Thursday, December 07, 2017

Stripes Changing Under Proven Operator Renter

Stripes Convenience Stores provided an update on its plans for 207 potentially orphan sites, 45 of which are in the San Angelo area.  Their press release stated:

DALLAS , Dec. 5 , 2017  --  Sunoco LP  signed definitive agreements with a commission agent to operate the approximately 207 retail sites located in certain West Texas , Oklahoma and New Mexico markets, which were not included in the previously announced transaction with 7-Eleven, Inc. Conversion of these sites to the commission agent is expected to occur in the first quarter of 2018.
The press release referred to details in an investor presentation.

The slide above states:


● A signed agreement with a proven operator for the 207 West Texas sites as a commission agent
          • The conversion of sites is expected to occur in Q1 2018
          • Commission agent is a proven profitable channel within our fuel distribution portfolio

● Key elements of commission agent model • Commission agent operates retail locations
          • Generates stable rental income through SUN’s continued ownership of real estate
          • Captures a material portion of fuel margin less a commission to the agent
          • Provides optionality for future asset sales
          • Commission agent operations are included in targeted 50% reduction in overhead

● Opportunity to capture upside of West Texas growth via commission agent terms

● Delivers on coverage (~1.1x) and leverage (~4.5 - 4.75x ) goals
         • Significant EBITDA retention, immediate accretion to distributable cash flow/distribution coverage
          • The commission agent model, developed early in the West Texas sales process, is high-value alternative to asset sale
          • Best option based upon the analysis of balancing EBITDA retention and after-tax cash proceeds
          • Combined with the 7-Eleven transaction, allows for debt reduction, redemption of preferred equity and repurchase of common units

In January 2016 Stripes operations were a key value driver for Sunoco LP.   West Texas Stripes, under their new name, will be operated by a renter who must give a good chunk of their gasoline profits to the landlord.  How might that impact service?

Will Alvin New end up as part of the "proven operator" team?  It remains to be seen.

No comments: