2013: Convenience Store Industry Year in Review

An M&A and capital markets perspective

By
Dennis L. Ruben, Executive Managing Director, NRC Realty & Capital Advisors LLC

Article Preview: 

▶ Lehigh Gas Partners LP purchased 30 gasoline stations in the Knoxville, Tenn., market from Rocky Top Markets LLC and Rocky Top Properties LLC. As part of that transaction, Lehigh entered into leases for four stations, assumed seven third-party supply contracts and purchased certain equipment and other assets at the sites for a total consideration of $36.9 million. In a complementary acquisition, Lehigh purchased 14 Zoomerz gas stations in eastern Tennessee from Rogers Petroleum Inc. and affiliates, assumed the leases for three stations and purchased certain other assets and equipment at the 17 sites for a total consideration of $21.1 million. Lehigh also acquired 45 independent dealer supply contracts, five sub-jobber supply contracts and other assets from Manchester Marketing Inc. for $11.1 million.

▶ Valero Energy Corp. completed the spinoff of its retail business in a tax-free distribution to shareholders. The newly created entity, CST Brands Inc., trades on the NYSE under the symbol CST. CST Brands has approximately 1,900 locations in the United States and Canada, with $13 billion in revenues in 2012. CST Brands opened 15 new stores in the first nine months of 2013.

▶ Tesco PLC completed the sale of most of its Fresh & Easy Neighborhood Markets Inc. small-format grocery business to YFE Holdings Inc., an affiliate of Yucaipa Cos.

▶ TravelCenters of America LLC acquired 31 Minit Mart locations for $67 million from Fred’s Minit Mart LLC of Bowling Green, Ky. Of the 31 stores being acquired, 28 are in Kentucky and three are in Tennessee. These stores generally include 10 fueling positions and have about 5,000 square feet of interior space. During 2012, these 31 stores dispensed about 38 million gallons of fuel.

▶ Atlas Oil Co. purchased most of the assets, including 20 gas stations, from The Hadi Cos. and its affiliates through a sale conducted under the U.S. Bankruptcy Code. The sale included 20 retail sites throughout the metro Detroit area and 50 retail fuel supply agreements that are mostly branded Marathon and Speedy.

▶ South Florida Commercial Properties LLC, an affiliate of Marvin Hewatt Enterprises of Lawrenceville, Ga., acquired 20 Chevron stations in South Florida.

▶ PAPCO Inc. acquired the “Tidewater retail assets”—23 Shell-branded gas stations, one Exxon location in southeastern Virginia and various supply contracts— from SMO Inc., a wholly owned subsidiary of The Wills Group Inc.

▶ U.S. Oil, the petroleum and renewable- energy distribution division of U.S. Venture Inc., acquired Combined Oil, a branded wholesale fuel supply business that supplies more than 160 c-stores throughout Wisconsin, Illinois, Indiana and Kentucky.

Other Oil Company Initiatives

▶ Tesoro Corp. sold all of its interests in Tesoro Hawaii LLC to Hawaii Pacific Energy LLC for about $225 million. Tesoro Hawaii operates the Kapolei refinery, a network of about 30 retail stations and associated logistical assets. Hawaii Pacific Energy LLC is a wholly owned subsidiary of Par Petroleum Corp. of Houston. Tesoro also acquired BP’s fully integrated Southern California refining and marketing business, including the Carson, Calif., refinery and retail network. The purchase price for BP’s assets was $1.075 billion, plus the market value of inventory, which was estimated at $1.35 billion. In addition to the Carson refinery, which produces 240,000 barrels per day, the transaction included 800 dealer-operated retail stations in Southern California, Nevada and Arizona, the ARCO brand and other trademarks, and a master franchisee license for the ampm c-store brand.

▶ Marathon Petroleum Corp. (MPC) announced that it would invest $925 million to grow the Speedway c-store segment. Marathon has several new stores under construction in existing markets and is evaluating potential new markets for Speedway. An MPC subsidiary, Speedway owns and operates 1,470 stores in nine states. Speedway intends to add 60 to 65 new or rebuilt stores during each of the next three years.

