CROSSAMERICA PARTNERS LP CAPL
June 29, 2015 - 1:54pm EST by
falcon44
2015 2016
Price: 27.40 EPS 2.69 2.89
Shares Out. (in M): 33 P/E 10.2 9.5
Market Cap (in M): 916 P/FCF 10.2 9.5
Net Debt (in M): 432 EBIT 64 109
TEV: 1 TEV/EBIT 21.1 12.4

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  • Basic Materials
  • Oil and Gas
  • MLP
  • Spin-Off
  • Distributor
  • Real Estate
  • Drop Down
  • Illiquid
  • Underfollowed
 

Description

We highly recommend accessing the full version of this write-up via this Dropbox linkhttps://www.dropbox.com/s/g4p45jywg76t580/CAPL%20Investment%20Thesis%2006-29-15.pdf?dl=0

 

A summary of the thesis, which excludes key tables and diagrams, is below:

 

CrossAmerica Partners LP (CAPL) is the extremely misunderstood sponsored MLP of CST Brands (CST) with defensible cash flow characteristics and accelerating, highly predictable organic growth.  Due to a terribly botched dropdown transaction on 6/16/15 in which CAPL issued more MLP units to the public without doing any marketing, CAPL’s units are on fire sale right now (down 17% since the unaffected price pre-deal on 6/15/15) and represent an incredibly attractive risk-reward.  Over 18 and 30 month time horizons, we expect the following return profile: 

 

1.5 Year Time Horizon                                
  Current Yield   4Q Annualized   Target Unit Price   Total Return   % Change   IRR
  Low High   Distribution p.s.   Low High   Low High   Low High   Low High
Upside Case 4.5% 5.5%   $2.94   $53 $65   $58 $70   112% 155%   69% 92%
Base Case 6.0% 6.5%   $2.72   $42 $45   $46 $50   69% 82%   54% 61%
Downside Case 8.0% 9.0%   $2.55   $28 $32   $33 $36   19% 32%   13% 22%
                                   
2.5 Year Time Horizon                                
  Current Yield   4Q Annualized   Target Unit Price   Total Return   % Change   IRR
  Low High   Distribution p.s.   Low High   Low High   Low High   Low High
Upside Case 4.5% 5.5%   $3.56   $65 $79   $73 $87   166% 218%   52% 64%
Base Case 6.0% 6.5%   $3.05   $47 $51   $54 $58   98% 112%   42% 46%
Downside Case 8.0% 9.0%   $2.68   $30 $33   $37 $40   34% 47%   14% 19%

 

Assumptions used for each of the above cases are conservative with Base Case assuming the MLP grows at a 12% 2016-2018 distribution CAGR, Upside case assuming a 21% distribution CAGR, and Downside Case assuming a 5% CAGR.  As liquidity increases in CAPL and CST does a better job marketing the story, we believe MLP funds and other institutional investors will gravitate towards this attractive absolute return that has an incredibly low risk profile and re-rate the units substantially higher.

Variant view:

·        In the short term, CAPL 2015 distribution guidance is for 7-9% YoY increase. Based on the 6/16/15 dropdown, we believe CAPL can easily exceed this distribution growth.  CAPL has ~$200MM of revolver capacity at a 4% cost of debt that we believe the company will be use to handily beat this guidance and generate 2015 distribution growth of 15%-20%+ this year without participating in any further capital markets transactions

·        CAPL has the firepower to sustainably grow its distribution for many years given its enormous dropdown inventory and will set a more aggressive distribution growth target for 2016.

·        The market only sees $100MM EBITDA of remaining 2015 dropdown inventory left available to be dropped from CST to CAPL growing to $140-150MM by 2018.  Based on our analysis of CST’s asset base, we see $285MM of dropdown qualifying assets today growing to $350MM+ by 2018.  SUN, the best comp, has a smaller dropdown inventory relative to MLP EBITDA than CAPL (1.3x more inventory at SUN’s parent ETP vs. the SUN MLP level compared to 3.0x+ more inventory at CAPL’s parent CST vs. the CAPL MLP level).  However, SUN has a much more attractive cost of equity than CAPL (SUN at a 5.8% current yield vs. CAPL at 8.0%) given SUN’s higher guided to distribution growth. 

·        CST/CAPL should raise its MLP distribution guidance to 20%+.  Increasing the distribution growth at CAPL would set off a virtuous re-rating cycle for CST/CAPL whereby the CAPL cost of equity would re-rate in anticipation of higher future growth, which in turn would lead to higher accretion per unit for every $ of EBITDA dropped from CST.  Higher CAPL accretion would increase CST’s GP distribution growth and value substantially.

·        CST is acutely aware that once it hits the 50% IDR splits, it cannot maximize the value of its GP without having a more attractively priced MLP equity currency.  On 6/4/15, CST appointed Steven Stellato, VP and Controller of Energy Transfer Partners, as VP and Chief Accounting Officer of CAPL’s GP.  ETE is arguably the most aggressive and tax efficient midstream GP in the country, and we view the hiring of Mr. Stellato as an important step towards more aggressive distribution growth and marketing of the CAPL story over time.

·        Street is extrapolating the 11.0x dropdown multiple for the June 2015 dropdown for future drops.  However, adjusting for 3rd party acquisition mix shift, we will show that a more appropriate multiple is 10.0x EBITDA and thus Street forward accretion per dropdown is too low

·        CAPL sponsored dropdowns from CST are real estate and a wholesale distribution business.  While real estate is a well-known attractive asset class for yield focused investors, the wholesale distribution business is a diamond in the rough.  The CST wholesale fuel contract generates $0.05 per gallon for CAPL with CST as the counter-party.  While the market views wholesale fuel as perhaps a 1% annual secular decliner (due to issues such as increasing fuel standards leading to lower gasoline consumption), CAPL will benefit from accelerating organic growth as CST builds an increasing number of stores annually at the C-Corp level and includes the volumes from those stores on the existing fuel supply contract that is dropped to CAPL. 

 

·        As such, the economics of the wholesale distribution business is similar to a pipeline business with annual price escalators, and the CAPL MLP is similar in nature to the high quality sponsored dropdown MLPs like MPLX, VLP, PSXP, and SHLX that trade at 2% yields due to long-term visible double-digit distribution growth from the parent’s dropdown inventory.  

Background

CST is the retail fuel business of Valero Energy (VLO) that was spun-off from VLO 5/1/13.  CST is one of the largest independent wholesaler and retailer of motor fuels and convenience merchandise in the US and eastern Canada with 1,043 retail sites in the US and 862 sites in Canada.  On 8/6/14, CST acquired the General Partner (GP) of LeeHigh Gas Partners for $85MM, which gave CST control of the LeeHigh Gas MLP that CST subsequently rebranded CrossAmerica Partners, or CAPL.  The rationale for the transaction was that CST had a 2-year restriction post the spin-off from VLO that prevented the company from taking public its own MLP.  Acquiring a GP and gaining control of the re-named CAPL MLP gave CST a faster route to market and an advantaged cost of capital to execute wholesale and retail acquisitions in an extremely fragmented marketplace.  There are ~128,000 C-stores offering fuel sales, and only 17% of stores are controlled by chains operating 500 stores or more.  An astonishing 58% of the market is controlled by mom and pops with only 1 store, and CST believes it has a decade long runway to roll-up this industry, benefitting from synergies and economies of scale.

As CST controls the GP of CAPL, it effectively controls the MLP and has set CAPL distribution growth guidance at 7-9% for 2015; growth targets should be met by a combination of dropping down portions of its wholesale business, dropping down its NTI real estate, and acquiring 3rd party wholesale and retail businesses at the CAPL level. 

On 12/17/14, CST executed its first dropdown to CAPL, selling 5% of its fuel distribution business to CAPL for a price of 10.6x EBITDA.  CST’s stated strategy is to drop 100% of its fuel distribution down to CAPL over time and also each year drop down all of the real estate behind its New to Industry (NTI) stores that CST builds each year at the parent level at a stated 7.5% cap rate.  The logic for selling its NTI real estate to CAPL (as opposed to the real estate it already owns behind 1,000+ existing company stores) is that there is a full tax basis at newly constructed stores and thus dropping these assets to CAPL minimizes tax leakage to CST.  CST built 29 NTIs in 2014 and is guiding for an additional 35-40 NTIs to be constructed in 2015. 

It is also worth noting that CST’s 2023 bonds contain covenants restricting asset sales at CST and thus limit the amount of dividends and share repurchases that CST can undertake as a result of dropdowns with CAPL.  The bond indenture allows them to take 75% of asset sale proceeds in cash and 25% in units and to re-invest dropdown proceeds in the business, and CST is using these proceeds to build NTIs that provide further dropdown inventory to CAPL.  The bonds can be called on 5/1/18 at $102.50. 

Earlier this year, the CST/CAPL symbiotic relationship was an MLP/GP growth story that the market really liked.  In January 2015, CAPL closed its first CST related acquisition, buying 5% of CST’s wholesale fuel business.  CAPL traded up 55%+ above the unaffected price in August 2014 when CST acquired its GP.  The unit price high represented a 5.3% current yield as investors were willing to pay up for the growth visibility provided by the dropdown inventory at CST.

Rationale for the “Perfect Storm” Sell-off after CAPL’s Botched Equity Offering On 6/16/15

On 6/16/15, CST and CAPL executed a dropdown in which CAPL issued equity at a 5% discount to fund 3 accretive acquisitions.  CAPL broke through the deal price and is now trading at a 17% discount from the unaffected price on 6/15/15 despite the accretion.   We believe this is an extreme mispricing scenario brought about by the following factors:

(1)    Rebranded from being Leehigh Gas Partners after CST acquired LeeHigh’s GP last August, CAPL is a new MLP that has not yet been properly marketed to institutional investors.  Due to tax restrictions that just rolled off last month, CST decided to enter the MLP market through this backdoor transaction with LeeHigh rather than via the proper IPO channel with a roadshow to attract institutional investors. CST was restricted up until May 2015 from IPO’ing its own MLP (2 years post its spin-off from Valero (VLO)), and the LeeHigh transaction was a faster route to the market place.

(2)    As part of the repositioning of Leehigh Gas to becoming CAPL, Leehigh Chairmain and Founder Joseph Topper announced his retirement at the end of March 2015 with managers from CST taking the reins of CAPL operations.  From our own discussion with Topper, we learned that he believes that there has been some shareholder rotation out of CAPL as Leehigh Gas shareholders adjust to the new management change, which is consistent with CAPL’s underperformance even before the equity deal.

(3)    In addition to CAPL specific issues, the MLP market has broadly been weak on continued commodity price and interest rate concerns.  The Alerian MLP index is down 11.5% since the beginning of May while the S&P 500 is only down 1%.  However, CAPL is primarily a fixed fee business with de minimis commodity exposure, and high growth MLPs historically perform well even in rising interest rate environments.

(4)    CAPL did a poor job executing the transaction.  The deal press release on 6/15/15 was confusing as it did not disclose the full purchase price incorporating the One Stop 3rd party acquisition.  The One Stop acquisition price was only disclosed after the market close separately in an 8-K, not giving investors enough time to properly digest the full transaction terms in time to put orders in for the overnight deal.

(5)    Lead underwriters Bank of America and Barclays failed to properly market the merits of the dropdown as well.  Market color we have received indicates that rather than being placed with institutional investors, the majority of the equity deal was sold through the retail investor channel that puked the stock after it broke the deal price of $30.45. 

 

(6)    CAPL is still an illiquid, unfollowed MLP, so the sellside has so far done a miserable job understanding the business given its lack of importance to them.  CAPL lead underwriters BAML and Barclays did not even understand how to model the accretion from the transaction despite having plenty of management and IR access.  In their 6/16/15 note, BAML writes that the drop-down asset mix “may indicate slower than expected drop-downs of additional CST Fuel Supply interests but more acquisitions of NTIs” and thought the Fuel Supply acquisition price “was a bit more expensive than we anticipated.”  Barclays wrote that “valuation was slightly more expensive” than they expected and that the dropdown deal was only “5% accretive to DCF per LP unit.”   On equity offerings, rarely do we see lead underwriters with numbers that are too bearish that undersell the merits of the transaction like this.  Despite the short-term underperformance, the merits of the transaction are sound as the dropdown accretion provides CAPL enough runway to soundly beat its annual distribution growth target of 7-9% and post 12-20%+ distribution growth in 2015 and beyond

 

I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise hold a material investment in the issuer's securities.

Catalyst

  • 3rd party M&A deals by CAPL in 2H15
  • Realization of 15-20%+ 2015 distribution growth versus guidance range of 7-9%
  • Initiation of double-digit distribution growth guidance for 2016 and beyond
  • Increased marketing of the CAPL story by both CST and CAPL, which should create an institutional shareholder following for CAPL and increase unit liquidity
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    Description

    We highly recommend accessing the full version of this write-up via this Dropbox linkhttps://www.dropbox.com/s/g4p45jywg76t580/CAPL%20Investment%20Thesis%2006-29-15.pdf?dl=0

     

    A summary of the thesis, which excludes key tables and diagrams, is below:

     

    CrossAmerica Partners LP (CAPL) is the extremely misunderstood sponsored MLP of CST Brands (CST) with defensible cash flow characteristics and accelerating, highly predictable organic growth.  Due to a terribly botched dropdown transaction on 6/16/15 in which CAPL issued more MLP units to the public without doing any marketing, CAPL’s units are on fire sale right now (down 17% since the unaffected price pre-deal on 6/15/15) and represent an incredibly attractive risk-reward.  Over 18 and 30 month time horizons, we expect the following return profile: 

     

    1.5 Year Time Horizon                                
      Current Yield   4Q Annualized   Target Unit Price   Total Return   % Change   IRR
      Low High   Distribution p.s.   Low High   Low High   Low High   Low High
    Upside Case 4.5% 5.5%   $2.94   $53 $65   $58 $70   112% 155%   69% 92%
    Base Case 6.0% 6.5%   $2.72   $42 $45   $46 $50   69% 82%   54% 61%
    Downside Case 8.0% 9.0%   $2.55   $28 $32   $33 $36   19% 32%   13% 22%
                                       
    2.5 Year Time Horizon                                
      Current Yield   4Q Annualized   Target Unit Price   Total Return   % Change   IRR
      Low High   Distribution p.s.   Low High   Low High   Low High   Low High
    Upside Case 4.5% 5.5%   $3.56   $65 $79   $73 $87   166% 218%   52% 64%
    Base Case 6.0% 6.5%   $3.05   $47 $51   $54 $58   98% 112%   42% 46%
    Downside Case 8.0% 9.0%   $2.68   $30 $33   $37 $40   34% 47%   14% 19%

     

    Assumptions used for each of the above cases are conservative with Base Case assuming the MLP grows at a 12% 2016-2018 distribution CAGR, Upside case assuming a 21% distribution CAGR, and Downside Case assuming a 5% CAGR.  As liquidity increases in CAPL and CST does a better job marketing the story, we believe MLP funds and other institutional investors will gravitate towards this attractive absolute return that has an incredibly low risk profile and re-rate the units substantially higher.

    Variant view:

    ·        In the short term, CAPL 2015 distribution guidance is for 7-9% YoY increase. Based on the 6/16/15 dropdown, we believe CAPL can easily exceed this distribution growth.  CAPL has ~$200MM of revolver capacity at a 4% cost of debt that we believe the company will be use to handily beat this guidance and generate 2015 distribution growth of 15%-20%+ this year without participating in any further capital markets transactions

    ·        CAPL has the firepower to sustainably grow its distribution for many years given its enormous dropdown inventory and will set a more aggressive distribution growth target for 2016.

    ·        The market only sees $100MM EBITDA of remaining 2015 dropdown inventory left available to be dropped from CST to CAPL growing to $140-150MM by 2018.  Based on our analysis of CST’s asset base, we see $285MM of dropdown qualifying assets today growing to $350MM+ by 2018.  SUN, the best comp, has a smaller dropdown inventory relative to MLP EBITDA than CAPL (1.3x more inventory at SUN’s parent ETP vs. the SUN MLP level compared to 3.0x+ more inventory at CAPL’s parent CST vs. the CAPL MLP level).  However, SUN has a much more attractive cost of equity than CAPL (SUN at a 5.8% current yield vs. CAPL at 8.0%) given SUN’s higher guided to distribution growth. 

    ·        CST/CAPL should raise its MLP distribution guidance to 20%+.  Increasing the distribution growth at CAPL would set off a virtuous re-rating cycle for CST/CAPL whereby the CAPL cost of equity would re-rate in anticipation of higher future growth, which in turn would lead to higher accretion per unit for every $ of EBITDA dropped from CST.  Higher CAPL accretion would increase CST’s GP distribution growth and value substantially.

    ·        CST is acutely aware that once it hits the 50% IDR splits, it cannot maximize the value of its GP without having a more attractively priced MLP equity currency.  On 6/4/15, CST appointed Steven Stellato, VP and Controller of Energy Transfer Partners, as VP and Chief Accounting Officer of CAPL’s GP.  ETE is arguably the most aggressive and tax efficient midstream GP in the country, and we view the hiring of Mr. Stellato as an important step towards more aggressive distribution growth and marketing of the CAPL story over time.

    ·        Street is extrapolating the 11.0x dropdown multiple for the June 2015 dropdown for future drops.  However, adjusting for 3rd party acquisition mix shift, we will show that a more appropriate multiple is 10.0x EBITDA and thus Street forward accretion per dropdown is too low

    ·        CAPL sponsored dropdowns from CST are real estate and a wholesale distribution business.  While real estate is a well-known attractive asset class for yield focused investors, the wholesale distribution business is a diamond in the rough.  The CST wholesale fuel contract generates $0.05 per gallon for CAPL with CST as the counter-party.  While the market views wholesale fuel as perhaps a 1% annual secular decliner (due to issues such as increasing fuel standards leading to lower gasoline consumption), CAPL will benefit from accelerating organic growth as CST builds an increasing number of stores annually at the C-Corp level and includes the volumes from those stores on the existing fuel supply contract that is dropped to CAPL. 

     

    ·        As such, the economics of the wholesale distribution business is similar to a pipeline business with annual price escalators, and the CAPL MLP is similar in nature to the high quality sponsored dropdown MLPs like MPLX, VLP, PSXP, and SHLX that trade at 2% yields due to long-term visible double-digit distribution growth from the parent’s dropdown inventory.  

    Background

    CST is the retail fuel business of Valero Energy (VLO) that was spun-off from VLO 5/1/13.  CST is one of the largest independent wholesaler and retailer of motor fuels and convenience merchandise in the US and eastern Canada with 1,043 retail sites in the US and 862 sites in Canada.  On 8/6/14, CST acquired the General Partner (GP) of LeeHigh Gas Partners for $85MM, which gave CST control of the LeeHigh Gas MLP that CST subsequently rebranded CrossAmerica Partners, or CAPL.  The rationale for the transaction was that CST had a 2-year restriction post the spin-off from VLO that prevented the company from taking public its own MLP.  Acquiring a GP and gaining control of the re-named CAPL MLP gave CST a faster route to market and an advantaged cost of capital to execute wholesale and retail acquisitions in an extremely fragmented marketplace.  There are ~128,000 C-stores offering fuel sales, and only 17% of stores are controlled by chains operating 500 stores or more.  An astonishing 58% of the market is controlled by mom and pops with only 1 store, and CST believes it has a decade long runway to roll-up this industry, benefitting from synergies and economies of scale.

