SAN ANTONIO – This summer, CST Brands Inc. is planning to drop down as many as 40 recently constructed, new-to-industry (NTI) convenience stores to CrossAmerica Partners LP, chairman, president and CEO Kim Lubel said on the company’s first-quarter 2015 earnings call, conducted jointly with CrossAmerica.
CST Brands owns CrossAmerica GP LLC, the general partner of CrossAmerica Partners. It will transfer the real estate and fuel supply contracts to CrossAmerica Partners while continuing to operate the c-stores.
On January 1, CST sold a 5% limited-partner equity interest in CST Fuel Supply, its fuel-supply business, to CrossAmerica in exchange for approximately 1.5 million CrossAmerica units, units representing an approximate 6.1% limited partner interest in CrossAmerica. The value of the common units at closing was approximately $60 million.
“This was our first of many drops to come,” said Lubel. “While we have not yet finalized the specific timing and assets, we are targeting another drop this summer that will most likely encompass those recently constructed NTIs [since the May 2013 spinoff from Valero Energy Corp.], and an additional equity interest in the fuel supply business.”
She said that the company is planning to build between 35 to 40 new stores in the United States and 10 to 12 new stores in Canada in 2015.
“We expect this level of organic growth to continue in future years, supported by our partnership with CrossAmerica, as we expand into new markets. We believe these new builds coupled with acquisitions will continue to provide us growth well into the future,” Lubel said.
“The overall convenience store market remains quite fragmented. The two transactions that we closed in the first quarter and our continued focus on other potential opportunities further underscore our commitment to acquisitive growth as we leverage the favorable capital structure of CrossAmerica,” she said. “We are even better positioned to make each acquisition successful through our ability to quickly integrate, capture identified synergies and leverage the knowledge and strength of the acquired companies.”
Echoing Lubel, Joseph Topper, chairman and CEO of CrossAmerica, said, “The marketplace, whether it's retail, wholesale or a combination of both, still remains fragmented. Because of this, we will continue to seek purchase opportunities. We're in a much better position today with our partner CST. It is a collaborative effort.”
Lubel continued, “As we go through 2015 and beyond, we will continue to focus on the following—organic growth, with the building of [NTI] stores and dropdowns with CrossAmerica, growing our inside-store sales and merchandising efforts as we continue to strengthen our brand, targeted acquisitions along with CrossAmerica Partners with growth in both our retail and wholesale networks, and deepening our integration and consolidation of the stores that have joined our network and our legacy stores around the country.”
“In terms of the acquisition pipeline, there are plenty of acquisition opportunities out there,” she said. “It has been a very active acquisition market I think now for the last 12 months plus … and I think we still present a very attractive buyer of these networks. We know how to run core stores. We've done it for years and decades. We have the wholesale strength from CrossAmerica coming into it. And that combination, I think we're a very attractive buyer as CST-CrossAmerica continues to participate in the acquisition market.”
Lubel concluded, “We will continue to ramp up activity for the years to come. That’s certainly our expectation.”
Based in San Antonio, CST Brands is one of the largest independent retailers of motor fuels and convenience-store merchandise in North America, with approximately 1,900 locations throughout the southwestern United States, New York and eastern Canada. In the United States, CST Corner Stores sell fuel and signature products such as Fresh Choices baked and packaged goods, U Force energy and sport drinks, Cibolo Mountain coffee, FC Soda and Flavors2Go fountain drinks. In Canada, CST is the exclusive provider of Ultramar fuel and its Dépanneur du Coin and Corner Stores sell signature Transit Café coffee and pastries.
Formed in 2012, Allentown, Pa.-based CrossAmerica distributes fuel to more than 1,100 locations and owns or leases nearly 750 sites in 21 states.
Click here for more details on CST Brands' and CrossAmerica Partners' financial results.
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