Business context and reporting period
This is Lehigh Gas Partners LP’s Form 10-K for the fiscal year ended December 31, 2013, filed March 10, 2014. The filing identifies the registrant as Lehigh Gas Partners LP (NYSE: LGP), rather than CrossAmerica Partners LP. The partnership distributes motor fuels and owns or leases fueling-site real estate; it began directly recording retail fuel sales at commission-operated sites in September 2013.
Results are not fully comparable with 2012: the partnership completed its IPO on October 30, 2012, and the 2012 comparison combines a short post-IPO period with predecessor results. The filing’s annual comparison uses combined 2012 partnership and predecessor results.
Financial and operating highlights
| Metric | 2013 | Comparable 2012 / other detail |
|---|---|---|
| Total revenue | $1,934.4 million | $1,884.1 million; up 2.7% |
| Operating income | $28.5 million | $14.9 million; up 91.8% |
| Net income | $18.1 million; $1.18 per unit | $1.8 million combined; comparison affected by IPO timing and predecessor structure |
| Fuel gross margin | $44.5 million; $0.070 per gallon | $42.7 million; $0.071 per gallon |
| Fuel volume | 637.8 million gallons | 605.2 million gallons; up 5.4% |
| Rent income | $41.6 million | $21.2 million; increased primarily with acquired sites and leases |
| Operating cash flow | $29.6 million | $7.4 million |
| Investing cash flow | $(47.0) million | $(69.6) million |
| Adjusted EBITDA | $54.9 million | Non-GAAP measure |
| Distributable cash flow | $39.4 million; diluted coverage 1.3x | Non-GAAP measures; not presented for earlier predecessor periods |
| Cash and debt at year-end | Cash $4.1 million; total debt $173.6 million | Debt included $146.3 million revolver borrowings and $26.3 million Rocky Top acquisition financing |
At December 31, 2013, current assets were $35.5 million and current liabilities were $38.9 million. The partnership reported total assets of $391.6 million and total liabilities of $297.0 million. Maintenance capital expenditures were $2.9 million and expansion capital expenditures were $45.7 million.
Distributions rose during 2013; the distribution attributable to the fourth quarter was $0.5125 per unit, or $2.05 annualized. The annual per-unit distribution shown in selected data was $1.9450. The board controls distributions, and the partnership agreement does not require payment of any distribution.
Material changes and drivers
- Fuel volume and gross margin increased, with acquisitions contributing to volume growth; the per-gallon margin declined slightly. Management also cited lost volume from competition, terminated supply agreements, and temporarily closed sites.
- Rent income increased substantially, mainly from acquired properties and new leases. Depreciation and amortization rose 28% to $21.0 million, largely reflecting acquisitions and lease transactions.
- Net income benefited from higher operating income and a $1.7 million income-tax benefit. Selling, general and administrative expense fell 15% from combined 2012, which included $6.3 million of nonrecurring IPO costs.
- The partnership completed Rogers, Rocky Top, and Manchester acquisitions in 2013, expanding into Tennessee and Virginia. Together with earlier post-IPO acquisitions, the filing reports five significant acquisitions since the IPO for aggregate consideration of $142.9 million.
- In December 2013, the partnership issued 3.565 million common units at $26.90 per unit, generating $91.4 million net proceeds, primarily to reduce credit-facility borrowings and for general purposes.
- From September 2013, the partnership assumed commission agreements and subleases at 54 commission sites, recording retail fuel sales and carrying fuel inventory. The retail segment contributed $68.2 million of external fuel sales for the year; the change also created direct exposure to retail fuel inventory and margin fluctuations.
Outlook, risks, and unusual items
- Management expected 2014 fuel volume to increase from a full year of results from the Rogers, Rocky Top, and Manchester acquisitions, partly offset by market-related volume declines. It expected gross fuel margins to remain consistent with historical results, rent income to rise, and interest expense to decline following lower leverage and refinancing. No quantified earnings or cash-flow guidance was provided.
- In March 2014, the partnership entered a new senior secured revolving facility with $450 million capacity, maturing March 4, 2019, and potential capacity increases of up to $100 million. The new facility includes leverage and interest-coverage covenants and restricts distributions in specified default or covenant circumstances.
- The Rocky Top transaction included $26.2 million of seller financing, bearing 7.5% interest, with purchase payment due at the seller’s election in or after August 2015. This obligation is material alongside other debt, lease financing, and operating lease commitments.
- Key exposures include narrow and variable fuel margins, competition, fuel-price and demand fluctuations, dependence on five principal suppliers for over 90% of fuel purchases, third-party fuel transportation, variable-rate debt, and seasonal demand. Environmental remediation, insurance limitations, and possible customer or supplier credit failures are additional risks.
- The partnership disclosed $1.2 million of its own environmental liabilities at year-end, with $1.0 million of related indemnification assets. Separately, predecessor entities retained environmental obligations and provide indemnification for certain pre-IPO conditions; the filing warns that insurance, escrow, state programs, or indemnification may not cover all costs.
- Governance and related-party risks include control by the Topper Group, extensive services and transactions involving affiliates, and limited unitholder voting rights. LGC’s management fee was $6.6 million in 2013; fuel sales to LGO, an affiliate, were $912.6 million.
- Management and the auditor reported effective internal control over financial reporting. The auditor’s internal-control opinion excluded the acquired commission sites, which represented 3.6% of 2013 consolidated revenue; management said integration of their controls was ongoing.
Important facts for investors to verify
- Confirm the issuer identity and ticker: this filing is for Lehigh Gas Partners LP (LGP); determine the relationship to the requested CrossAmerica Partners LP company label.
- Review the audited financial statements and non-GAAP reconciliations, particularly distributable cash flow, its 1.3x coverage calculation, and cash available after distributions and capital spending.
- Assess the March 2014 credit facility’s covenants, borrowing availability, interest-rate exposure, and the effect of the Rocky Top financing and lease commitments.
- Check acquisition integration, realized margins and volumes, and whether management’s 2014 outlook assumptions were achieved.
- Evaluate affiliate transactions, management fees, environmental indemnification collectability, and the commission-site control integration disclosure.