CrossAmerica Partners Closes Out 2018 With Flurry of Activity
ALLENTOWN, Pa. — Two months after entering into an agreement to take 192 convenience stores from Circle K parent company Alimentation Couche-Tard Inc., CrossAmerica Partners LP is making progress on positioning those sites in its portfolio.
CrossAmerica Partners is a wholesale distributor of motor fuels and owner and lessor of real estate used in the retail distribution of motor fuels. Its general partner, CrossAmerica GP LLC, is a wholly owned subsidiary of Alimentation Couche-Tard.
As part of the mid-December pact, CrossAmerica agreed to receive 192 company-operated convenience and retail fuel stores in the United States. Of the sites, 162 are fee-based and 30 are leased. The transaction is valued at $184.5 million, as Convenience Store News previously reported.
Dealers will be secured to operate the sites while they are still under Circle K ownership. The stores will then transition to CrossAmerica. The changes will be done in tranches over a 24-month period.
For its part, Circle K will receive the real estate property for 56 U.S. company-operated convenience and retail fuel stores currently leased and operated by Couche-Tard/Circle K. The fuel supply agreement to these sites — which is part of CrossAmerica's wholesale segment — will remain unchanged.
In addition, Circle K will receive 17 company-operated stores in the Upper Midwest region of the U.S. Fourteen of the sites are fee-based and three are leased. All 17 sites are currently part of CrossAmerica's retail segment.
"We have made already significant headway regarding the dealerization process and have now signed letters of intent on over 88 of the 192 sites, and we have already converted 41 of these two contracts," CrossAmerica President and CEO Gerardo Valencia reported during the company's fourth-quarter and full-year 2018 earnings call on Feb. 26.
"We're still on track to complete our first transaction in the first half of 2019, and we are seeing accelerated progress as we have established the blueprint to execute these transactions," Valencia said, adding that CrossAmerica plans to leverage the Circle K franchise for several of the locations.
Jet-Pep Site Update
CrossAmerica was also busy in the fourth quarter of 2018 securing a new supply contract with Marathon Petroleum Corp. for the former Jet-Pep sites in Alabama it acquired. Ninety of the sites were "soft-branded" during the fourth quarter. A new "hard-brand" image and site investments are slated to be completed in the first half of this year.
In November 2017, CrossAmerica completed its acquisition of 101 commission-operated retail sites — including 92 fee sites, five lease sites and four independent commission accounts — from Holly Pond, Ala.-based Jet-Pep for $72 million, plus working capital and closing costs.
Circle K also closed on an acquisition of certain other assets from Jet-Pep for an undisclosed amount. This included a fuel terminal, associated trucking equipment and 18 other retail sites.
"We had a market launch with all of our operators in the area and have plans to leverage the Circle K franchise for several of these locations," Valencia said. "Over time, we anticipate improvements in performance through better operations, better brand recognition and premium fuel penetration."
Since joining the Couche-Tard fold, CrossAmerica has been working with the Laval, Quebec-based company to optimize its cost structure and capture synergies. As of Dec. 31, CrossAmerica captured $9.5 million of cost savings, which was right in line with the plan it detailed during the company's first-quarter 2018 earnings call, according to Valencia.
"As we enter 2019, we remain confident in our synergy plans, as we believe there are opportunities to further lower our costs and deliver total synergies," he said.
In addition, CrossAmerica has completed a strategic review of one-third of its portfolio and identified a few strategic fuel brands where it will focus its growth, according to Valencia, who added that the company will soon implement new contracts with the fuel companies.
With a geographic footprint covering 31 states, the partnership currently has relationships with several major fuel brands, including ExxonMobil, BP, Shell, Chevron, Sunoco, Valero, Gulf, CITGO, Marathon and Phillips 66.
Looking at its 2019 strategies and objectives, CrossAmerica plans to continue to deliver growth through initiatives that do not require the company to access more capital. For example, it will continue to implement its fuel strategic review process to capture fuel synergies across the portfolio, the chief executive explained.
In addition, it will push along in its rebranding efforts in Alabama, and with the Couche-Tard/Circle K asset exchange.
"We have a great team in Alabama, who are developing excellent operators as we transform our assets, improve our offer and drive more value from all of our sites," Valencia said. "We will continue to implement our asset exchange with Circle K, demonstrating how we can add value together with a general partner in a seamless and efficient way across the U.S."
CrossAmerica will also continue to evaluate third-party transactions for acquisition, the CEO said.
Formed in 2012, Allentown-based CrossAmerica is a distributor of branded and unbranded petroleum for motor vehicles in the U.S. It distributes fuel to more than 1,200 locations and owns or leases approximately 900 sites.