STORAGE terminal values fared better than other sectors of the real estate market over the past decade. All indications are that the trend should continue in the future.
This was the assessment of Gregg Manzione, partner/director of Nationwide Consulting Company Inc. An appraisal specialist for storage terminals and pipeline operations (among other property types), Manzione discussed key trends and valuation factors for storage terminals during the International Liquid Terminals Association's 31st Annual International Operating Conference June 6-8 in Houston, Texas.
He credited multiple limited partnerships (MLPs) as a driving factor that helped raise terminal valuations, particularly in the petroleum and natural gas sectors. Federal income tax changes in 1986 enabled the creation of MLPs, which are exempt from corporate income taxes.
“Terminal values remained consistent — in the range of $6 to $12 a barrel for a mid-sized pipeline-supplied terminal — during the 1980s and part of the 1990s,” he said. “With the rise of the MLPs, along with some other factors, we began seeing valuations of $15, $20, $50 a barrel.”
Through-put rate
After 2000, the terminal business model changed to focus more on the ability of the facility to generate income based on through-put. In the 1980s and 1990s, terminals handing light refined products were generating through-put rates of around 25 cents a barrel.
Today, petroleum terminal owners and operators have a wide range of income options, because they are handling a greater variety of products. In addition, many of the terminal operators are generating much higher turn rates.
“One turn a month is break-even for a storage tank,” Manzione said. “When you get two, three, four turns a month, a storage tank becomes very profitable. Some terminals are hitting 20 turns a month for their storage tanks.
“This is one reason for the rising valuations in the storage tank sector. Some terminals have appreciated in value by 40% or more.”
Valuation trends
Manzione reviewed terminal acquisition prices for the past 12 years to illustrate the upward trend in valuations. Several West Coast terminals sold in 1999 for $8 to $12 a barrel. That same year, several Michigan terminals sold for $6 to $7 a barrel, and TransMontaigne Product Services Inc paid $12.50 a barrel for several Hess terminals along the East Coast.
In 2000, a Louisville, Kentucky, terminal sold for $13 a barrel. A Philadelphia, Pennsylvania, terminal brought a transfer price of $5 a barrel, and a Newburgh, New York, terminal was acquired for $16 a barrel.
A year later, another Newburgh terminal brought a transfer price of just $7 a barrel. Buckeye Terminals LLC bought a package of terminals from TransMontaigne for $5 to $15 a barrel.
In 2002, several Wisconsin storage terminals fetched a transfer price of $3 to $5 a barrel. Several southeastern terminals sold for $12 a barrel in 2003.
Buckeye bought 27 terminals and pipelines in 2004 for $517 million, which worked out to around $10 to $40 a barrel. Kinder Morgan Energy Partners LP paid $3 to $45 a barrel for terminals in the western states.
Rising values
Valuations continued to rise in 2005. A Florida terminal was transferred for $55 a barrel, and a large East coast terminal was transferred for $30 a barrel.
A waterfront Connecticut terminal sold for $21 a barrel in 2006. That same year, TransMontaigne was purchased by Morgan Stanley for $562 million.
Storage terminal buyers had a busy year in 2007 and 2008. Three East Coast terminals were acquired by an MLP for $75 a barrel. An upstate New York terminal sold for $8 a barrel in 2007 and fetched $5 a barrel when it was sold again just a year later. Many of the terminals sold for $25 to $30 a barrel during that two year period, but one Arizona terminal brought a whopping $140 a barrel.
Another storage terminal brought $100 a barrel in 2009. Three terminals in Newburgh sold to an MLP for $50 a barrel, and two terminals in Texas brought $33 a barrel. A foodgrade terminal in southern Ohio sold for $25 a barrel.
Valuations continued to rise last year, reaching as high as $150 a barrel and averaging $60 a barrel. An Opelousas, Louisiana, terminal sold for $126 a barrel.
So far in 2011, Buckeye paid $80 a barrel for one terminal acquisition and $16.50 a barrel for 33 terminals purchased from BP.
Sell-off continues
Major oil companies continue to sell off their tank farms and terminal facilities. MLPs are the big buyers of those facilities right now.
“Many of the oil companies are getting poor utilization out of their own storage and terminaling facilities,” he said. “Their turn rates are six times a year or less, and that is motivating the oil companies to sell the facilities and remain as a tenant.”
For companies contemplating storage terminals acquisitions, Manzione offered some advice: When evaluating a property, look at income first to see where the profits are. Whether a terminal is open or closed can affect valuation by as much as 50%. ♦
