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Getting Cash From The Dirt

Beer Business Daily:

As you know, Beer Business Daily is everywhere: We attend beer conventions, seminars, rallies, parades, parties, seedy bars …. live in person or incognito. Last year I couldn’t walk through an airport without bumping into National Beverage Properties’ Bill Anderson, who has got the middle tier a’buzz with the possibility of pulling together distributorship warehouses into a publicly traded REIT, just as many car dealerships have done.

While I don’t normally do vendor interviews, Bill’s concept is generating enough talk that my curiosity was piqued; (plus, he’s a genuinely nice guy).

So I checked in with Bill, who hails from a large California and Hawaii A-B and Coors distributing family, about this “REIT thing” that he is organizing. You, gentle reader, are a fly on the wall. Here’s an excerpt of our conversation:

HARRY: So Bill, what is this REIT business people are taking about and how is it going so far?

BILL: Harry, it is going extremely well. National Beverage Properties works in two ways: in our first phase, we are providing capital to help distributors acquire or develop their next warehouse facility. The second part of our business plan is making a series of warehouse acquisitions with the goal of becoming a public real estate investment trust [REIT].

It’s really two different tracks: in one we are an industry-specific capital provider and real estate partner, and in the other we are seeking to become an attractive long-term investment vehicle and estate-planning tool for the beer distributor community.

HARRY: Let’s start with the first one and we’ll circle back to the other; how’s that work?

BILL: We help distributors reallocate their capital from their real estate into their core businesses or to other investments that maybe would provide them with a much higher return.

For example, a distributor who is looking to acquire another distributorship will have to put out between 5 to 10 million [dollars] into the acquisition of the beverage brands, yet he may also have to put out another 5 to 10 million for the real estate that’s associated with that distributorship. What we do, Harry, is we utilize our capital to buy the real estate and provide them with a long-term flexible lease that’s tailored to their needs to allow them to save their capital for the acquisition of the brands….

We also help distributors who have outgrown their current space. As you know, distributors are seeing increasing breakage costs. Some are under pressure from their suppliers to get into a larger, more efficient facility and others need more room for their sign making equipment or another 10,000 square feet for POS. We buy a new facility for the distributor or we acquire land and build a new facility — taking care of all of their real estate headaches — and providing them with a new facility that’s built exactly to their specifications.

HARRY: I always pay cash for my warehouses in gold bullion, but sadly not everybody is as rich as me. But Bill, seriously, why not just go to a bank?

BILL: Well, NBP is different from a bank-financed transaction; with a bank the distributor owns the warehouse but must devote a substantial portion of his capital for the equity in the transaction. A $10 million dollar warehouse would require the distributor to invest between $2.5 to $4 million of equity. So the distributor, in this case, is still allocating his capital to his real estate rather than to his core business — which will likely earn him a significantly higher return than the real estate.

In a transaction with us, we provide the capital and a favorable long-term lease rather than the distributor having to take out a loan, pay the numerous bank fees and interest, and devote his capital and other resources to the dirt. Our goal is to take care of everything related to the real estate — the capital, the financing, and the necessary improvements — so the distributor is free to focus on his operating business and on making more acquisitions with better returns.

HARRY: What about going forward long term, does it worry you that the middle tier has been under attack?

BILL: No, we’re in fact very bullish about the beer distribution industry despite the attack from Costco and other legal threats to the three-tier system. We’re focusing on distributors who are intent on making additional acquisitions, who have strong management teams and who are building a strong family legacy and who are using their capital wisely.

Having said that, we’re watching the Costco case and we’re picking our potential partners very carefully. We want partners who are in this for the long haul, who are strong and growing and we think those distributors are going to do very well in the future.

HARRY: Well, what else, Bill, that I haven’t asked you? Is there anything?

BILL: We think our plan will assist in the next wave of consolidations, Harry. We hear about a number of consolidations that are stymied or delayed because of this need not only to buy the brands at a very full price, but also to buy the warehouse that’s associated with the selling distributorship….

HARRY: I’ve been involved in a deal before that was killed because of the warehouse.

BILL: Right. It happens. So, we can come in as the real estate partner, be ready to close when the acquiring distributor wants to close and we can structure the lease and the improvements according to the distributor’s specific timetable and needs.

HARRY: And has your personal experience in the beer industry helped or harmed you? It’s no secret that your family is a big A-B [and Coors] distributor. How has that been received?

BILL: I think it’s very helpful for distributors to know that I grew up in the beer distribution business and that they know I spent all my summers working in our distributorships as a kid. And I think it’s helpful for them to know that I helped on many of our acquisitions and helped manage many of our beverage distribution warehouses. They know I have the experience for this and they know I’m dedicated to this industry.