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3 Ways Global Partners Plans to Grow

Actively pursuing M&A, NTIs and raze-and-rebuilds while continuing to prune nonstrategic sites

WALTHAM, Mass. – Master limited partnership Global Partners LP will “remain active” on the mergers and acquisitions front and “continue to focus on investments we believe will contribute to the partnership’s future organic growth,” said Eric Slifka, president and CEO, on the MLP’s latest earnings call.

“That investment opportunity could be an M&A acquisition, that investment opportunity could be raze-and-rebuilds and NTIs [new to industry]. So there are good uses for the capital to grow the business,” he said.

But the company is also pruning its network. With 1,443 locations in the Northeast, Global is one of the largest regional independent owners, suppliers and operators of gas stations and convenience stores. It has 239 company-operated locations, 269 commissioned agents, 237 lessee dealers and 698 contract dealers. Its family of c-stores includes Alltown, Alliance Energy and Xtra Mart.

“On the retail side, we continue our program to sell nonstrategic sites,” said Slifka.

As part of a planned sale of nonstrategic retail locations, Global Partners put 86 convenience stores with gasoline in the Northeast and mid-Atlantic on the auction block in April 2016 through Chicago-based NRC Realty & Capital Advisors LLC.

“Since the start of this divestiture program, we have sold approximately 50 of the NRC-listed properties for a total value of approximately $30 million, yielding a high-single-digit EBITDA multiple,” he said. “In many of these sales, we have retained term supply contracts that increase the multiple. So while the divestiture program is generating additional capital to reinvest in the business, we are also maintaining fee-based recurring revenue that drives volume and margin.”

“One of the main drivers of business at retail is that we feel we really have the best locations in the markets that we are in,” Slifka said. “I'm not saying that’s every single location. But the portfolio of the assets that we bought over the years from the major oil companies in many instances are in fact the best corner strength. … It's really a combination of the assets, plus some of the capital expenditure that we put into the sites, plus our marketing ability.”

“Looking ahead, we are focused on making investments that further enhance the value of our asset portfolio, increase our operational efficiencies and drive long-term profitability,” he said.

Financial results

Net income in second-quarter 2017 was $2.4 million, compared with a net loss of $7.3 million in second-quarter 2016.

“Our second-quarter results underscore our ability to leverage our retail expertise and our position as a leading wholesale fuel supplier and terminal operator,” Slifka said. “Given the successful execution of strategic initiatives over the past year, the partnership is positioned with increased financial flexibility to pursue organic growth opportunities and M&A.”

Earnings before interest, taxes, depreciation and amortization (EBITDA) in second-quarter 2017 was $51.3 million compared with EBITDA of $41.3 million in the comparable period of 2016.

Distributable cash flow (DCF) in second-quarter 2017 was $21.8 million compared with DCF of $14.2 million in the same period of 2016. For the three months ended June 30, 2017, DCF includes a $2.4 million net loss on sale and disposition of assets. For the comparable period of 2016, DCF includes $2.2 million in impairment charges and a $0.4 million net loss on sale and disposition of assets.

Gross profit in second-quarter 2017 was $135.4 million, compared with $129.3 million for the comparable period of 2016. Combined product margin, which is gross profit minus depreciation allocated to cost of sales, was $157.8 million and $154.5 million for second-quarter 2017 and 2016, respectively.

The gasoline distribution and station operations (GDSO) segment product margin was $122.5 million in second-quarter 2017 vs. $116.3 million in the comparable period of 2016 due to stronger fuel margins, as wholesale gasoline prices declined during second-quarter 2017. By contrast, in the first two months of last year’s second quarter, wholesale gasoline prices increased.

Wholesale segment product margin was $31.2 million in second-quarter 2017 vs. $32.8 million in second-quarter 2016. This decrease was primarily due to less favorable market conditions in gasoline and related products, partly offset by other revenue.

Sales were $2.1 billion in both second-quarter 2017 and 2016. Wholesale segment sales were $944.7 million vs. $1.1 billion in second-quarter 2016. Sales in the GDSO segment were $947.6 million in second-quarter 2017 vs. $916.7 million for the same period in 2016.

Wholesale segment volume was 638.6 million gallons in second-quarter 2017 vs. 758.2 million gallons for the same period of 2016. The decrease was primarily due to lower volumes of crude oil, gasoline and gasoline blendstocks.

Volume in the GDSO segment was 405.4 million gallons in second-quarter 2017 vs. 403.6 million gallons in second-quarter 2016.

Waltham, Mass.-based Global Partners is a midstream logistics and marketing MLP that owns, controls or has access to one of the largest terminal networks of petroleum products and renewable fuels in the Northeast.

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