    As CST controls the GP of CAPL, it effectively controls the MLP and has set CAPL distribution growth guidance at 7-9% for 2015; growth targets should be met by a combination of dropping down portions of its wholesale business, dropping down its NTI real estate, and acquiring 3rd party wholesale and retail businesses at the CAPL level. 

    On 12/17/14, CST executed its first dropdown to CAPL, selling 5% of its fuel distribution business to CAPL for a price of 10.6x EBITDA.  CST’s stated strategy is to drop 100% of its fuel distribution down to CAPL over time and also each year drop down all of the real estate behind its New to Industry (NTI) stores that CST builds each year at the parent level at a stated 7.5% cap rate.  The logic for selling its NTI real estate to CAPL (as opposed to the real estate it already owns behind 1,000+ existing company stores) is that there is a full tax basis at newly constructed stores and thus dropping these assets to CAPL minimizes tax leakage to CST.  CST built 29 NTIs in 2014 and is guiding for an additional 35-40 NTIs to be constructed in 2015. 

    It is also worth noting that CST’s 2023 bonds contain covenants restricting asset sales at CST and thus limit the amount of dividends and share repurchases that CST can undertake as a result of dropdowns with CAPL.  The bond indenture allows them to take 75% of asset sale proceeds in cash and 25% in units and to re-invest dropdown proceeds in the business, and CST is using these proceeds to build NTIs that provide further dropdown inventory to CAPL.  The bonds can be called on 5/1/18 at $102.50. 

    Earlier this year, the CST/CAPL symbiotic relationship was an MLP/GP growth story that the market really liked.  In January 2015, CAPL closed its first CST related acquisition, buying 5% of CST’s wholesale fuel business.  CAPL traded up 55%+ above the unaffected price in August 2014 when CST acquired its GP.  The unit price high represented a 5.3% current yield as investors were willing to pay up for the growth visibility provided by the dropdown inventory at CST.

    Rationale for the “Perfect Storm” Sell-off after CAPL’s Botched Equity Offering On 6/16/15

    On 6/16/15, CST and CAPL executed a dropdown in which CAPL issued equity at a 5% discount to fund 3 accretive acquisitions.  CAPL broke through the deal price and is now trading at a 17% discount from the unaffected price on 6/15/15 despite the accretion.   We believe this is an extreme mispricing scenario brought about by the following factors:

    (1)    Rebranded from being Leehigh Gas Partners after CST acquired LeeHigh’s GP last August, CAPL is a new MLP that has not yet been properly marketed to institutional investors.  Due to tax restrictions that just rolled off last month, CST decided to enter the MLP market through this backdoor transaction with LeeHigh rather than via the proper IPO channel with a roadshow to attract institutional investors. CST was restricted up until May 2015 from IPO’ing its own MLP (2 years post its spin-off from Valero (VLO)), and the LeeHigh transaction was a faster route to the market place.

    (2)    As part of the repositioning of Leehigh Gas to becoming CAPL, Leehigh Chairmain and Founder Joseph Topper announced his retirement at the end of March 2015 with managers from CST taking the reins of CAPL operations.  From our own discussion with Topper, we learned that he believes that there has been some shareholder rotation out of CAPL as Leehigh Gas shareholders adjust to the new management change, which is consistent with CAPL’s underperformance even before the equity deal.

    (3)    In addition to CAPL specific issues, the MLP market has broadly been weak on continued commodity price and interest rate concerns.  The Alerian MLP index is down 11.5% since the beginning of May while the S&P 500 is only down 1%.  However, CAPL is primarily a fixed fee business with de minimis commodity exposure, and high growth MLPs historically perform well even in rising interest rate environments.

    (4)    CAPL did a poor job executing the transaction.  The deal press release on 6/15/15 was confusing as it did not disclose the full purchase price incorporating the One Stop 3rd party acquisition.  The One Stop acquisition price was only disclosed after the market close separately in an 8-K, not giving investors enough time to properly digest the full transaction terms in time to put orders in for the overnight deal.

    (5)    Lead underwriters Bank of America and Barclays failed to properly market the merits of the dropdown as well.  Market color we have received indicates that rather than being placed with institutional investors, the majority of the equity deal was sold through the retail investor channel that puked the stock after it broke the deal price of $30.45. 

     

    (6)    CAPL is still an illiquid, unfollowed MLP, so the sellside has so far done a miserable job understanding the business given its lack of importance to them.  CAPL lead underwriters BAML and Barclays did not even understand how to model the accretion from the transaction despite having plenty of management and IR access.  In their 6/16/15 note, BAML writes that the drop-down asset mix “may indicate slower than expected drop-downs of additional CST Fuel Supply interests but more acquisitions of NTIs” and thought the Fuel Supply acquisition price “was a bit more expensive than we anticipated.”  Barclays wrote that “valuation was slightly more expensive” than they expected and that the dropdown deal was only “5% accretive to DCF per LP unit.”   On equity offerings, rarely do we see lead underwriters with numbers that are too bearish that undersell the merits of the transaction like this.  Despite the short-term underperformance, the merits of the transaction are sound as the dropdown accretion provides CAPL enough runway to soundly beat its annual distribution growth target of 7-9% and post 12-20%+ distribution growth in 2015 and beyond

     

    I do not hold a position with the issuer such as employment, directorship, or consultancy.
    I and/or others I advise hold a material investment in the issuer's securities.

    Catalyst

    Messages


    SubjectProposed IRS Regs
    Entry06/29/2015 02:52 PM
    Memberstraw1023

    Would this be affected by the proposed IRS regs for what industries can receive MLP tax treatment? I am guessing this would qualify as distribution (like pipelines) but checking.


    SubjectRe: Proposed IRS Regs
    Entry06/29/2015 03:05 PM
    Memberfalcon44

    No impact from the proposed IRS regulations.  Wholesale margin is considered qualifying income for MLPs.

    Highlight from 1Q15 SUN transcript:

    "Finally, on Tuesday, the IRS released for comment the proposed regulations governing definition of qualifying income under Section 7704 of the Internal Revenue Code, a key determinant for MLP treatment. We've received a lot of telephone calls on this. There has been concern expressed. From our review, both internally and externally, we couldn't be more pleased with the report because it just confirmed the qualified versus non-qualified status across all of our businesses."

    Highlight from 1Q15 CST/CAPL transcript:

    "With respect to the IRS regulations, yes, they did issue some proposed regulations on May 5 that really clarify what qualifying and non-qualifying activity is. There really was no significant changes from our historical interpretations of the IRS rules. So – and in fact, I think they're beneficial to us because they actually do codify or at least the proposed rates codify that a wholesale distribution activity, which is primarily what CrossAmerica does, is a qualifying activity. Now there was some clarifying language on transportation activities, which is really trucking operations and that's the movement of the fuel from the rack to actual pump. Those have always been considered non-qualifying activities. And within CrossAmerica, there is a small trucking operation, but it's embedded into a tax paying entity that sits underneath the MLP, and so therefore, there's really no issue on non-qualifying income there. Would it affect our what we're looking at terms to acquire, I think nothing has really changed with the regulations. They basically just codify things. And I will remind everybody that they are just proposed regulations, so it takes a little while for those – for comments to come in for them to finally be issued. But we don't see that to be an impact on us."


    SubjectRe: Lease contracts
    Entry06/29/2015 07:25 PM
    Memberfalcon44

    For the June transaction, CST dropped 29 "New to Industry" (NTI) stores to CAPL at a 7.5% cap rate.  These are predominately stores that were built by CST within the last year and have higher fuel sales per store than the typical legacy CST store (8-9k gallons per day for NTIs vs. 4.5-5.5k gallons per day for existing legacy CST stores).  Since NTIs are new, more productive stores, it's highly unlikely CST would want to shut any of them down any time soon; they are on 10-year triple net leases with a 10-year initial term that renews automatically at predetermined lease rate increases.  The wholesale fuel distribution agreement with CST also has a 10-year initial term at $0.05 per gallon with options for 5-year renewal terms.

    The focus of our CAPL write-up is on the business transformation given the new sponsored dropdown strategy with CST, but if you dive deeper into the LeeHigh Gas / CAPL legacy business (which only represents ~20% of Base Case EBITDA by 2018), you will see that it is predominately a combination of gas station real estate and wholesale fuel distribution assets brought together via acquisition by retiring LeeHigh Gas / CAPL Chairman Joseph Topper.  Similar to the CST dropdowns, with the legacy business CAPL generally matches up real estate lease and wholesale contract duration by customer, but with staggered 3-5 year contracts and one large contract with Topper's related party entity Lehigh Gas-Ohio (LGO) for 13 years.


    SubjectCAPL Closes Dropdown Transaction
    Entry07/01/2015 07:14 PM
    Memberfalcon44

    Previously CAPL communicated a 3Q15 closing date, but we did not anticipate that meant the company could close on the deal as soon July 1st.  This is an incremental positive since it means the ~7% dropdown accretion hits the P&L day 1 of the third quarter.


