the old days as the coals Express format, into one that is much more modernized, has a much more extensive offering of full line groceries, but also on the go goods which are high margin style goods that are highly profitable, or with a view to basically transform the way in which it drives profits from these sites. And traditionally most profits have been driven by fuel, but On the Run Group, this group that Viva has acquired is basically delivering profits that's the exact opposite of that, whereby seventy percent of gross profits are driven by convenience retail sales with about thirty percent of fuel. So it's all part of a broader fuel operator moved to reduce reliance on fuel sales over time, and that's ultimately delivered by the convenience retail offering and the strength of they're offering. Our other tenets such as seven to eleven have also undergone a shift in ownership domestically, so they've recently been brought out by the Japanese parent company called seven and nine Holdings, and what they bring to Australia is capability and no how across eighty thousand stores globally and about ten different comedians retail style formats, it too can apply to this country and ultimately transform how profits are currently generated here in Australia and to modernize that. Essentially, BP just calling out another example within the last couple of weeks acquired a domestic commedian's retail operator again with a view to doing the same thing. So multiple examples within the Australian fuel and convenience sector that demonstrate again very strong intent to reshape their offerings provide greater convenience retail service and they are all sharing out significant amounts of capital to achieve that.

Stay with me, Jason, we'll be back in a minute. I'm speaking to Jason and Wheat fund manager for the Dexis Convenience Retail Rouate. So if you're investing in Dexis Convenience Retail, you are buying into the argument that petrol sales will continue, but convenience on the run, that type of shopping won't be going backwards and indeed perhaps will outdo market growth more generally. And that's kind of how I should think about it, is it, Jason?

Stay with me, Jason, we'll be back in a minute. I'm speaking to Jason and Wheat fund manager for the Dexis Convenience Retail Rouate. So if you're investing in Dexis Convenience Retail, you are buying into the argument that petrol sales will continue, but convenience on the run, that type of shopping won't be going backwards and indeed perhaps will outdo market growth more generally. And that's kind of how I should think about it, is it, Jason?

I think it's pretty close to how you should be thinking about it. Sure, I guess it's all with a noterstanding of the broader backdrop, that is, there is a shift in the energy mix. There's no denying that the extent to which alternative energy vehicles make up the Australian car fleet will change over time. And what you get in something like DXC is exposure to a tenant base that is acutely aware of that, and he's evolving their offering that has regard to that shift in the energy mix. And you can see in the more recent results of the likes of listed fuel operators like Fever Energy and Ampole their convenience retail financial results demonstrate that that shift is easy in action and they are maintaining or growing their margins I should say that are being generated through the.

I think it's pretty close to how you should be thinking about it. Sure, I guess it's all with a noterstanding of the broader backdrop, that is, there is a shift in the energy mix. There's no denying that the extent to which alternative energy vehicles make up the Australian car fleet will change over time. And what you get in something like DXC is exposure to a tenant base that is acutely aware of that, and he's evolving their offering that has regard to that shift in the energy mix. And you can see in the more recent results of the likes of listed fuel operators like Fever Energy and Ampole their convenience retail financial results demonstrate that that shift is easy in action and they are maintaining or growing their margins I should say that are being generated through the.

Shops, the introduction of charging stations and evs. Then all these guys presumably are part of that process, but does it introduce whole new competitors into the market that were never there before.

Shops, the introduction of charging stations and evs. Then all these guys presumably are part of that process, but does it introduce whole new competitors into the market that were never there before.

It's a good question. There are a number of third party ev operators in the market right now, and I think they've played a significant role in working alongside or doing pilot programs with a number of fuel operators to better understand the economics of installing EV charging services across the country. And I think what especially of the last two years, fuel operators in general have begun to understand is that it is commercially viable such that they want to own the commerce themselves. So I think you've seen the likes of Ampile, which have been something of a leader in that regard and have probably the most ambitious EV charging rollout strategy in the market. But you're now seeing that followed by the likes of Viva Energy now that have its own rollout programs whereby they are owning the boxes, they're controlling the commerce, they're making their own connections to the grid, and that's a really positive indication that fuel operators are not necessarily run on third party operators to get that provision of service to the sites. They're doing it themselves and they're investing on the back of that.

