Possible Exit Strategies for the Alberta Car Washes

As part of my due diligence on exit strategies for the car washes, and with the looming prospect of half a dozen or more in our control within a few years time I have begun researching the TSX Venture Exchange for a possible IPO. There are a wide variety of options available, and using conservative examples I will explore a few:

Car Wash (operating entity) IPO: This is potentially the most difficult way to go. Each company has differing shareholders and a large amalgum package will need to be put together. Assuming 3 locations with a conservative estimated gross income of $85,000 per month and EBITDA of $45,000 per month - we'd be looking at a market value of about $6,000,000.
Assuming we had 10,000,000 shares available each share would be worth $0.60. We would then sell off a 40% interest in the open market yielding a cash inflow of $2,400,000. Half of which would go to the shareholders for the return of thier equity (half of the available shares on the open market would be that share of the company), the other half would - approximately $1,200,000 would be split as follows: $150,000 in total supplied to each location for additional float monies and marketing; $150,000 would repay the fees for joining onto the Exchange; and the additional $900,000 or so will be used to purchase 2-3 more sites for development or rehabilitation.
This would yield a return to each 10% shareholder of the larger asset company a one time payout of 400,000 shares (initial 4% available on the open market with half going to recoup the shareholders outlay) x $0.60 = $120,000 and an asset worth $360,000 (remaining 6% x 10,000,000 shares available x $0.60/ share).
As noted this would be the most difficult but one of the most advantageous to the shareholders of each company. The hard part would be explaining the concept of a smaller piece of a bigger pie as each shareholder would in fact lose out on the number of shares, but the value of each share would increase.

Car Wash (operating entity) Trust IPO: This would result in a dividend being paid for each share owned and could potentially lead to higher returns for the shareholders. With the same assumptions listed above: $85,000 gross income, $45,000 net income, and 10,000,000 shares available with 40% on the open market we could potentially distribute $250,000 a year in dividends per share. This would result in a per share dividend of $0.025, which with the current P/E ratios used would result in a net price of $1.00 or so per share (P/E for real estate is around 40). This would yield a market capitalization of $10,000,000 for the company.
What would this mean for a typical 10% shareholder? Well, this would yield a one time payout of 400,000 shares x $1/share x half to shareholders = $200,000 and an asset worth $600,000 distributing a return of $15,000 a year.
While a much better return and a long term income supplement - the argument of smaller piece and larger pie applies as well.

Real Estate Investment Trust (IPO): This is the easiest to set up. Basically a new company would be concieved which would get a net rent from each operating car wash company. Assuming $12 per square foot as an operating rent (triple net) this would lead to an approximate gross income of $308,000 and a net income closer to $60,000. At $15 per square foot the net income would increase to $140,000 or so. What would typically happen would be a staggered scale rising to $15 per square foot after three years of operating at $12 per square foot for new washes.
With the same 10,000,000 shares available the resultant dividend would be around $0.01 per share. Thus, each share would then be worth $0.40.
Each 10% shareholder would then recieve a one time payout of 400,000 shares x $0.40 per share x half going to shareholders = $80,000 and end up with two assets:
1) Keeping their non-diluted share of the operating company with whatever distributions that company can provide with a higher rental rate. (Assuming a gross figure of $25,000 for income this would yield a net annual income of around $70,000 to be split or reinvested as the shareholders see fit). With current rules, this would have a net value on $280,000 or so as it would be dealt with as a franchise (4 times net income = franchise value).
2) A diluted share in the property management company - 600,000 shares x $0.40/ share = $240,000 providing a dividend equal to $6,000 per year.

The third option actually seems to be of the most benefit to me - as it allows the operating entities to continue their operations with no input from outside sources. It also allows for controlled growth via a new property management company with $500,000 available to purchase a new asset or two.

Well, here's to the future.

One Door Closes and a Window opens....

Well, it's been an interesting couple of days. Here's an updated.

Edson Condo Project: Might be put on hold (duration unknown). Alberta Transportation requires a Traffic Impact Analysis to be completed prior to allowing any further development on the parcel of land in Edson. Couple this with the additional costs for obtaining the CN Land and bringing them up to standard for development, along with the additional paving costs and we are over $100,000 in additional costs to get this thing going. Some serious rethinking needs to happen here....

Possible Car Wash: There is a car wash in Edmonton which while in an excellent location, is a pretty poor wash by no stretch of the imagination. It caters primarily to the industrial clientelle we are become more acquainted with - as opposed to the normal commerical clientelle one would normally see in a typical car wash.
There exists the possiblity to develop this car wash into a stellar location. More information as it becomes available.

Downtown Commercial Property: Currently we have a small commercial center in an up and coming area of Edmonton's downtown. Since we purchased this building, it has increased in value over 40% in just over 2 years. With several new developments in the area, now would be an excellent time to make another acquisition.
To this end, we have located such a property and in the new year will pursue it with vigor. It is ideally suited for two store fronts and a small office area above, or two store fronts with offices. What will decide the end use will, of course, be the tenant that we can find to fill this location.

Industrial Condo Project(s): While the Edson location may have closed for us, with some concerted effort we may be able to develop this same concept in other areas. Several Industrial backed towns in the Alberta area deserve focus and we may well be able to get one or two off the go this year. I would hazard a guess that land purchases would be made and pre-sales would begin in first quarter 2006, construction starting in early third quarter 2006, and occupancy would be available in first quarter 2007.

Additional things I am keeping an eye on:

Home Purchase: I also have my own home purchase to look into. I have chosen an area or two, as well as a builder I'd like to consider - but I need to get back to Edmonton and get that started.

Home Theatre Installations: I am very lucky that my partner is such a self starter. This business has tremendous growth potential, and for that reason I must put some effort towards it.

