Lehigh Gas Sees Riches in Richmond, Va., Market

Wholesale deal that closed in December provides scale, base for more acquisitions

Lehigh Gas Partners Virginia

ALLENTOWN, Pa. -- "We're excited to enter the new market for us in the Richmond, Va., area," Joe Topper, chairman and CEO of Lehigh Gas Partners LP, said during the Allentown, Pa.-based wholesale motor fuels distributor's fourth-quarter 2103 earnings call concerning the closing of its acquisition of Manchester Marketing's assets in December.

The acquisition consisted of 44 independent dealer supply contracts, five subjobber supply contracts and other assets. The sites fill in a gap in Lehigh Gas Partners' network that stretches from southern Maine to northwestern Florida.

"The transaction provides us immediate scale in the region and a base upon which to add additional assets in the future," he said. "The total consideration, net of working capital and other adjustments, was $10.7 million in cash. …  The acquired supply contracts are primarily for branded motor fuels and the weighted average remaining term on the supply contracts is approximately nine years."

Topper added, "As always, we continued to be on the lookout for attractive acquisitions and are constantly evaluating potential opportunity."

And in the company's earnings report, Topper said, "We finished our first full year as a public partnership on an active note, completing a follow-on equity offering and closing an acquisition in December. The partnership is well positioned to continue to grow … in 2014."

Net income for fourth-quarter 2013 totaled $3.9 million; EBITDA totaled $12.3 million.

"The generally rising motor fuel price environment during the quarter was a headwind to our margins during the period. Despite the challenging environment in the quarter, our results indicate the stability of our business model and we were pleased to announce our fourth consecutive quarterly distribution increase," Topper said.

Total revenue amounted to $485.1 million for the quarter, consisting of $474.2 million of aggregate revenues from fuel sales, including revenues from fuel sales to affiliates, and $10.9 million of aggregate rent income, including rent income from affiliates.

During the quarter, it distributed 167.0 million gallons of fuel to wholesale at an average selling price of $2.787 per gallon and at an average wholesale gross margin of $0.063 per gallon, resulting in a wholesale gross profit of $10.5 million. During the quarter, it distributed 15.3 million gallons at retail at an average selling price of $3.330 per gallon and at an average retail gross margin of $0.026 per gallon, resulting in a retail gross profit of $400,000. Total gross profit from motor fuels for the quarter was $10.9 million.

The decrease in gross profit from fuel sales for fourth-quarter 2013 relative to 2012 was primarily due to the higher average fuel margin in fourth-quarter 2012, offset by the higher fuel volume in fourth-quarter 2013. The higher average fuel margin in fourth-quarter 2012 was due in part to the approximately 10% decrease in retail gasoline prices on the East Coast during the period compared to the generally increasing retail gasoline prices for the same region during fourth-quarter 2013 as based on the average weekly retail regular gasoline prices as reported by the U.S. Energy Information Administration (EIA).

The increase in fuel volume was primarily due to the acquisitions completed during the past year offset primarily by certain marketplace volume declines and to a lesser extent, and on a net basis, certain dealer supply contracts that did not renew. The increase in rent income in fourth-quarter 2013 relative to 2012 is due primarily to the additional rent associated with the acquisitions completed during the past year.

Lehigh Gas Partners, is a leading wholesale distributor of motor fuels and owner and lessee of real estate used in the retail distribution of motor fuels. Formed in 2012, it distributes fuel to more than 800 locations and owns or leases more than 550 sites in 13 states: Pennsylvania, New Jersey, Ohio, Florida, New York, Massachusetts, Kentucky, New Hampshire, Maine, Tennessee, Maryland, Delaware and Virginia. The company is affiliated with several major oil brands, including ExxonMobil, BP, Shell, Chevron, Sunoco, Valero, Gulf and CITGO.

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