CST Brands, Inc. and CrossAmerica Partners LP announced today they have agreed to jointly purchase 22 convenience stores in San Antonio and Austin, Texas from Landmark Industries, the third combined acquisition in less than three months.
The companies also announced the first dropdown transaction of $50.4 million between CST Brands and CrossAmerica, which will close effective January 1, 2015. In addition, the companies have reached final agreement on allocation of the final purchase price paid in connection with the previously announced acquisition of New York-based Nice N Easy Grocery Shoppes, which closed on November 1, 2014.
“With the Landmark acquisition, we are gaining strong operating sites within our existing footprint, which will allow us to leverage our regional distribution and back office efficiencies very quickly,” said Kim Lubel, Chairman and CEO of CST Brands. “Moreover, this announcement is the third acquisition made by CST and CrossAmerica in less than three months since we closed on our purchase of the general partner of CrossAmerica, and reflects our combined vision of growth for both companies.”
Acquisition of Landmark Industries Stores in San Antonio and Austin
CST Brands and CrossAmerica have agreed to jointly purchase 22 convenience stores from Landmark Industries. The stores operate under the Timewise brand name and provide Shell branded fuel. Of the 22 owned fee simple locations, 20 are located in the San Antonio area and 2 are located in the greater Austin area. CrossAmerica will be purchasing all of the 22 fee sites as well as certain wholesale fuel distribution assets for $43.5 million. CST Brands will be purchasing the personal property, working capital and the convenience store operations for $20.2 million. The allocation of the purchase price between CrossAmerica and CST Brands is subject to adjustment following completion of real property appraisals prior to the end of January 2015. Both parties expect the transaction to be accretive. CrossAmerica will lease the acquired real estate to CST Brands at a “triple net” lease rate of 7.5% and will provide wholesale fuel supply to the 22 sites under long term agreements with a fuel gross profit margin of approximately 5 cents per gallon. These 22 sites distributed approximately 41.3 million gallons for the twelve month period ending December 31, 2013.
Dropdown of Fuel Supply
CrossAmerica has agreed to acquire 5% of the limited partner interests in CST Fuel Supply LP (CST’s wholesale fuel supply business) for a total consideration of $50.4 million effective January 1, 2015. CST Brands will receive approximately 1.5 million newly issued common units from CrossAmerica as consideration for this transaction.
CST Fuel Supply LP (and its subsidiaries) provides fuel to substantially all of CST’s U.S. company operated convenience stores and generally maintains the fuel supply agreements between CST and its fuel suppliers, and is expected to earn a net profit margin of approximately 5 cents per gallon. A Fuel Distribution Agreement between a subsidiary of CST Fuel Supply LP and CST’s various operating subsidiaries has been established with a minimum term of 10 years and includes renewal options and certain minimum volume commitments, as outlined in the agreement.
“We are pleased to have completed the negotiations and review for the first ‘dropdown’ from CST Brands to CrossAmerica,” said Joe Topper, President and CEO of CrossAmerica. “As we have stated previously, CST has a large group of assets that are ideal “dropdown” assets for CrossAmerica, which could potentially provide us with steady growth for many years to come.”
Final Allocation of Nice N Easy Purchase Price Between CST Brands and CrossAmerica
CrossAmerica’s conflicts committee has approved the final allocation of the purchase price paid in the previously announced acquisition of Nice N Easy Grocery Shoppes and related franchise business. Total consideration paid by CrossAmerica was reduced to $53.6 million for the real property and wholesale fuel supply assets. Total consideration paid by CST Brands for personal property, working capital, convenience store operations and franchise operations was adjusted to $24.4 million. Both parties expect the transaction to be accretive. CrossAmerica will lease the acquired real estate to CST at a “triple net” lease rate of 7.5% and fuel supplied between CrossAmerica and CST Brands will have a fuel gross profit margin of approximately 6 cents per gallon. These terms were effective upon closing.
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 dropdown of the 5% interest in CST Fuel Supply from CST Brands to CrossAmerica, the final allocation of the Nice N Easy Grocery Shoppes purchase price between the two companies, and the respective amounts of consideration, subject to adjustment, paid by each of CST Brands and CrossAmerica for the Landmark assets.
The conflicts committee of CrossAmerica’s general partner was advised by Evercore Partners as its independent financial advisor and Richards, Layton & Finger as its independent legal counsel. Both the fuel drop down and the Landmark 22-site acquisition are subject to customary conditions to closing and are expected to close early in the first quarter of 2015.
About CST Brands, Inc.
CST Brands, Inc. (NYSE: CST), a Fortune 500 Company, is one of the largest independent retailers of motor fuels and convenience merchandise in North America. Based in San Antonio, Texas, CST employs nearly 12,000 Team Members at nearly 1,900 locations throughout the Southwestern United States, New York and Eastern Canada offering a broad array of convenience merchandise, beverages, snacks and fresh food. In the U.S., CST Corner Stores proudly 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 LP, a master limited partnership and wholesale distributor of motor fuels, based in Allentown, Pennsylvania. For more information about CST, please visit cstbrands.com.
About CrossAmerica Partners LP
CrossAmerica Partners, headquartered in 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., one of the largest independent retailers of motor fuels and convenience merchandise in North America. Formed in 2012, CrossAmerica Partners distributes fuel to over 1,100 locations and owns or leases more than 625 sites in sixteen states: Pennsylvania, New Jersey, Ohio, Florida, New York, Massachusetts, Kentucky, New Hampshire, Maine, Tennessee, Maryland, Delaware, Illinois, Indiana, West Virginia and Virginia. The Partnership has long-term established relationships with several major oil brands, including ExxonMobil, BP, Shell, Chevron, Sunoco, Valero, Gulf and Citgo. CrossAmerica Partners ranks as one of ExxonMobil’s largest distributors by fuel volume in the United States and in the top 10 for many additional brands. For additional information, please visit www.crossamericapartners.com.
