CST Brands Inc. and CrossAmerica Partners LP have announced two dropdown transactions totaling approximately $261.5 million between CST Brands and CrossAmerica. The transactions are expected to close in the third quarter of 2015.
In addition, CrossAmerica is acquiring the One Stop convenience store network, based in Charleston, West Virginia, that is also expected to close in the third quarter of 2015.
“This is the second dropdown transaction between CST and CrossAmerica and the first to include our New to Industry 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.”
Dropdown of “New To Industry” Stores
CST Brands has agreed to sell to CrossAmerica the real property associated with 29 recently constructed “New to Industry” (NTI) stores for an aggregate consideration of approximately $135.5 million.
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 ten 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 LP distributed approximately 1.9 billion gallons of fuel in 2014, and is expected 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 $142.0 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.
Acquisition of One Stop Network of Stores
CrossAmerica has agreed to purchase the 41 company-operated One Stop convenience store network (One Stop) based in Charleston, West Virginia, along with four commission agent sites, nine dealer fuel supply agreements and one freestanding franchised quick service restaurant.
Of the 45 company-operated and commission agent sites, 30 are owned fee simple locations. Five of the company-operated locations have quick service restaurants. For the 12 month period ended Dec. 31, 2014, the aggregate 54 sites sold approximately 36 million gallons of motor fuel primarily under the Marathon and Exxon fuel brands, and had approximately $40.5 million in inside sales.
“We are delighted to acquire the One Stop portfolio,” said CEO Joe Topper. “Michael Graney, president of One Stop, has built a regional powerhouse organization with a strong basis for future growth. This acquisition further solidifies Cross America’s commitment to West Virginia and Virginia,” Joe added.
“We are excited to join the CrossAmerica Team and look forward to a bright future for our valued and loyal employees and customers and the communities we serve,” said Michael Graney, president of One Stop.
The NTI and fuel drop downs and the One Stop convenience store network acquisition are subject to customary conditions to closing, including financing, and are expected to close in the third quarter of 2015.