SAN ANTONIO — CST Brands Inc. and CrossAmerica Partners LP announced an agreement Wednesday to purchase 22 Texas convenience stores from Landmark Industries. This deal is their third combined acquisition in less than three months.
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 two are in the greater Austin area.
"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."
Under the agreement, CrossAmerica will purchase all of the 22 fee sites, as well as certain wholesale fuel distribution assets for $43.5 million. CST will purchase 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. Both parties expect the transaction to be accretive.
In addition, CrossAmerica will lease the acquired real estate to CST Brands at a triple net lease rate of 7.5 percent 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 of fuel for the 12-month period ended Dec. 31, 2013.
CrossAmerica and CST also announced their first dropdown transaction on Wednesday.
CrossAmerica agreed to acquire 5 percent 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 Jan. 1. CST will receive approximately 1.5 million newly issued common units from CrossAmerica as consideration for this transaction.
CST Fuel Supply LP and its subsidiaries provide fuel to substantially all of CST Brands' U.S. company-operated c-stores and generally maintains the fuel supply agreements between CST and its fuel suppliers. It 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 Brands' 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 Allentown, Pa.-based 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."
Nice N Easy Update
As for CrossAmerica and CST's first combined acquisition, CrossAmerica's conflicts committee approved the final allocation of the purchase price paid in their 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 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 Brands at a triple net lease rate of 7.5 percent, 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 CST board of directors 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, the final allocation of the Nice N Easy purchase price between the two companies, and the respective amounts of consideration (subject to adjustment) paid by CST and CrossAmerica for the Landmark assets.
Both the fuel dropdown and the Landmark acquisition are subject to customary closing conditions and expected to close early in the first quarter of 2015.
CST Brands Inc. is one of the largest independent retailers of motor fuels and convenience merchandise in North America. Based in San Antonio, the company employs nearly 12,000 team members at nearly 1,900 locations throughout the southwestern United States, New York and eastern Canada.
CST also owns the general partner of CrossAmerica Partners LP, a master limited partnership and wholesale distributor of motor fuels, based in Allentown.
CrossAmerica Partners is a wholesale distributor of motor fuels and owner and lessee of real estate used in the retail distribution of motor fuels. Formed in 2012, CrossAmerica Partners distributes fuel to more than 1,100 locations and owns or leases more than 625 sites in 16 states: Pennsylvania, New Jersey, Ohio, Florida, New York, Massachusetts, Kentucky, New Hampshire, Maine, Tennessee, Maryland, Delaware, Illinois, Indiana, West Virginia and Virginia.
Houston-based Landmark Industries' retail division began operation under the Timewise Food Store brand in 1982 with one location in Hempstead, Texas. It now markets through 240 stores located in and around the Houston, San Antonio, Austin and Laredo, Texas, markets.