CrossAmerica Partners LP - Form 8-K Summary
Business Context and Reporting Period
This Current Report on Form 8-K, dated June 15, 2015, details material definitive agreements entered into by CrossAmerica Partners LP (the "Partnership"). The Partnership is a publicly traded Delaware limited partnership controlled by CST Brands, Inc. The filing announces two primary asset acquisitions from affiliates and a separate acquisition of a convenience store network.
Key Financial Metrics and Transaction Values
The filing outlines three significant transactions with the following aggregate consideration:
- Fuel Supply Contribution: Acquisition of a 12.5% limited partner interest in CST Fuel Supply LP for approximately $126.0 million. Consideration includes 3,303,208 Common Units and $17.5 million in cash.
- Real Estate Contribution (NTIs): Acquisition of real property associated with 29 "new to industry" stores for approximately $135.5 million. Consideration includes 338,098 Common Units and $124.4 million in cash.
- One Stop Acquisition: Purchase of a 41-store convenience network in West Virginia for approximately $42.0 million in cash.
Equity Issuance: The Partnership agreed to issue an aggregate of 3,641,306 Common Units to CST Services and CST Subsidiaries in exchange for the fuel and real estate interests.
Historical Performance of Acquired Assets: The 54 sites in the One Stop network sold approximately 36 million gallons of motor fuel and generated approximately $40.5 million in inside sales for the twelve months ended December 31, 2014.
Material Changes and Transaction Structure
The Fuel Supply and Real Estate transactions are conditioned upon one another and are expected to close simultaneously in the third quarter of 2015, subject to customary conditions including borrowing capacity. Key structural details include:
- Fuel Interest: The acquisition increases the Partnership's total interest in CST Fuel to 17.5%. CST Fuel holds a fuel supply agreement with Valero Energy Corporation and a distribution agreement with CST Services for at least 10 years, covering 1.57 billion gallons annually at a fixed net margin of $0.05 per gallon.
- Real Estate Leasing: Following the NTI acquisition, the Partnership will contribute the entities to Lehigh Gas Wholesale Services, Inc. (LGWS). The properties will be leased back to CST Brands subsidiaries under triple net leases at a 7.5% rate with a 10-year initial term, guaranteed by CST Brands.
- Indemnification: Liability for losses under both contribution agreements is capped at 20% of the aggregate consideration paid, subject to exceptions.
Outlook, Risks, and Management Commentary
Management Commentary: The Conflicts Committee of the General Partner's board unanimously approved the transactions, determining they were fair to unaffiliated unit holders based on an independent financial advisor's opinion.
Risks and Contingencies:
- Closing Conditions: All three transactions are contingent on the availability of sufficient borrowing capacity under the Partnership's credit facility.
- Timing: The Fuel and NTI transactions are expected to close in Q3 2015. The One Stop Acquisition is also expected to close in Q3 2015.
- Related Party Transactions: The transactions involve significant related-party dealings with CST Brands and its subsidiaries, requiring specific conflict committee oversight.
Unusual Items: The filing does not report unusual items or restatements; it focuses exclusively on the execution of these strategic growth agreements.
Investor Verification Checklist
- Verify the Partnership's current borrowing capacity under its credit facility to ensure the $261.5 million in total transaction value (excluding the One Stop cash portion) can be funded.
- Confirm the volume-weighted average trading price of Common Units used to calculate the equity portion of the consideration.
- Review the full text of the Fuel Supply Contribution Agreement (Exhibit 2.1) and Real Estate Contribution Agreement (Exhibit 2.2) for specific covenants and disclosure schedules.
- Monitor the closing dates in Q3 2015 to confirm the transactions are consummated as planned.
- Assess the impact of the 7.5% lease rate on the NTI properties relative to current market rates for similar real estate assets.