    SubjectRe: Hedging
    Entry07/23/2015 07:18 PM
    Memberfalcon44

    Hi mip14, 

    No, we do not see any exogenous risks worth hedging here given the extremely attractive risk-reward.  

    CAPL has sold off again in sympathy with the weakness in crude oil (and in near perfect lock step with the Alerian MLP Index) and is now once again trading at a 7.9% current yield despite the fact that the distribution is well covered, and CAPL should be able to grow the distribution double digit for several years.

    We would not recommend shorting the Alerian MLP index against CAPL since then you would be eating a big dividend yield, which would detract from your absolute return on CAPL.  The Alerian itself is trading at nearly an 8% yield currently (but with a much lower growth profile of low-to-mid single digits growth).  You could consider shorting a basket of the sponsored MLPs (SHLX, PSXP, VLP) which trade at 2% yields, which should be more sensitive to interest rate risk than the Alerian itself.

    While we are not concerned about interest rate risk at this attractive current yield, you could also consider shorting indices for investment grade bonds, high yield bonds, or REITs that trade at tighter yields and offer less growth than the Alerian but have less "spice" than the sponsored MLP basket outlined above.

    Separate from interest rate risk, the big concern you might have is crude oil sensitivity.  Unlike retail fuel businesses (CST, Speedway/MPC, CASY, SUN), CAPL is a wholesale business and thus not sensitive to retail fuel margins.  Retail fuel margins tend to benefit from declining crude and suffer in periods of increasing oil prices.  

    CAPL predominately has a fixed wholesale margin of $0.05.  The legacy Lehigh Gas Partners has some exposure to term discounts based on the price of crude oil and thus on a small % of their wholesale contracts, they earn less gross profit in low crude price environments (as we saw in 1Q15).   However, this is a small and declining % of gross profit as more real estate and fixed fee wholesale fuel business is dropped down to CAPL from CST.  Furthermore, CAPL in general benefits from increasing fuel demand in a low crude environment like this as consumers drive more, particular in the summer driving season.

    With low crude oil prices, 3Q15 should be an optimal operating environment for CAPL.  The recent sell-off in the unit price appears to be indiscriminate selling related to the broader energy industry downdraft.

     

     


    SubjectRe: seems very interesting here, couple questions
    Entry08/11/2015 12:02 PM
    Memberfalcon44

    mip14,

    You should assume the $0.05 is a fixed net margin.  So on the 1.9bn wholesale gallons at a $0.05 net margin, the existing wholesale business generates $95MM of EBITDA, and EBITDA equals unlevered FCF as there is no capex.  Don't assume any price escalotors on these volumes.

    In the note we outlined how as CST builds NTIs, currently CST is placing these NTIs on the existing wholesale contract at a $0.05 net margin.  Once the entire wholesale business is dropped down (17.5% is now down at CAPL), then all future NTI builds will represent "free" organic growth for CAPL.  CST isn't required to utilize this contract structure in the future, but realizes that this is the best way to get CAPL an attractive cost of capital longer term, as the structure nets out to being similar to the imbedded organic growth in a pipeline MLP (which may see low to mid single digit growth from a combination of organic volume growth and PPI linked price escalators on existing volumes).

    NOTE: In our model we are conservative and assume 0% organic growth on the wholesale business.  This is all upside.

    5% Dropdown of Wholesale to CAPL              
    Gallons (bn)     1.9            
    cents per gallon     $0.05            
    Wholesale EBITDA ($MM)   95.0            
                         
            Announced            
    Date       12/17/2014            
    CAPL Units Issued to CST (MM)   1.5            
    CAPL Unit Price     $33.60            
    Acquisition Price ($MM)   50.4            
    Dropdown EBITDA (5% of total)   4.8            
    Implied Dropdown EBITDA Multiple 10.6x            
                         
            2014A 2015E 2016E 2017E 2018E 2019E 2020E
    NTIs Built at CST per Year (1)   29 38 45 50 55 60 65
    Gallons per NTI (000s of Gallons) per day (2)   8.5 8.5 8.5 8.5 8.5 8.5
                         
    Assumes 1% Organic Annual Decline              
    Beginning Wholesale Gallons (MMs)   1,900 1,881 1,862 1,844 1,825 1,807
    2015 NTI Gallon Addition (mid-year convention) 59 117 116 114 113 112
    2016 NTI Gallon Addition       70 138 137 135 134
    2017 NTI Gallon Addition         78 154 152 151
    2018 NTI Gallon Addition           85 169 167
    2019 NTI Gallon Addition             93 184
    2020 NTI Gallon Addition               101
    Ending Wholesale Gallons (MMs)   1,900 1,959 2,068 2,194 2,334 2,488 2,656
    % Organic Volume Growth     3.1% 5.5% 6.1% 6.4% 6.6% 6.8%
    Annual Wholesale EBITDA   95.0 96.5 100.7 106.5 113.2 120.5 128.6
    % Organic Growth       1.6% 4.3% 5.8% 6.2% 6.5% 6.7%
    (1) Guidance for 35-40 NTIs in 2015                
    (2) 8-9k+ gallons per day per Management, with expectations towards the high end          

     

     


    SubjectRe: falcon
    Entry08/11/2015 12:46 PM
    Memberfalcon44

    ladera838,

    I spoke with CST's CFO Clay Killinger yesterday so now have enough information to give you a full update.  

    On 8/7/15, CAPL reported a slight beat, posting EBITDA of $19.1MM vs. Consensus of $18.7MM and distributable cash flow of $14.3MM vs. Consensus of $14.2MM.  CAPL also reiterated guidance for 7-9% annual distribution growth and announced that the June 2015 dropdown was 7% accretive to distribution growth, which is in line with the math in my previous note (see the dropbox file).  The distribution was 1.04x covered in the quarter and assuming 0 further acquistiions/dropdowns by CAPL, CAPL has enough distribution coverage to meet its distribution growth target of 7-9%.

    Given the macro related MLP sell-off, CST/CAPL needed to come out strong, and I think Management once again bungled the messaging despite the underlying strength of CAPL's financial model.

    1. In response to a sellside question on why EBITDA had only grown $2MM YoY despite $250MM of acquisitions, Management cited crude oil prices and their sensitivity on term discounts, whic was disclosed in the quarter of having a $2.5MM impact on wholesale gross profit for every $10 change in crude oil price.  The impact on oil prices on the term discount contracts was well known but some on the sellside seemed surprised by the impact.  Management spoke of the YoY change being a negative impact in the quarter, but failed to mentioned that CAPL actually received a ~$300k benefit from rising crude oil price on a QoQ basis.  Manageement also did not mention on the call that they actually had a $1-1.5MM QoQ headwind from Dealer Tank Wagon (DTW) contracts that have similar one-time impacts to the movement in crude as a typical retail fuel business (this moves in the opposite direction of the term discounts).  Absent the DTW headwind, CAPL would have beat Consensus EBITDA by 7.5%-10% instead of only beating by 2%.  Note that while crude has sold off again in 3Q15, the offsetting benefit to 3Q15 from DTW should cause CAPL to positively surprise on the next print.

    2.  The market is frustrated that CAPL does not announce its current period distribution payment amount at the same time as earnings.  Due to the timing of CST/CAPL board meetings, the MLP distribution is typically announced ~1 month after the actual earnings report.  This has caused some concern in the market that CAPL may not increase its distribution 7-9% as stated.  Clay confirmed to me that there is 0 risk that CAPL does not raise the distribution 7-9% this year.  CST/CAPL is looking into moving up the timing of their board meetings so that they can announce the distribution amount more consistently with the earnings release.

    3.  Management freaked the market out by talking about alternative financing solutions for CAPL/CST without providing any specifics:

    "We've recognized that given the current state of the industry and the MLP market space that the yield has drifted up on CST's units, which has increased its cost of capital and we believe there are other alternatives which we were evaluating. We're not ready to disclose those at this time, but I think we'd like everybody to know that we are evaluating other sources of capital and other capital structures that have a lower cost of capital that will enable us to continue to do drop down transactions from CST, so – and be beneficial to those parties."

    Speaking with Clay, we've learned what he is referring to here is potentially evaluating other alternatives for NTI real estate sales if CAPL units do not have the appropriate cost of equity capital at the time of a future dropdown.  For instance, CST could sell future NTI real estate to a REIT that could pay tighter than a 7.5% cap rate, whereas at a 9-10% yield it is difficult for CAPL to pay that type of a rate.  Clay also added that unlike with the real estate where there is a viable 3rd party market for hard assets, with the wholesale business CST could give CAPL some relief in terms of the future multiple.  In the last couple drops, CST has dropped wholesale at a ~10.6x EBITDA multiple.  CST could lower that to 9 or 10x EBITDA, for instance, to support the accretion to CAPL.  THUS, UNLIKE AN MLP WITHOUT A SPONSOR WITH A LARGE DROPDOWN INVENTORY, CAPL IS NOT AT RISK OF "DEATHSPIRALING."

    Frankly, what Clay is describing makes sense to us but he needs to do a better job communicating.  Realistically, the next NTI drop is ~9-12 months away as CST incubates its build out of its NTIs, so CAPL has plenty of time to improve its cost of equity capital and do accretive drops at a 7.5% cap rate.  In the interim, CAPL will grow its distribution 7-9% based on the firepower from the June 2015 dropdown, and CAPL has the opportunity to juice this accretion via (1) third party acquisitions like One Stop and (2) further wholesale drops, potentially at a reduced dropdown multiple.

