M&A Activity Boosts CrossAmerica Partners' Earnings in 2021

ALLENTOWN, Pa. — CrossAmerica Partners LP's acquisition deal with 7-Eleven Inc. for more than 100 convenience stores contributed to positive earnings in the fourth quarter and full-year 2021.

"For the full-year 2021, it was a year of transition for our retail segment as we added over 100 sites to our retail portfolio, driven by the acquisition of the 7-Eleven sites," said CrossAmerica President and CEO Charles Nifong.

Last spring, CrossAmerica reached a definitive agreement to acquire 106 stores from Irving, Texas-based 7-Eleven for $263 million. The deal consisted of company-operated sites that were included in 7-Eleven's divestiture process in connection with its acquisition of Speedway LLC from Findlay, Ohio-based Marathon Petroleum Corp.

The vast majority of the sites operated under the Speedway brand, and all of the sites were rebranded in connection with the closing.

Detailing CrossAmerica's 2021 results during an earnings call on March 1, Nifong said gross profit increased 77 percent to $100.8 million, fuel gross profit increased 119 percent, and merchandise gross profit increased 72 percent for the year.

On a same-store basis, volume for the partnership's c-stores increased 15 percent for the full year relative to 2020, but was down approximately 3 percent vs. 2019. Store sales on a same-store basis increased 5 percent for the full year relative to 2020, and increased approximately 11 percent relative to 2019, the chief executive reported. 

"We have established a solid foundation for our retail segment as we enter 2022 with 252 company-operated convenience stores and 198 commission agent sites at year-end," Nifong said.

"In early February of this year, we closed on the final three sites in our 106-site acquisition from 7-Eleven. These newly acquired locations have been rebranded to our proprietary store brand, Joe's Kwik Marts, and have also been converted to one of our existing major branded fuel suppliers. With these sites and the 103 sites acquired last year, we continue the hard and unglamorous work of integrating the sites into our retail portfolio to maximize their long-term potential," he added.

Portfolio Moves

In addition to acquisitions, CrossAmerica has been reevaluating its portfolio and divesting non-core assets. In the fourth quarter of 2021, the partnership sold nine properties for $5 million in proceeds. For the full year, it divested 32 properties for $14 million in proceeds.

The divested properties generated less than $1 million in EBITDA on an annual basis, according to Nifong. For certain sites, the partnership was retained for fuel supply and expects to generate the same or more annual EBITDA than it did prior to the divestiture.

"We have been successful with these types of divestitures over the last two years," he said, noting that the moves are indicative of what CrossAmerica intends to do going forward.

"We currently have a strong pipeline of transactions and expect to have an active 2022 as we continue the process of recycling capital to invest in growth opportunities within our portfolio," Nifong said.

Financial Results

CrossAmerica reported net income of $12 million for the fourth quarter of 2021, compared to $9 million in the fourth quarter of 2020. The increase was primarily driven by year-over-year improvement in operating income in both its wholesale and retail segments, with each segment benefiting from continuing recovery from the COVID-19 pandemic, as well as the acquisition of assets from 7-Eleven, according to Maura Topper, chief financial officer.

Adjusted EBITDA was $37 million for the fourth quarter, which was a 51-percent increase vs. the fourth quarter of 2020. Full-year 2021 adjusted EBITDA was $123.3 million, compared to full-year 2020 adjusted EBITDA of $107.4 million.

Broken out by segment, the partnership reported $49.4 million in fourth-quarter gross profit for its wholesale segment, compared to $36.8 million in the fourth quarter of 2020, a 34-percent increase. Fourth-quarter gross profit in its retail segment reached $32.1 million, compared to $19.5 million for the fourth quarter of 2020, a 64-percent increase.

During the fourth quarter, CrossAmerica also spent $4.7 million on rebranding the sites acquired from 7-Eleven, approximately $800 million on rebranding sites in its existing portfolio, and $3.2 million on other projects, such as EMV upgrades and site improvements.

"The rebranding work on the sites acquired from 7-Eleven is substantially complete at this time," Topper said. "As we move into 2022, we will continue to focus our growth capital expenditures on site upgrades in our wholesale and retail portfolio to drive improved performance at our locations."

Allentown-based CrossAmerica Partners is a distributor of branded and unbranded petroleum for motor vehicles in the United States. It distributes fuel to approximately 1,750 locations and owns or leases approximately 1,150 sites. With a geographic footprint covering 34 states, the partnership has relationships with several major oil brands, including ExxonMobil, BP, Shell, Chevron, Sunoco, Valero, Gulf, CITGO, Marathon and Phillips 66.