Growth Initiatives

Several major industry players have continued their growth strategies in both existing and new markets.

▶ Wawa Inc. announced the grand opening of its 18th store in the Orlando, Fla., market, marking its 27th store to open in Florida. Wawa planned to open 25 stores in Florida in 2013 and intends to open 25 stores over each of the next two years; it projects that it will open 100 stores in Florida within the next five years.

▶ Wawa, QuickChek and 7-Eleven are all targeting northern New Jersey for expansion. QuickChek and Wawa are aggressively seeking prime locations in Bergen and Passaic counties.

▶ Kum & Go LC continues its expansion in existing and new markets, and it recently opened a new store in Bentonville, Ark., bringing the total number of stores in that state to 42. Kum & Go operates 420 c-stores in 11 states.

▶ Casey’s General Stores Inc. is also continuing its expansion strategy and has stated that it will build or acquire 70 to 105 stores in its fiscal year, which began May 1. Casey’s also plans to replace 20 stores and complete 25 major remodels. A significant number of the new stores will be in new markets in Arkansas, Tennessee, Kentucky and North Dakota, and it will also “fill in” locations in existing markets.

Divestiture of Nonstrategic Assets

Publix Super Markets Inc. sold its PIX fuel and c-store chain. The chain, consisting of 14 stores in Florida, Georgia and Tennessee, was sold to two buyers. Circle K Stores Inc. purchased the 13 stores located in Florida and Georgia, and Max Arnold & Sons of Hopkinsville, Ky., purchased the Tennessee location. NRC Realty & Capital Advisors LLC served as financial adviser to Publix in connection with the sale.

Mutual Oil Co. Inc. sold 19 gas station and c-store wholesale assets to multiple buyers so that it could focus exclusively on its wholesale business. The purchasers included a subsidiary of Global Partners LP and various regional jobbers and individual store operators.

Getty Realty Corp.

Getty Realty Corp. continued the process of successfully repositioning the remaining properties in its portfolio that were previously leased by Getty Petroleum Marketing Inc., its lessee that had fi led bankruptcy in December 2011. During 2013, the company continued the sale of properties through its sealed-bid sale program with NRC Realty & Capital Advisors LLC  and also identified 108 more gasoline stations and properties for sale under this program. The sale of most of those properties closed during the year, with the remainder anticipated to be closed during the first quarter of 2014.

Bankruptcies

Eugene Crane, as Chapter 11 trustee, sold five former BP Connect operating c-stores with gasoline in the Chicago metro market. All of the sites were sold to Atlas Oil Co. NRC Realty & Capital Advisors LLC was engaged by the trustee in connection with the sale. The sale of assets in the Jump Oil Co. Inc. Chapter 11 bankruptcy proceeding was completed recently. Lion Petroleum of St. Louis purchased 32 locations, Casey’s General Stores Inc. purchased four sites and other buyers purchased the remaining 12 sites.

Conclusion

Although most of the transactions that were concluded during the year were private ones in which the purchase prices and EBITDA multiples were not publicly reported, it is safe to assume, based on the information available, that the demand for quality assets and companies remains extremely high and that the demand for such assets far exceeds the supply. Purchase price multiples for quality assets continue to increase, particularly in certain areas of the country where real estate prices are high and it is difficult to either find quality locations for new convenience stores or obtain the necessary zoning and permits to build them. In addition, more lenders and other financial providers are entering the c-store arena or expanding their presence in it, offering reasonable financing terms for qualified operators who want to make acquisitions or grow through new store development. Both the senior debt and sale-leaseback financing markets were robust throughout 2013 and appear to remain active and viable this year as well. All of these factors should make for a very interesting and active 2014 in terms of merger-and-acquisition activity.

Dennis Ruben is executive managing director of NRC Realty & Capital Advisors LLC, Scottsdale, Ariz.

Pages

Click here to download full article