    CAPL/CST have more aggressive marketing plans for the third quarter in an effort to get their story out to more institutional investors.  The confusion around the legacy LeeHigh Gas business financials has muddled what is otherwise a very clean and predictable growth story, and CST/CAPL need to do a better job communicating that there really isn't any commodity headwind to earnings from here so long as oil doesn't go another $20 (and if oil does go down another $20, that's only a $5MM impact to annual gross profit).

    MLPs are reflexive vehicles, and thus in the short term, a decline in the unit price impacts the long-term growth rate if CAPL can't improve its unit price over time.  But as CAPL increases its distribution this year and does a better job marketing to investors, CAPL's cost of equity capital should improve as investors realize the attractive long-term growth runway.  

    And frankly, even if investors don't realize it, CAPL represents a pretty incredible low risk absolute return at this price.  The units are yielding 9.64% currently and the distribution will grow at least 7-9%.  So assuming the yield does not re-rate AT ALL, investors get a 16.7%-18.7% absolute annual return just holding onto the units.

    I can't think of any other MLPs without any real commodity exposure and a well covered distribution trading anywhere near these levels.  9-10% yields are typically reserved for MLPs that are highly commodity sensitivity or are no growth MLPs that can't cover their distribution...

     

     


    Subjectcst
    Entry08/11/2015 12:51 PM
    Memberaa123

    thanks for the interesting idea. do you have any thoughts on the attractiveness of CST? Also given the consolidation in the space, what could happen to CAPL if CST was bought? i think there are different scenarios possible but curious if you have given some thoughs. thanks.


    SubjectRe: cst
    Entry08/11/2015 01:53 PM
    Memberfalcon44

    I came to CAPL through first looking at CST this June. CAPL was trading at a ~7.5% current yield whereas CST was trading around $38-40.  My conclusion was that the hedge fund bull case on CST required two big leaps of faith to arrive at a $55-60 bull case price target:

    1). The stubco retail business at CST (after carving out the $0.05 wholesale margin for CAPL) needed to be worth 8.0-9.0x EBITDA.  If you look over a cycle, retail businesses typically trade for 5.0x-9.0x EBITDA and were at the time at the top of the range.  Couche-Tard (ATD/B CN) trades a couple turns above most of the comps as it has a cult following among the institutional Canadian investors, but I thought that type of valuation was a stretch.  When you carve out wholesale, you are effectively burdening the stubco retail business with rent and thus making the remaining earnings stream more volatile, and in my opinion that means it's worth a lower multiple.  I think 7-8x is full multiple for the stubco.

    2).  The CAPL GP needed to be worth $1.5-2bn.  There are two ways to get to this valuation: you either need to take a DCF of the GP and assume some combination of a low discount rate and near-term double digit distribution growth rate at CAPL AND/OR you need to assume CAPL grows its distribution at 20%+  versus the guided to rate of 7-9% and take a multiple on some out year GP cash flows and discount that back.  If you take a full GP multiple on 2018 (keep in mind you need to tax effect the GP as there is no basis) then you can get to ~$1.5bn for the GP.  While I thought Management "might" raise CAPL distribution growth to 20%+, in that scenario CAPL was worth a 5.0-5.5% yield and thus worth 100%+ more over ~2 years, compared to CST being only worth 35-50% more over a similar time frame.

    Fast forward to today with CAPL trading at a 9.5% yield and CST at $35.  If CAPL doesn't re-rate from here, then distribution growth will be single digit and the GP won't even get to the high splits by 2018.   If you just look out to 2016-2017 numbers, then you could argue CST is a short down to $30 (note the recent hedge fund panic selling on SUNE as TERP cost of equity traded off).   Personally, I believe CAPL will re-rate so I wouldn't short CST, but I believe the risk-reward remains firmly in the camp of CAPL over CST.  Obviously we'd prefer to own a GP like CST over an MLP like CAPL at the right price, but we are downside focused and look at the probable range of outcomes at the given price deck.

    While a takeout of CST is possible, I think in the near-term it is unlikely.  MPC has their hands full with MWE (and they already have an MLP with MPLX anyways).  I recently met Robert Owens and Clare McGrory from SUN management (a couple months ago when their cost of equity was 6%) and even then they expressed little interest in CST.  Now SUN cost of equity has traded off to 7.5% as they brought forward a large dropdown so arguably they couldn't even swallow CST at this cost of capital even if they wanted to.  Perhaps Couche-tard could acquire CST, but admittedly I don't have a great read on that company's intentions.  

    An acquisition of CST by Couche-tard or MPC would likely be a strong positive for CAPL.  Couche-tard could use CAPL to dropdown their US assets and this would greatly expand the inventory for drops to CAPL.  MPC could do something similar with Speedway (and have two sets of MLPs, turning MPC into a GP holding company similar to ETE).  An acquisition of CST by SUN could potentially be negative for CAPL since SUN doesn't need a second MLP and thus CAPL might become orphaned in that scenario (conversely, at current prices it would be accretive for SUN to buy CAPL in at a premium anyways).

     


    SubjectRe: Re: cst
    Entry08/18/2015 04:01 PM
    Memberaa123

    Any reason why the stock keeps getting lower? thanks


    SubjectRe: Re: Re: cst
    Entry08/18/2015 05:19 PM
    Memberfalcon44

    No good reason we are aware of.  Retail is selling and institutional investors aren't following the stock yet.  It's pretty wild this MLP is trading at north of a 10% yield now for a well covered and growing distribution.


    SubjectMLP problem broadly right now
    Entry08/18/2015 05:55 PM
    Memberjso1123

    that's the sector-wide problem right now.  the only safe MLPs are the ones that aren't cash negative and don't have financing needs.  SUNE/TERP being the best example of the negative reflexive cycle a lot of these guys are caught in - as MLPs fall, yields rise and they can't do deals, thus distribution growth falls and those the yield increases...and so on.  

    Anyone have any views on the "bulletproof" YieldCo situations that have the best chance of emerging from this without incurring significant dilution?

     


    SubjectRe: MLP problem broadly right now
    Entry08/18/2015 08:15 PM
    Memberfalcon44

    CAPL is pretty much bulletproof.  

    It's true that in the medium to long-term, the wholesale business will decline (perhaps 1-2% annually) due to secular pressures on gasoline demand; however, in the short term gasoline demand is growing given the decline in crude oil.  Furthermore, as we've outlined in the note, CAPL's 17.5% stake in CST's wholesale business actually grows organically since NTI gas station wholesale volumes are being included on the same wholesale contract.

    From speaking with CST's CFO post the quarter, we've learned that CST will lower the dropdown multiple on CST's wholesale business to CAPL, so CAPL will not get caught in a negative feedback loop longer term.  PLUS, CAPL has $100MM of revolver availability at a 4% cost of debt.  Clay Killinger has confirmed they will use the revolver prior to issuing equity anywhere near these levels. So CAPL can still do accretive deals despite the sell off here.

    While we are facing MLP sector outflows that are battering CAPL right now, there are several short term catalysts.  

    - #1 Simply announcing and paying the 2Q15 distribution in early September may get the stock going (the distribution will be raised - CAPL has reiterated its guidance for distribution growth).

    - #2 CAPL/CST are going to do some more serious marketing as we go into the conference season in September.  

    - #3 3Q15 results should show a nice increase in distributable cash flow and CAPL will announce a further increase in the distribution.  Hopefully CAPL will announce the distribution increase at the same time as the 3Q15 quarterly results (Clay Killinger has told us they are considering moving the distribution declaration date up to be in line with the earnings calls to reduce confusion).

    - #4 At any moment, CAPL could announce further accretive 3rd party acquisitions.  3rd party deals are the most accretive deals in CAPL's toolbox (more accretive than real estate dropdowns and wholesale dropdowns from CST).  As our note outlines, this is an extremely fragmented industry, there is a large backlog of deals for CAPL, and CAPL has a history of successfully integrating several acquisitions per year.

    - #5 this stock is just screening ridiculously cheap right now.  If anyone can find another GROWING, 9-10% yielding dividend stock, we are all ears here.  TERP trades at a 7% yield, so while it's been ugly, it's not even close to CAPL on a relative or absolute basis.  

    A lot of these sponsored MLPs have cash flow cliffs as well, e.g. 10-20 year contracts that fall off a cliff at some point like TGP/GLOP.  CAPL doesn't have cash flow cliff problems since as we outlined, cash flows actually grow organically on the CST acquired wholesale business and the rest of the business is pretty steady fixed fee with minimal commodity exposure.  

     

     


    SubjectRe: Re: MLP problem broadly right now
    Entry08/18/2015 11:22 PM
    Memberaa123

    thanks for all your responses. what about a buyback? CAPL can borrow at 4% and retire units that pay a 10% dividend yield. That would be quite accretive for the remaining units. Does that actually solve the problem? It's the multiple that needs to expand for the cost of equity to go down, right? 


    SubjectRe: Re: Re: MLP problem broadly right now
    Entry08/19/2015 10:01 AM
    Memberfalcon44

    Not sure if it makes sense for them to use their leverage capacity to buy in their own units since they can do highly accretive M&A instead.  Perhaps CST parent could buy in some CAPL units as a sign of support.


    SubjectCAPL Raises the Distribution!
    Entry08/25/2015 11:13 AM
    Memberfalcon44

    CAPL still trading at a 10.2% yield that is growing 7-9%.  The distribution growth is "in the bag" based on the accretion from the June 2015 dropdown.  They can use $100MM+ of revolver capacity at a 4% cost of debt to juice the 2015 distribution growth rate into the double digits via (1) third party acquisitons at 4-7x EBITDA and (2) acquiring further stakes in CST's wholesale business (previous drops were done at ~10.6x EBITDA but CST management has said they are willing to lower the multiple on wholesale to support wholesale).

