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Mergers & Acquisitions

CrossAmerica Intends to Pursue More Acquisitions

Nice N Easy deal with CST provides "operational flexibility"

ALLENTOWN, Pa. -- Joe Topper, president and CEO of fuel distributor and gas station real-estate owner CrossAmerica Partners LP, used the third-quarter 2014 earnings call as an opportunity to provide details on the deal with convenience store company CST Brands to jointly acquire c-store chain Nice N Easy Grocery Shoppes--and to signal an aggressive acquisition strategy beyond that deal.

CrossAmerica CST Lehigh Nice N Easy M&A (CSP Daily News / Convenience Stores / Gas Stations)

"This is our first earnings call since the completion of the acquisition of the partnership's general partner by CST, and our first with our new name, CrossAmerica Partners," the head of the former Lehigh Gas Partners LP said. "So today's call represents the start of a new period in the partnerships growth. We are excited about the opportunities available to the partnership."

In the $65 million transaction, CrossAmerica acquired 23 fee sites. In addition to the real-estate assets, the partnership also acquired certain wholesale fuel supply-related assets. It will lease the acquired real estate to CST and provide wholesale fuel supply to 24 Nice N Easy sites under long-term agreements.

"For the partnership, the transaction provides an additional source of stable income in the form of wholesale fuel margin and rental income, which will allow CST to do what they do best; namely, run the retail operations of the site," Topper said during the call. "The transaction is also indicative of the ability of the partnership and CST to do joint third-party acquisitions. The combination of the two entities together provides a significant degree of financial and operational flexibility with which to pursue acquisitions--which is exactly what we intend to do in addition to executing the added dropdowns from CST."

Asked by an analysts why dropdowns are not happening faster, Topper said, "That's under CST's control, and their board. … We like the long runway that their dropdowns will provide, and we will blend [them] in with the acquisitions that we intend to do. … We have a pretty good track record of acquisitions, and I think it's a great complement to do the two of them together."

Clay Killinger, CFO of CST Brands, added, "We are currently evaluating the portfolio of assets that we can drop, especially [taking into account the tax agreement] we have with Valero, but there are assets that we can, and we believe that does include real property assets and fuel supply associated with assets that we've built subsequent to the spin[off]."

CrossAmerica announced the financial results for the third quarter ended Sept. 30, 2014. Net income for the period totaled $4.2 million compared to $4.9 million in the same period for 2013.

The company generated gross profit from fuel sales of $21.6 million compared to $11.7 million in third-quarter 2013, an 85.4% increase. It generated net rental income of $5.6 million compared to $6.4 million in third-quarter 2013, a 13.2% decrease. And it generated EBITDA of $16.9 million compared to third-quarter 2013 EBITDA of $12.8 million, representing a 32.1% increase over the prior year.

It distributed 269.4 million gallons of fuel compared to third-quarter 2013 volume of 160.5 million gallons of fuel, a 67.9% increase.

Based in Canastota, N.Y., Nice N Easy operates 77 corporate and franchise convenience stores in central New York.

San Antonio-based CST Brands, one of the largest independent retailers of motor fuels and convenience store merchandise in North America, has nearly 1,900 Corner Stores throughout the southwestern United States and eastern Canada.

CrossAmerica, Allentown, Pa., is a leading wholesale distributor of motor fuels and owner and lessee of real estate used in the retail distribution of motor fuels. Its general partner, CrossAmerica GP LLC, is a wholly owned subsidiary of CST Brands Inc. Formed in 2012, CrossAmerica distributes fuel to approximately 1,100 locations and owns or leases approximately 650 sites in 16 states: Pennsylvania, New Jersey, Ohio, Florida, New York, Massachusetts, Kentucky, New Hampshire, Maine, Tennessee, Maryland, Delaware, Illinois, Indiana, West Virginia and Virginia.

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