Business Context and Reporting Period
This Form 8-K, filed on December 26, 2012, reports material events for Lehigh Gas Partners LP (the "Partnership") occurring on December 21 and 22, 2012. The filing details the completion of two significant acquisitions in the retail motor fuel and convenience store sector: Express Lane, Inc. (Florida-based) and assets of Dunmore Oil Company, Inc. and Jojo Oil Company, Inc. (Pennsylvania-based). Operations for both acquisitions will be managed by Lehigh Gas – Ohio, LLC ("LGO"), an affiliate of the Partnership's general partner.
Key Financial Metrics and Transaction Details
- Total Acquisition Cost: The aggregate purchase price for both transactions is $71,500,000.
- Express Lane Acquisition:
- Total Price: $43,000,000 (subject to adjustments).
- Assets: 39 motor fuel service stations (1 fee simple, 38 leasehold) and 6 additional fee simple properties acquired via LGP Realty Holdings LP.
- Payment Structure: $41,868,500 paid to sellers; $1,754,849 placed in escrow (including $1,000,000 for indemnification and $131,500 for environmental remediation).
- Tax Escrow: $623,349 held to cover potential excess federal income taxes for sellers.
- Projected Revenue: Estimated net rental income of approximately $4.6 million per year from LGO.
- Dunmore Acquisition:
- Total Price: $28,500,000 ($27.5M cash to sellers, $500k non-compete payment, $500k tax escrow).
- Assets: Gasoline and diesel retail outlet business and related convenience store assets.
- Projected Revenue: Estimated net rental income of approximately $1.7 million per year from LGO.
- Financing: Substantially all of the $71.5 million purchase price was funded by a drawing under the Partnership's $249 million senior secured revolving credit facility.
Material Changes and Operational Structure
The Partnership has expanded its geographic footprint into Florida and increased its asset base in Pennsylvania. A key structural change involves the assignment of the acquired retail businesses to LGO. LGO paid the Partnership $1,000,000 for Express Lane assets and $500,000 for Dunmore assets. Under franchise agreements, the Partnership will serve as the exclusive distributor of motor fuels to LGO for these sites and will lease the properties to LGO, creating a recurring revenue stream.
Guidance, Risks, and Contingencies
- Forward-Looking Statements: The Partnership disclaims any obligation to update expectations regarding the impact of these acquisitions, noting that actual results may vary due to market developments.
- Contingencies:
- Escrow Releases: Tax escrow amounts for Express Lane will be reconciled by April 10, 2013, based on actual tax liabilities. Dunmore tax escrow is contingent on proof of pre-closing tax liability payments.
- Environmental Remediation: $131,500 is held in escrow pending completion of environmental measures by Express Lane sellers.
- Non-Compete Agreements: Express Lane sellers are restricted from competing in Florida for four years; Dunmore sellers (specifically Mr. Gentile) are restricted for five years.
- Regulatory Disclosure: Financial statements and pro forma information for the Express Lane acquisition are not included in this filing and will be provided in an amendment within 71 days.
Investor Verification Checklist
- Verify the final reconciliation of the $623,349 Express Lane Tax Escrow and the $500,000 Dunmore Tax Escrow by April 10, 2013.
- Confirm the completion of environmental remediation measures required to release the $131,500 Express Lane escrow.
- Review the upcoming amendment to this 8-K for the required financial statements and pro forma information regarding the Express Lane acquisition.
- Monitor the Partnership's debt levels following the substantial draw on the $249 million credit facility.
- Assess the integration of LGO's operations and the realization of the projected $6.3 million combined annual net rental income.