    Furthermore, CST/CAPL are learning quickly.  In the press release, they indicate that they will change the timing of distribution declarations to now be in line with the timing of their earnings calls to reduce uncertainty.

    CrossAmerica Partners LP (NYSE: CAPL) announced today that the Board of Directors of its general partner has approved a quarterly distribution of $0.5625 per unit attributable to the second quarter of 2015 (annualized $2.25 per unit), representing a 2.7% increase in the Partnership's cash distribution per unit from $0.5475 per quarter ($2.19 per unit annualized) paid with respect to the first quarter of 2015.  The distribution attributable to the second quarter is payable on September 11, 2015 to all unitholders of record on September 4, 2015.

    "As we stated when we released our second quarter earnings earlier this month, we generated our highest distributable cash flow to date of $14.3 million thanks to strong cash contribution from our wholesale fuel, rental income, and retail operations segments," said Joe Topper, CEO of CrossAmerica Partners. "This 1.5 cent per unit increase in our quarterly distribution is consistent with our previously provided guidance to increase distributions per unit attributable to 2015 by 7%-9% over 2014."

    In addition, the Partnership plans to declare future quarterly distributions in conjunction with the release of its quarterly financial results.  "We have modified our distribution announcement policy to reduce the time between the end of a quarter and the subsequent announcement and payment of distributions to our unit holders," said Kim Lubel, Chairman of the Board of CrossAmerica's general partner and Chairman and CEO of CST Brands, Inc.  "We continue to be pleased with the operational performance and cash flow generation of the Partnership and look forward to further growth in distributable cash flow and distributions to unit holders in years to come.


    SubjectLarge Insider Buying at CAPL
    Entry08/28/2015 12:45 PM
    Memberfalcon44

    Form 4 filing indicates that Chairman Joseph Topper purchased another 14.3k units at $22.1 for total proceeds of $316k.  

     


    SubjectConversation with CAPL President
    Entry08/28/2015 12:57 PM
    Memberfalcon44

    We spoke with CAPL President Jeremy Bergeron today.  It was a really positive call as it seems like these guys really understand what they need to do to get their stock price back up in the near term.

    CAPL / CST will be addressing the confusion from the analyst community that emerged regarding their commodity price exposure on the 2Q15 earnings call.  CAPL / CST are working on an EBITDA bridge to help investors better understand how to gauge the change in EBITDA from acquisitions and changes in economics on their wholesale fuel business YoY.  CAPL will be doing some serious marketing at investor conferences later this quarter and may release further financial disclosures to help investors understand that the distribution is well covered and that commodity exposure from here is minimal.  So stay tuned for more details here...

    On 8/24/15, CAPL raised the distribution to $0.5625 (9.7% annualized) and firmly intends to increase the distribution at the guided to 7-9% YoY rate.  We think CAPL can easily beat this guidance and increase the distribution double digits this year via a combination of (1) further 3rd party acquisitions -- the deal pipeline is still huge and (2) further wholesale dropdowns from CST (perhaps at a lower acquisition multiple to show CST's commitment to the MLP and to blow away sellside concerns over distribution coverage).


    SubjectTONS of Insider Buying at CAPL
    Entry08/31/2015 12:55 PM
    Memberfalcon44

    Over the last week, CEO Joseph Topper, President Jeremy Bergeron ,and Director John Reilly have been backing up the truck, with total insider buying of ~$2 million. Buying occurred every day from Tuesday to Friday last week.


    SubjectHUGE News: CST to Repurchase $50MM of CAPL Units
    Entry09/21/2015 10:44 AM
    Memberfalcon44

    This is huge news and it's shocking the unit price isn't up more today.  

    CST to acquire $50MM of CAPL units.  CAPL only trades $2.5-3.0MM per day, so the $50MM buyback should really put upward pressure on the MLP unit price.  Furthermore, it shows that CST is acutely focused on the value of CAPL, which is very more important for the longer term message for the value of the MLP.

    Especially given that we expect a very strong 3Q15 report from CAPL, we see the units appreciating strongly in the near term.


    SubjectRe: Re: HUGE News: CST to Repurchase $50MM of CAPL Units
    Entry09/29/2015 12:06 PM
    Membershoobity

    falcon/mip any thoughts on what is going on in the overall MLP space...we aren't in the business of timing these things but it looks like we are seeing liquidations all over the place. 


    SubjectRe: Re: Re: HUGE News: CST to Repurchase $50MM of CAPL Units
    Entry09/29/2015 12:24 PM
    Membermm202

    This was on Barron's last night:

    By JOHN KIMELMAN 
    Updated Sept. 28, 2015 7:37 p.m. ET 
    In recent months, shares of energy-based master-limited partnerships have gone south, thanks largely to the declining price of oil. 

    But now, one informed money manager writes that the MLP business model itself may not even survive. 

    “We now believe the financial operating structure of the MLP may not survive in its current form, even as we say that most businesses using the MLP model are good ones,” writes Brian Nelson, president of Valuentum Securities, an independent investment research company that serves individuals and financial advisors. 

    Brian Nelson’s Tumblr 
    Warning: MLPs May Not Survive (cut and paste follows below, or click the link) 
    http://valuentumbrian.tumblr.com/post/130073604290/warning-the-mlp-business-model-may-not-survive 



    In his Tumblr on Yahoo Finance, Nelson argues that most MLPs including companies like Energy Transfer Partners (ticker: ETP ) and most midstream corporate business models including Kinder Morgan ( KMI ) are dependent on external capital market assistance to fully fund the current levels of their distributions and dividends, respectively. (Kinder Morgan gave up its MLP model last year.) 

    “Their distributions and dividends are not sustainable via internally-generated, traditional free cash flow generation, as measured by cash flow from operations less all capital spending,” he adds. “However, most traditional brokerage houses have set the price targets of these entities on the faulty belief that their dividends and distributions are a clear and reliable reflection of their underlying operations, as they are with most other corporates. 

    (In June, Nelson used his Tumblr page to make the bear case against Kinder Morgan.). Thus far, it’s been a very good call as the stock has fallen from around $40 a share to under $28 

    “With seemingly infinite support from the external capital markets and investor thirst for income, most master limited partnerships and midstream corporates have been holding on to the belief that their distributions and dividends are invincible, and some may still believe this to be true,” Nelson writes. “After all, they may argue, with unlimited access to incremental external financing via new equity and debt, which entity couldn’t grow its dividend or distribution to the moon? This line of thinking comes with a kicker, too. As long as the brokerage houses price such equities on these ‘financially-engineered’ dividends, the price of their stocks would also be propped up, and in turn, the creditworthiness of the entity, its corporate credit rating, would be healthy, too.” 

    Nelson writes that this “self-perpetuating, debt-infused ‘bubble’ is coming to an end, in our view, now that bankers are re-evaluating price decks and borrowing capacity and as the energy markets swoon. Most master limited partnerships and midstream corporates may have to make the difficult decision to either cut their distributions/dividends or suspend growth plans in them altogether, a move that would completely negate forever the dividend-based equity pricing framework used by brokerage houses, leading to a further unraveling of equity prices. Falling stock prices would then weaken credit quality, and a bust would truly ensue, as shares finally revert back to traditional, tried-and-true free cash flow valuation processes, as opposed to one based on a financially-engineered payout.” 

    Nelson concludes that the stock market will eventually demand that such entities pay their distributions and dividends out of earnings and traditional free cash flow, like most every other dependable dividend-paying corporate out there, and “that means the sledding in their share prices will continue.” 

    If Nelson is correct, then MLP investors have more to worry about than just the sagging price of oil. I encourage readers interested in MLPs to read Nelson’s piece in full. 

    No doubt, the weak price of oil is exposing problems with other energy sector besides the pipeline-based MLPs. 

    End Barron's column 


    SubjectRe: Re: MLPs - real insider buying
    Entry09/29/2015 06:59 PM
    Memberfalcon44

    Clearly there is a fund flow problem with MLP space broadly right now as we are seeing a lot of retail selling.

    However, check the tape on CAPL.  CST has been buying back 20k shares per day since 9/21/15, which represents 17% of the daily trading liquidity over that time frame.  

    With a $50MM authorization, CST should prop up CAPL nicely once retail flows normalize.

     

     


    SubjectRe: Re: MLPs
    Entry09/29/2015 07:23 PM
    Membercfavenger

    Lpartners- are you able to provide any more info on where the forced liquidation in NRF is coming from?


    SubjectRe: Re: Re: Re: Re: MLPs
    Entry09/29/2015 08:45 PM
    Membershoobity

    agree....the only problem with that is that I heard the same thing 20-30% ago. 

     


    SubjectRe: Re: Re: Re: Re: Re: Re: MLPs
    Entry09/29/2015 10:15 PM
    Membershoobity

    Understood....this hatred of yield is confusing to me however given that it's clear as day that rates aren't going to be going up materially anytime soon...people didn't all of the sudden lose their need for income although maybe where they get it has changed and realizing that loss of principal can outstrip any divvies...

    Or we are sitting here in 6 months saying holy cow that was really obvious. 


    SubjectSUN vs. CAPL
    Entry10/04/2015 08:18 PM
    Memberjso1123

    Has anyone on this thread looked at SUN vs. CAPL?  Lower yield and more levered but still 8.5% yield and much more liquid with larger scale/better brand.  

    Thanks for anyone's thoughts.

