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Mergers & Acquisitions

Dropdowns Pick Up at CST, CrossAmerica

Transferring ownership of 29 new-to-industry c-stores, additional fuel supply interests

SAN ANTONIO & ALLENTOWN, Pa. --CST Brands Inc. and CrossAmerica Partners LP have announced two dropdown transactions--one of convenience stores, one for fuel supply--totaling approximately $261.5 million.

CST Brands CrossAmerica dropdowns

As reported in a 21st Century Smoke/CSP Daily News Flash, CST Brands has agreed to sell to CrossAmerica the real property associated with 29 recently constructed new-to-industry (NTI) convenience stores for an aggregate consideration of approximately $135.5 million.

“This is the second dropdown transaction between CST and CrossAmerica and the first to include our [NTI] stores,” said Kim Lubel, chairman and CEO of CST Brands. “In the nine short months since we acquired the general partner of CrossAmerica, the partnership has executed over one-half billion dollars of acquisitions and dropdowns.”

The NTI stores are larger formatted stores that accommodate broader merchandise categories and food offerings and have more fuel dispensers than CST Brands’ legacy stores. CrossAmerica will lease the acquired real property to CST Brands at a “triple net” lease rate of 7.5% for a 10-year initial term, which will renew automatically at predetermined lease rate increases.

CrossAmerica has also agreed to acquire an additional 12.5% limited-partner interests in CST Fuel Supply LP (CST’s U.S. wholesale fuel supply business) for total consideration of approximately $126 million. CST Fuel Supply LP (and its subsidiaries) provides fuel to substantially all of CST’s U.S. company-operated convenience stores and largely maintains the fuel supply agreements between CST and its fuel suppliers.

CST Fuel Supply distributed approximately 1.9 billion gallons of fuel in 2014, and the companies expect it to earn a net profit margin of approximately five cents per gallon of wholesale motor fuel distributed.

The aggregate consideration of approximately $261.5 million will consist of $142 million in cash and approximately $119.5 million or 3.6 million newly issued common units representing limited partner interests in CrossAmerica.

The independent executive committee of the board of directors of CST Brands and the independent conflicts committee of the board of directors of the general partner of CrossAmerica have, as applicable, approved the terms of the dropdowns of the 29 NTI stores and 12.5% interest in CST Fuel Supply from CST Brands to CrossAmerica.

The conflicts committee of the board of directors of the general partner was advised by Evercore Partners as its independent financial advisor and Richards, Layton & Finger as its independent legal counsel. Paul Hastings acted as legal counsel to CST Brands.

Meanwhile, CrossAmerica Partners LP has entered into a definitive agreement to acquire the One Stop convenience-store network based in Charleston, W.Va.

The NTI and fuel dropdowns and One Stop acquisition are subject to customary conditions to closing, including financing, and the companies expect them to close in third-quarter 2015.

CST Brands is one of the largest independent retailers of motor fuels and convenience merchandise in North America. Based in San Antonio, it has 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. CST also owns the general partner of CrossAmerica Partners.

Allentown, Pa.-based CrossAmerica 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, CrossAmerica Partners distributes fuel to more than 1,100 locations and owns or leases more than 750 sites in 21 states: Pennsylvania, New Jersey, Ohio, Florida, New York, Massachusetts, Kentucky, New Hampshire, Maine, Tennessee, Maryland, Delaware, Illinois, Indiana, West Virginia, Virginia, Texas, Minnesota, Michigan, Wisconsin and South Dakota. CrossAmerica also distributes fuel in Georgia and North Carolina.

It has long-term established relationships with several major oil brands, including ExxonMobil, BP, Shell, Chevron, Sunoco, Valero, Gulf and CITGO.

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