CrossAmerica Partners Completes Multiple Strategic Initiatives Despite COVID-19 Impact

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CrossAmerica Partners Completes Multiple Strategic Initiatives Despite COVID-19 Impact

By Danielle Romano - 05/18/2020

ALLENTOWN, Pa. — CrossAmerica Partners LP is showing no signs of slowing down in 2020 despite the unprecedented impact of the COVID-19 pandemic.

Reporting on CrossAmerica's first quarter of 2020 during an earnings call held May 7, President and CEO Charles Nifong touted multiple strategic initiatives. Key among them: completing its previously announced asset exchanges with Alimentation Couche-Tard Inc.

As of May 5, CrossAmerica completed five tranches of its original December 2018 asset exchange agreement with Couche-Tard, which called for CrossAmerica to receive 192 company-operated convenience and retail fuel stores in the United States, as Convenience Store News previously reported.

The first two tranches of the asset exchange agreement were completed in 2019, and now three have been completed in 2020. CrossAmerica expects to complete the final tranche consisting of 24 sites in the second half of 2020.

CrossAmerica's Q1 2020 agenda also included wrapping up a previously announced exchange of U.S. wholesale fuel supply contracts from Couche-Tard to CrossAmerica. 

As part of the transaction, which was completed March 25, Couche-Tard transferred U.S. wholesale fuel supply contracts covering 333 sites and 33 fee and leasehold properties to CrossAmerica. In exchange, CrossAmerica transferred its 17.5-percent limited partner interest ownership in CST Fuel Supply LP to Couche-Tard, which now has 100-percent ownership of the entity.

In addition to the asset exchange agreements, CrossAmerica brought retail back into its portfolio by closing on a transaction for retail and wholesale assets. The deal, which was announced Jan. 15, consisted of retail operations at 169 sites; wholesale fuel distribution to 110 sites, including 53 third-party wholesale dealer contracts; and a leasehold interest in 62 sites from a seller group that includes entities affiliated with Joe Topper, chairman of the board of CrossAmerica's general partner.

CrossAmerica also divested six properties during Q1 2020 as part of its ongoing real estate rationalization effort.

"In spite of the COVID-19 pandemic, we closed on acquisitions involving over 550 sites during the quarter and subsequent to the quarter end. Our ability to execute on these transactions in this challenging environment is a testament to the character and resolve of our greatest organizational asset — our people," Nifong said. "The completed acquisitions strengthen the partnership both operationally and financially and will benefit the partnership in the quarters and years to come."

Q1 2020 FINANCIALS

CrossAmerica reported $77.4 million in operating income and $72.1 million in net income for the first quarter of the year. Adjusted EBITDA was $25.3 million, representing an increase of 18 percent. This was attributable to a 30-percent decline in overall operating expenses in the wholesale segment, according to the company. 

Motor fuel gross profit declined by $1.1 million to $0.4 million during the quarter. This was due to a 34-percent decrease in volume driven by the divestiture of 17 company-operated sites in May 2019 in connection with the first tranche of the asset exchange with Couche-Tard, and the conversion of 46 company-operated sites to dealer operated sites in the third quarter of 2019. 

As COVID-19 hit the United States, CrossAmerica experienced dramatic declines in fuel volume, beginning March 12, with the impact varying geographically. However, as states slowly begin to lift stay-at-home restrictions, the partnership has witnessed fuel volume begin to stabilize as of early April, Nifong noted.

Sales at company-operated sites have remained strong during COVID-19, showcasing the resiliency of convenience stores in general, the chief executive added.

"Our quarterly financial results, notwithstanding the COVID-19 impact in the quarter, demonstrate our initiatives to improve the business are making a difference. Obviously, the COVID-19 pandemic has dramatically changed the economic environment across the country in the weeks since the quarter end," Nifong commented. "As a result of this unprecedented event, we are withdrawing our previously provided earnings guidance at this time. Although the ultimate impact of the COVID-19 pandemic is unknowable currently, we believe the partnership is well positioned to weather these challenging times."

Formed in 2012, Allentown-based CrossAmerica is a distributor of branded and unbranded petroleum for motor vehicles in the United States. It distributes fuel to approximately 1,300 locations, and owns or leases more than 1,000 sites. With a geographic footprint covering 31 states, it has relationships with several major oil brands, including ExxonMobil, BP, Shell, Chevron, Sunoco, Valero, Gulf, CITGO, Marathon and Phillips 66.