     


    SubjectRe: SUN vs. CAPL
    Entry10/22/2015 04:09 PM
    Memberfalcon44

    jso1123 -

    I haven't refreshed on SUN recently, but a key difference is the size of the backlog opportunity at CST for CAPL vs. a smaller dropdown opportunity at ETP for SUN.  SUN has been more aggressive and exhausted more of this valuable dropdown inventory, so liquidity adjusted, it should actually trade at a wider yield compared to CAPL on a normalized basis because CAPL has more unrealized growth potential.  Of course, SUN is bigger and more liquid than CAPL so it is getting the premium today and SUN also has historically grown distributions faster, so in the short term it makes sense that SUN trades at a tighter yield vs. CAPL.  

    SUN is also a slightly different structure (more non-qualifying retail income at SUN compared to CAPL), but that is a more minor point.  

    ETE has their hands full with WMB and a host of more meaningful growth capex opportunities, so SUN isn't nearly as important to the parent organization.  Compare that to CST, where using the CAPL vehicle is a really key component of the parent's long-term growth trajectory.  

    We are seeing this difference in importance play out today.  The buyback CST has instituted is really unprecedented (as far as the situations we are aware of) in the MLP space.  I don't think you will ever see ETP/ETE buying back SUN units like this.  Pull up CAPL EQUITY GPTR and go to "table view" and  you will see the CST is buying back $50MM of stock at the rate of 10-25% of daily volume every single trading day since 9/21/15.

     

     


    SubjectCAPL - unprecedented share buyback continues
    Entry12/09/2015 04:49 PM
    Memberfalcon44

    CST continues to be out in the market buying back north of 20% of trading volume every single day since 9/21/15.  Check out CAPL EQUITY GPTR on Bloomberg and then Table view to see the magnitude of this.  

    This is a well covered and growing distribution yielding 9.5% with strong support from the parent CST.  

    While it's true that many MLPs in this market are trading at more than a 10% yield, CAPL doesn't have the commodity exposure risk and is not suffering volumetric declines (volumes actually grow faster in a low oil price environment as consumers drive their cars more with cheap gasoline prices).

    Once the fund flow drain on the MLP sector subsides, this stock is set up to rip.

     


    SubjectLeased Sites and Independent Sites
    Entry12/15/2015 03:51 PM
    Memberstraw1023

    Falcon,

    Topic #1: Leased Sites

    I have spent a great deal of time trying to reconcile the quarterly site data. I have been unsuccessful. I have an inquiry into investor relations, but I thought I would ask you as well.

    This reconciliation problem applies to other quarters, but let's focus on Q2'15.

    At the end of Q1'15, 

    - 43 CST Lessee wholesale sites

    - 199 LGO Lessee sites

    - 277 3rd Party sites

    - 77 Commission Agent sites

    - 138 Company Run sites

    Total: 734 sites

    ---------

    At the end of Q2'15, 

    - 43 CST Lessee (same number as Q1)

    - 199 LGO Lessee (same number)

    - 235 3rd Party Lessee (42 less)

    - 70 Commission Agent (7 less)

    - 124 Company Run (14 less)

    Total: 671 sites (63 fewer--how to explain these "missing" sites?)

    ------

    What happened to the 63 sites?

    Note: I see no acquistions or divestitures in Q2. 

    We have Company-run and commission-agent sites transferring to 3rd party lessee sites, but this is netted out.

    My guess is that the 63 "missing" sites were sites that CAPL leased and then sub-leased to 3rd parties, and then CAPL's lease expired and a new lease was not signed. But I can find no verification of this hypothesis in the financials.

    If my hypothesis is correct, it raises an interesting issue: we cannot put a large multiple on the EBITDA coming from the sites that CAPL leases (rather than owns). In one presentation, I see that CAPL leases (rather than owns) about 40% of its sites. Do we have any idea what EBITDA is coming from the leased sites? Are these leases at "market" rates? When do they expire? Based on the number of "missing" sites that I am seeing, it seems to me that the EBITDA coming from the sites that CAPL leases is not going to be around much longer.

    On the flipside, it does not seem to me that these sites that CAPL leases are producing more than a small fraction of the EBITDA (which makes sense given that CAPL is paying rent). But if my guess is correct, you are being a bit over-optimistic in adding together the EBITDA from the sites CAPL leases and the sites CAPL owns. The former deserves a much smaller multiple.

    One other observation: I have run this reconciliation for each quarter in 2014 and YTD 2015, and there are "missing" sites in each quarter, but in both 2014 and 2015, Q2 accounts for the vast majority of the missing sites. So my further guess is that for some reason CAPL leases end in Q2.

    Help!?

     

    -------------

     

    Topic #2: Why are they consistently losing Independent wholesale sites? And similar to the above questions, what is the EBITDA contribution here from independent site wholesale?

     

    I want to value this as a sum-of-parts: CAPL owned sites; CAPL leased sites; indep wholesale. I think latter two are not contributing a lot of EBITDA, but they deserve a lower multiple.

     


    SubjectRe: Leased Sites and Independent Sites
    Entry12/18/2015 11:09 AM
    Memberstraw1023

    I had a call with management and got answers to my concerns.

     

    Topic #1: The 63 "missing" sites from Q1 to Q2 '15 were due to a change in accounting definitions. They were improperly including sites to which they were NOT delivering fuel prior to Q2'15. Half of these are c-store only (the c-store may have fuel but not supplied by CAPL). The other half were idle sites with no operations.

    They reconciled all my smaller number site questions as well.

    They are, on balance, ending leases where they lease from a 3rd party landowner, but the rate is much lower than I had feared. They estimated about 15 gross lease terminations (so about 6% of 250 sites). Further, I missed it, but in the 2014 10-K they revealed an average lease life of 8.6 years on these 250 leases, and this does not include options to extend. So, the real average life is longer than a decade. This allays my concern that the EBITDA from the 250 leased sites might rapidly evaporate.

     

    Topic #2: They would only say that the number of independent site dealers has gone down as they pruned the tree. They said that a lot of the pruned sites, where contracts not renewed, came from acquisitions where they had to take some sites they did not really want. These pruned sites are not terribly profitable.

     

    Topic #3: They have 2% escalators in their LGO leases for rent, and they have "similar" escalators in the vast majority of their 3rd party leases as well.

     

    This was the first time I had spoken extensively to management and came away fairly impressed. They answered my questions directly and specifically. They knew their business and understood the nature of my questions.

     

    While I still think the owned site EBITDA deserves a higher multiple than the indep site EBITDA and the leased-site EBITDA, the differences are much less that I feared, and so this does appear like a very nice way to play the MLP beatdown.

     


    SubjectOther than panic . . .
    Entry01/20/2016 11:27 AM
    Memberstraw1023

    is there a reason why CAPL should be getting destroyed? Could retail fuel margins drop so low that lessees would default on their leases?

     


    SubjectRe: Re: Other than panic . . .
    Entry01/20/2016 11:53 AM
    Memberstraw1023

    elehunter,

     

    I'd argue that the dilution is more than priced in here, and Alerian has direct oil exposure and much more indirect oil exposure via counterparty risk.

    Clearly, the MLP model is broke for CAPL (and everyone), but is there a threat to the existing EBITDA? To my mind, CAPL is not nearly as vulnerable as so many others.

     

     


    SubjectRe: Re: Re: Other than panic . . .
    Entry01/20/2016 01:53 PM
    Memberfalcon44

    It's an overreaction.  

    CST can just lower the wholesale fuel dropdown. We'd like to see 5x-6x EBITDA but we'll see what the sponsor is willing to do. If they are smart, they will just lower the multiple on the next drop to ensure strong distribution coverage and maintain the distribution guidance.


    SubjectRe: Re: Re: Other than panic . . .
    Entry01/20/2016 02:05 PM
    Memberfalcon44

    There will be a few million $ of negative impact from dealer tank wagon discounts from the sharp decline in crude oil prices, but in the short term that should be largely offset by the positive impact of the dealer tank wagon margin swing (this moves in a similar relationship to retail fuel margins swings with crude oil).  

    If crude oil stays in the $20s then it will be a more persistent problem (perhaps a $0.10-.15 hit to annual distributable cash flow if crude oil stays at $30 longer term), but lower oil prices low should spur fuel demand.  Also, we are below the marginal cash cost of production for crude, so we find it highly unlikely that oil stays down here as producers are slashing capex.

    The recently announced Holiday deal is nicely accretive and should add ~$0.10 to distributable FCF.

    We continue to really like this name.  The stock is getting hammered today like the broader MLP universe that more broadly has (1) counter party risk (for instance with CHK) and (2) volumetric risk from lower commodities.  

    CAPL doesn't have these broader thematic industry problems.  CAPL has a very strong counterparty/sponsor in CST, and fuel volumes actually grow when oil goes lower (just look at the retail fuel comps and DOE gasoline demand over the last several quarters).  

     

    Holiday Stores  
    Operated Stores 31
    Owned Real Estate Stores 27
    Implied Rental Income @ 7.5% Cap Rate (1) 5.2
    Gallons Sold (MMs) 26.5
    Wholesale EBITDA @ $0.05 margin 1.325
    Holiday Stores EBITDA for CAPL 6.5
       
    Purchase Price 48.5
    x Multiple 7.5x
    (1) Assumes $2.55mm per store for real estate basis to solve for 7.5x EBITDA
    Debt Financing @ 5.0% 2.4
    Maintenance Capex 0.6
    Levered FCF 3.4
    FDSO 33.1
       
    Accretion   $0.10
    % Accretion to 4Q15E Distribution 4.4%
    4Q15E Distribution 2.32

     


    SubjectRe: Re: Re: Re: Other than panic . . .
    Entry01/20/2016 02:42 PM
    Memberstraw1023

    falcon,

    thanks for the detailed reply.

