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Aloha & MACS Stores Exceed Sunoco's Expectations

HOUSTON — Sunoco LP's acquisitions of Mid-Atlantic Convenience Stores (MACS) and Aloha Petroleum Ltd. are both exceeding the company's expectations and are the main driver behind its much improved earnings, Sunoco LP CEO Robert Owens said during the company's 2015 fiscal first-quarter earnings call Thursday.

"We checked every box of what we are looking for in an acquisition [with those transactions]," stated Owens. "They have strong assets, demand growth in key markets and were acquired at attractive prices."

In fact, Owens is so pleased with the MACS and Aloha transactions that Sunoco LP is currently seeking additional c-store acquisitions that feature assets possessing the same criteria.

"Aloha and MACS provide a great foundation to expand our retail network," he said.

As of March 31, Houston-based Sunoco LP operated 155 Aloha and MACS c-stores and gas stations in Virginia, Hawaii, Tennessee, Maryland and Georgia. In two years' time, this number will increase dramatically as affiliate company Energy Transfer Partners LP will drop down its entire retail division to Sunoco LP, including 663 Stripes and Sac-N-Pac convenience stores.

Owens did caution that the master limited partnership (MLP) will not "pull the trigger" on every asset that simply meets the criteria. But the chief executive stressed that he feels "very good about the convenience store business" as it is a "very attractive business" with a "long runway" for success in the future.

One main reason Owens is so optimistic about the c-store industry is the potential for growth in in-store merchandise sales, particularly prepared foods. "People are becoming increasingly more comfortable purchasing prepared food at convenience stores," he relayed.

Merchandise sales were strong at Aloha and MACS locations in Sunoco LP's most recent quarter ended March 31, rising 9 percent excluding cigarettes. Merchandise sales totaled $47.5 million and contributed $12.7 million of gross profit.

On the fuel side, Sunoco LP's retail division sold 67.8 million gallons in the 2015 first quarter. Gross profit on these gallons was $25.2 million, or 9.7 cents per gallon, vs. $8.8 million or 5.7 cents per gallon in the year-ago period. Fuel margins for all gallons sold was 8.8 cents per gallon, compared to 4 cents in last year's first quarter.

Companywide, Sunoco LP reported adjusted EBITDA of $43.7 million in its most recent quarter, nearly triple the $15.7 million the MLP made in its 2014 first quarter. Net income came in at $17.1 million, compared to $10.1 million during the year-ago period.

"[Sunoco] LP is on the path to become one of the leading wholesale and retail platforms in the country," concluded Owens.

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