Urban Market: Always on the backburner - but a very good opportunity nonetheless. Marketing Assistance is what I need here.

Divider Advertising Company: As the Car Wash chain enlarges, we are going to need such a division in house. Once again it comes down to sales and someone to sit and make them happen. Potentially, when there are three operating car washes I will have to hire someone on to make this happen. I'd love to offer a portion of the company during the start up period for this company but finding someone with the vision and creativity to make this happen is more difficult than I have originally thought.

Detroit, Michigan: Excellent deals abound. Might be worth a trip down to see what is going on at the auction house. But when, if ever, will the economy rebound?

South and/or East Africa: I definitely want to get some projects started in that area of the world. Research will probably continue until at least First Quarter 2007, but I expect a purchase soon after that.

Saskatchewan and North West Territories: Timetable would be similar to South and/or East Africa, but would be a lessor priority in the short term (3 year horizon).

Economic Outlook for North America: I don't think it's a secret I have a healthy interest in the state of the North American economy. Based on what I have read to date, it would appear that interest rates are going up in the short term - to max out around 5.50% by the end of 2006 as a prime lending rate. A lot of uncertainty exists in relation to higher fuel costs and decreased productivity in 2007 and at that time it is currently assumed that the interest rate may actually decrease.

Well, with a renewed sense of vigor - Here's to the future, and all it holds.

Everything and Nothing is New

The title basically sums it up - everything and nothing is new. Updates:

Fort Car Wash: After a number of days of 250 plus vehicles each day, we are currently experiencing a few slower days (less than 100 cars per day) due to the change in the weather - need the snow to stop for business to pick up again. Trouble spots like the Make Up Air Unit are being dealt with (a solution has been found - and only a year later!), but we need a bit of interior signage to note our rules.
Phase One: Financing package is out and about with the financiers.
Phase Two: I've got to go and visit the Ryko site down east still and put the finishing touches on the Phase Two package. And I've got to get a new appraisal to go with the whole thing. Won't need this until February 2006.

Edson Car Wash: Need to find a Vending Machine/ ATM distributor for both this location and the Fort. Steel should be being erected as we speak and the building should be up by the time I get back to Edmonton. Then the heat goes into the soil so we can pour in January - and potentially open in Mid-May 2006. Shareholders meeting is set for December 22 2005 to discuss progress.

Edson Condo Project: Dealing with the town and additional parking space issues. A few bumps on the horizon as always.

Home Theatre Installations: Company is alive and kicking. Check it out at http://techheadcanada.blogspot.com . My partner is vigorously driving ahead and marketing the heck out of the business via the traditional methods - word of mouth, networking groups, and co-workers. As soon as business cards are available I can start doing my end of things in the marketing department - hopefully in the new year we can have half a dozen appointments on the go before I come back up north.

Still looking for a product to market at flea markets in Edmonton so that I can begin getting my foot into that marketplace. I have an excellent partner available - but the product is what is lacking... Any ideas of what to sell at a flea market?

Well, here's to the future.

The Winding Road of (Car Wash) Construction in Alberta

Fort Car Wash: Appraisal is now complete. We are chasing lenders for 60% LTV on an open mortgage and putting together a package for the next phase of the renovations. I'll need to go to Montreal more than likely, to see the Ryko Truck Automatic in action.

Edson Commercial Condos: We may be able to purchase some additional land in Edson from a former governmental agency for an extremely modest sum. Bear in mind that is unserviced and has no road to it - but is selling for less than 4% of market rates. This could lead to some additional units at a minimum, or potentially - a second phase of Condos and a partially redesigned site.

Edson Car Wash: Ongoing battle. Nothing new here on the construction front. I'm assuming the place won't be ready to open to the public until Mid-May 2006. However, due to this additional property becoming available - a reworking of the access features of the property may be allowable. If we can manage some savings from this reworking, we may be able to pick up the additional lands for close to nothing out of pocket.

Now to make things work. Here's to the future.

December 2 Update

We'll call it a mini-update as there are a few new developments that need massaging before I can free the details.

Fort Car Wash: Waiting on updated appraisal before approaching financiers. Lots of options, need the full package before moving onward.

Edson Car Wash: Delayed. Earliest potential opening is April 1 2006. More likely to be mid-May 2006. Delays due to labor mostly, though concrete powder shortage has been a major factor as well as lack of rooms in Edson.
Might buy a house to rent back to our contractor. A number (4) homes on the market have 4 or 5 bedrooms and typical rent is $500 per bedroom per month. Asking price is around $240,000 or so. I'd have to put down 25% in any case - $60,000 or so. Interest Only mortgage, insurance, and property tax would end up around $1,000 per month so a 4 bedroom would return $1,000 per month and a 5 bedroom $1,500 per month. 4 bedroom would return 20% per year, and a 5 bedroom would return 45% - if you can find them.
Might even consider taking on an investor for the downpayment - I'd handle the rentals etc (putting the deal together), and split the monthly income and appreciation. Options, options.

Edson Condos : A number of options here. Might require some additional parking space, depending on what the town is looking for. We may even have the opportunity to purchase some other land in Edson to facilitate this development. I'll upload some more drawings after they are finalized.

Home Theatre Installations: Partner and I have reconciled. Business cards are being printed soon, and the networking will begin shortly.

As the Edson car wash is delayed significantly, I am considering extending my stay at the Mine. Also looking at rolling more cash into shopping malls and multi-tenant apartments (60 units plus as a minimum) in foreign countries. I've got a few ideas for other countries I would like to invest in, but more research is required - and their definately not what most are looking to as an alternative to North America.

Well, here's to the future.