     

    what do you think about third-party lessees? Are they going to struggle with sub $30 crude in terms of retail fuel margin. I understand that fuel margin initially goes up as prices fall, but after they stabilize, how hurt are lessees? I had thought that increased volume (due to lower prices) plus increased c-store sales mitigates the damage to lessees from lower fuel prices. Is there any chance of large-scale defaults from 3rd party lessees due to lower fuel margins?

     

     


    SubjectRe: Re: Re: Re: Re: Other than panic . . .
    Entry01/20/2016 03:05 PM
    Memberfalcon44

    Seems like business is booming as far as retail fuel margins are concerned. Here are the monthly fuel margins per CST: http://www.cstbrands.com/en-us/investors/Pages/Historical-Fuel-Margins.aspx

    You can also look at retail fuel margins for Speedway (reported by MPC), Couche-tard, etc.  As you suggest, these businesses are earning record margins as wholesale fuel prices fall faster than prices at the pump (retail).  

    With that extra cash savings, consumers are spending more on merchandise sales in the C-stores. And people are driving more (so fuel volumes are flat to growing vs previous expectations for 1-2% secular decline).

    Oil prices will stabalize somewhere and retail won't overearn to the same extent. But consumers will still have the savings to spend on merchandise and to drive more miles.  These margins would get hurt in a sharp upward move in crude oil prices, but in a sustained low environment, I'm inclined to believe these businesses will be better off than in the historic $80-100 oil environment.


    SubjectCAPL 4Q15 Results
    Entry02/19/2016 02:00 PM
    Memberfalcon44

    CAPL reported a good quarter this morning in our view so we are surprised to see the unit price weakness. We had actually expected CAPL to be well below 1.0x coverage in 4Q given the seasonality of the business and lower crude prices (which impact term based discount margins), but CAPL posted 1.05x coverage (vs the just paid distribution of $0.5775) thanks to the EBITDA contributions from recent acquisitions ($14.2MM benefit YoY in 4Q).  CAPL is guiding to 5-7% distribution growth and to be at 1.1x coverage in 2016, so odd to see the stock off as much a 5-6% today.  The MLP sector is off strongly today (Alerian down 3%), CAPL is illiquid and posted a miss vs. Consensus EBITDA estimates (miss by a couple hundred grand, so not particularly material), and the parent CST posted a weak quarter, so those factors may be weighing on CAPL despite a good cash flow quarter and strong 2016 guidance.

     

    • Distributable cash flow $20.2M vs. Consensus of $20.4M
    • FY Guidance (Dec 2016):
      • CrossAmerica expects to grow per unit distributions in 2016 by 5%-7% over 2015 levels while achieving the long-term goal to maintain a 12-month coverage ratio of at least 1.1x
        • Compares to 7% actual distribution growth in 2015
        • Distribution growth for 2016 is reflective of pending Holiday acquisition in Wisconsin/Minessota in 2016 and completed 2015 deals 
        • They expect to conduct more dropdowns from CST as well, but no new equity issuances required to hit 2016 guidance.
      • Management feel very comfortable with current distribution guidance given stable FCF profile of the business
    • Had $100MM of available capital on revolver at end of 2015. They also have real estate they could monetize for additional proceeds. Continue to see attractive third party acquisition opportunities.  They will be opportunistic with third party acquisitions.

    SubjectRe: CAPL 4Q15 Results
    Entry02/19/2016 03:02 PM
    Memberstraw1023

    falcon,

     

    Thanks for the update. I also heard the real estate monetization comment, but I did not understand it. Of course, they own real estate, but they derive income from that real estate. And that is half the reason they exist (wholesale distribution being the other half). I assume they are not contemplating selling this real estate to buy other real estate. This is just robbing Peter to pay Paul.

     

    I know they have some idle land in closed gas stations, but I thought this was small (<$5mm). Do they own more land that they can sell without affecting income?


    SubjectRe: Re: CAPL 4Q15 Results
    Entry02/26/2016 05:15 PM
    Memberfalcon44

    Hi Straw,

    I think what they are referring to here is monetizing CAPL real estate at a tighter cap rate than CAPL currently trades.  With CAPL at a 10-11% yield, it may make sense to sell some real estate at a 6-7% cap rate, for instance, and use the proceeds to buy 3rd party assets at a more accretive multiple.  


    SubjectRe: Distribution & Valuation
    Entry03/01/2016 08:35 AM
    Memberaa123

    Thanks elehunet. First how do you get the multiple for SUN? I have a pro-forma EV around $7,000 and a pro forma EBITDA around 800 million for 2016 so a multiple around 8.8. (pro forma for the drop down). Also curious about their views about a potential drop down from CST and the required valuation to make it attractive for CAPL. Could they make it work here or would CAPL valuation have to go up for CST to be willing to drop down some assets - otherwise would be too low for CST? Also their views on what's going at CST with an activist nominating directors there - what would be the impact on CAPL if CST were to sell itself? Would CAPL remain independent or would CAPL get sold as well? Thanks in advance. 


    SubjectRe: Distribution & Valuation
    Entry03/01/2016 11:44 AM
    Memberstraw1023

    elehunter,

     

    I have never been a believer in the MLP dvd yield + growth valuation although one must respect it because it drives prices during bull markets. But then this financial engineering premium goes away (and then some) when the MLP complex gets beat down.

     

    But CAPL should trade at a higher EBITDA multiple because:

    1) limited maint capex (EBITDA - Capex is a better measure for all valuations)

    2) advantaged tax situation due to MLP

    3) lower "beta" (for you CAPM fans) or EBITDA volatility -- especially true in this rate environment

     

    ----------

     

    Ask mgmt about margin sensitivity (both wholesale and retail) both to levels and movements of crude/gas prices.

     

    Thanks


    SubjectCST Evaluating Strategic Alternatives
    Entry03/03/2016 06:58 PM
    Memberfalcon44

    The only two realistic strategic buyers of CST in this environment in our view are ATD/B CN and MPC.  A year ago, SUN could have done this deal, but they have taken up leverage with their ETP trnasaction and their cost of equity capital is currently too expensive to facilitate an all equity based deal for CST.

    If SUN were to buy CST, it would be pretty neutral for CAPL as they would likely buy in CAPL at a small premium.  However, if ATD/B CN or MPC bought CST, it would be a massive positive for CAPL as it would bring a strong parent with a massive backlog of dropdown inventory that could be dropped to CAPL.

    Press release:

    CST Brands, Inc. (NYSE: CST), today announced that it is commencing an exploration of strategic alternatives to further enhance stockholder value. In order to facilitate the review, the Board of Directors will oversee the process through a committee of outside, independent directors. The strategic review process will be comprehensive and will include a fresh look at several of CST's previously announced strategic initiatives and plans. BofA Merrill Lynch is advising the company in this process, and J.P. Morgan Chase is serving as a co-advisor.

    Kim Lubel, President and Chief Executive Officer of CST Brands, said, "We believe there continues to be a disconnect between CST's intrinsic value and the price of our common stock in the public equity markets. For this reason, our Board of Directors is initiating a process to explore and evaluate a wide range of strategic alternatives to maximize value for our stockholders."

    There can be no assurance that the exploration of strategic alternatives will result in a transaction. The Company does not intend to provide updates unless or until it determines that disclosure is appropriate or necessary. 


    SubjectRe: Re: CST Evaluating Strategic Alternatives
    Entry03/04/2016 02:48 PM
    Memberfalcon44

    You're right that on the status quo capex budget, MPC doesn't have capacity to buy CST today.  But MPC would love to own CST to complete the vertical integration of their refining business and get to 100% assured demand for their refining system. There is a gaping hole in their retail footprint in Texas that CST would fill (where MPC has its two biggest refineries).

    The deal makes a ton of strategic sense, but only at the right price and CST is already expensive.  To buy CST, MPC would have to scrap a large part of its growth capex backlog at the MPC level, including its $2bn refining growth capex through 2020.  

    If MPC shelved significantly more growth capex in exchange for doing the CST deal, then MPC investors would be quite happy (note that MPC/MPLX have already reduced their capex guide twice since their analyst day late last year).  MPC investors hate long term capex projects that don't contribute EBITDA until 2019-2020, so getting CST EBITDA today instead of refining or midstream EBITDA in 3-4 years would be a huge win.

    If MPC did the deal while maintaining its existing capex guidance, then I agree that MPC investors would call for Gary Heminger's head.


    SubjectRe: Re: Re: CST Evaluating Strategic Alternatives
    Entry06/07/2016 09:45 PM
    MemberMiamiJoe78

    I was curious if anyone has any updated thoughts on the potential purchaser of CST and its impact on CAPL?  

    Fundamentally it's not entirely clear that CAPL is that important in a potental buyer's valuation of CST.  I understand that CST owns 7.5mm units of CAPL (~$180mm) along with 100% of the IDR's (which at the moment are not worth alot - back of the envelope $4mm (2016 IDR payments)/8% = $50mm but could be worth much more if there is growth), but hasn't couche tard grown fine without its own mlp.  The mlp model hasn't helped SUN very much either (admittedly Sun is handicapped by ETE saga).  

    It seems like the capital recycle function of an MLP would help consolidators like couche tard but perhaps alternative financing options like sale lease backs are more efficient to recycle capital.  Is a financing vehicle like a MLP necessary when an operator can easily find financing on its real estate (as opposed to a pipeline, storage tank, etc.)?

    FWIW, I spoke to management today and they made it clear the 1.1 coverage ratio target was more long term and not implied guidance for 2016.  

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