It's a good question. There are a number of third party ev operators in the market right now, and I think they've played a significant role in working alongside or doing pilot programs with a number of fuel operators to better understand the economics of installing EV charging services across the country. And I think what especially of the last two years, fuel operators in general have begun to understand is that it is commercially viable such that they want to own the commerce themselves. So I think you've seen the likes of Ampile, which have been something of a leader in that regard and have probably the most ambitious EV charging rollout strategy in the market. But you're now seeing that followed by the likes of Viva Energy now that have its own rollout programs whereby they are owning the boxes, they're controlling the commerce, they're making their own connections to the grid, and that's a really positive indication that fuel operators are not necessarily run on third party operators to get that provision of service to the sites. They're doing it themselves and they're investing on the back of that.

So in a sense for dexis, I mean, EV's clearly a challenge, no one's going to argue that, but potentially an opportunity as well.

So in a sense for dexis, I mean, EV's clearly a challenge, no one's going to argue that, but potentially an opportunity as well.

Undoubtedly an opportunity, and it closely that shift the energy mix. What it means for the propensity for EV charged vehicles turning into a service station is all completely aligned with the concerted efforts on the part of fuel operators to enhance the convenience retail offer because what you get with people charging their cars is longer dull times and the potential to pick up incremental basket expenditure when they're in the stores. That's why you're seeing much more by way of evolution in offerings that extend to full line groceries, for example, whereby instead of someone coming into a store and spending on average excluding fuel and average basket size of about twelve dollars, which is currently the average consumer spend, and looking to increase that basket expenditure, whereby they can also attract very strong gross margins attached to that. So that is the move that the industry is following, and there's very good examples already in Australia and again pointing to the OTR acquisition or on the Run group which is South Australian based, whereby they've already demonstrated that significant proportion of gross margins that have been generated by the shop are coming from convenience retail sales. The Australian consumers already demonstrated that it can change the way it spends within these service centers is based on the offering and that's what a number of these operators are trying to scale up or scale out rather across their national networks.

Undoubtedly an opportunity, and it closely that shift the energy mix. What it means for the propensity for EV charged vehicles turning into a service station is all completely aligned with the concerted efforts on the part of fuel operators to enhance the convenience retail offer because what you get with people charging their cars is longer dull times and the potential to pick up incremental basket expenditure when they're in the stores. That's why you're seeing much more by way of evolution in offerings that extend to full line groceries, for example, whereby instead of someone coming into a store and spending on average excluding fuel and average basket size of about twelve dollars, which is currently the average consumer spend, and looking to increase that basket expenditure, whereby they can also attract very strong gross margins attached to that. So that is the move that the industry is following, and there's very good examples already in Australia and again pointing to the OTR acquisition or on the Run group which is South Australian based, whereby they've already demonstrated that significant proportion of gross margins that have been generated by the shop are coming from convenience retail sales. The Australian consumers already demonstrated that it can change the way it spends within these service centers is based on the offering and that's what a number of these operators are trying to scale up or scale out rather across their national networks.

It's gonna be fascinating to watch. Jason, thank you for talking to Fear and Greed.

It's gonna be fascinating to watch. Jason, thank you for talking to Fear and Greed.

Thank you Sean, Thanks you Tom.

Thank you Sean, Thanks you Tom.

That was Jason Wheat, fund manager for the Dexas Convenience Retail rout This is the Fear and Greed Business Interview. Remember this is general information only and you should always seek professional advice before making investment decisions. Join us every morning for the full episode of Fear and Greed Business Years for people who make their own decisions. I'm Sean Elm. Enjoy your day.

That was Jason Wheat, fund manager for the Dexas Convenience Retail rout This is the Fear and Greed Business Interview. Remember this is general information only and you should always seek professional advice before making investment decisions. Join us every morning for the full episode of Fear and Greed Business Years for people who make their own decisions. I'm Sean Elm. Enjoy your day.