CrossAmerica Partners LP Profile
CrossAmerica Partners LP primarily engages in the wholesale distribution of motor fuel and the ownership and leasing of real estate used in the retail distribution of motor fuel. The company also generates revenues from the operation of company operated retail sites.
As of December 31, 2021, the company distributed motor fuel on a wholesale basis to approximately 1,750 sites located in 34 states. The company owns or leases approximately 1,150 sites, of which it operates 252 as company operated sites.
The company’s primary operations are conducted by the following consolidated wholly owned subsidiaries:
LGW (Lehigh Gas Wholesale LLC) and CAPL JKM Wholesale (CAPL JKM Wholesale LLC), which distribute motor fuels on a wholesale basis and generate qualifying income under Section 7704(d) of the Internal Revenue Code;
LGPR (LGP Realty Holdings LP), which functions as the real estate holding company and holds assets that generate qualifying rental income under Section 7704(d) of the Internal Revenue Code;
LGWS (Lehigh Gas Wholesale Services, Inc. and subsidiaries), which owns and leases (or leases and sub-leases) real estate and personal property used in the retail sale of motor fuels, as well as provides maintenance and other services to its customers. In addition, LGWS sells motor fuel on a retail basis at sites operated by commission agents. Since the company’s acquisition of retail and wholesale assets that closed on April 14, 2020, LGWS also sells motor fuels on a retail basis and sells convenience merchandise items to end customers at company operated retail sites. Income from LGWS generally is not qualifying income under Section 7704(d) of the Internal Revenue Code; and
Joe’s Kwik Marts (Joe’s Kwik Marts LLC), which owns and leases real estate and personal property at the company operated sites that the company acquired from 7-Eleven, Inc. (7-Eleven). Joe’s Kwik Marts also sells motor fuels on a retail basis and sells convenience merchandise items to end customers. Income from Joe’s Kwik Marts generally is not qualifying income under Sections 7704(d) of the Internal Revenue Code.
Segments
The company operates through two segments, Wholesale and Retail.
Wholesale segment
The Wholesale segment includes the wholesale distribution of motor fuel to lessee dealers, independent dealers, commission agents, DMS (Dunne Manning Stores LLC, an entity affiliated with the Topper Group) (through the closing of the April 2020 acquisition of retail and wholesale assets), and company operated retail sites. The company has exclusive motor fuel distribution contracts with lessee dealers who lease the property from it. The company also has exclusive distribution contracts with independent dealers to distribute motor fuel but do not collect rent from the independent dealers. Similar to lessee dealers, the company had motor fuel distribution and lease agreements with DMS (through the closing of the acquisition of retail and wholesale assets).
The company is one of the ten largest independent distributors by motor fuel volume in the United States for ExxonMobil Corporation (ExxonMobil), BP (BP p.l.c.), and Shell. The company also distributes Chevron, Sunoco, Valero (Valero Energy Corporation), Gulf, Citgo, Marathon (Marathon Petroleum Company LP), and Phillips 66-branded motor fuels (approximately 92% of the motor fuel the company distributed during 2021 was branded).
Principal Customer Groups
Independent Dealer
The independent dealer owns or leases the property and owns all motor fuel and convenience store inventory. The company contracts to exclusively distribute motor fuel to the independent dealer at rack-plus pricing or, in some cases, DTW (dealer tank wagon contracts, which are variable market-based cent per gallon priced wholesale motor fuel distribution or supply contracts. DTW also refers to the pricing methodology under such contracts). Distribution contracts with independent dealers are typically seven to 15 years in length. As of December 31, 2021, the average remaining distribution contract term was 5.3 years.
Lessee Dealer
The company owns or leases the property and then leases or subleases the site to a dealer. The company collects wholesale motor fuel margins at rack-plus pricing or, in some cases, DTW. Under the company’s distribution contracts, it agrees to supply a particular branded motor fuel or unbranded motor fuel to a site or group of sites and arranges for all transportation. Exclusive distribution contracts with dealers who lease property from the company run concurrent in length to the retail site’s lease period (generally three to 10 years). Leases are generally triple net leases. As of December 31, 2021, the average remaining lease agreement term was 3.1 years.
Commission Agents
LGW distributes motor fuel on a wholesale basis to LGWS, which owns the motor fuel inventory and sells motor fuel to retail customers. LGW records qualifying wholesale motor fuel distribution gross income in the company’s Wholesale segment and LGWS records the non-qualifying retail sale in the company’s Retail segment.
Company Operated
LGW and CAPL JKM Wholesale distribute on a wholesale basis all of the motor fuel required by the company operated sites to LGWS and Joe’s Kwik Marts, respectively, which owns the motor fuel inventory and sells motor fuel to retail customers. LGW and CAPL JKM Wholesale record qualifying wholesale motor fuel distribution gross income in the company’s Wholesale segment and LGWS and Joe’s Kwik Marts record the non-qualifying retail sale in the company’s Retail segment.
DMS
Since the April 14, 2020 acquisition of retail and wholesale assets, the company no longer sell fuel nor lease sites to DMS.
Circle K
In conjunction with transactions completed in 2014 and 2015, the company owned property and leased retail sites to Circle K Stores. Inc. (Circle K). The company also distributed motor fuel to Circle K. Many of the sites previously owned and leased to Circle K were sold in the asset exchanges with Circle K. The sites that have been sold have been reclassified as independent dealer sites as the company no longer control the property but continue to distribute fuel to such sites. At the sites to which the company continues to distribute motor fuel, Circle K owns all motor fuel and retail site inventory. As of December 31, 2021, the company distribute fuel on a wholesale basis to 42 Circle K sites and lease 11 sites to Circle K. As of December 31, 2021, there were only five sites at which the company both supply fuel and lease the property to Circle K.
Rental Income
The company also generates revenues through leasing or subleasing its real estate. The company owns or leases real and personal property. The company leases or subleases that property to tenants, the substantial majority of which are wholesale customers. As such, the company manages its real estate leasing activities congruently with its Wholesale segment. The company owns approximately 60% of its properties that the company leases to its dealers or utilizes in its retail business. The company’s lease agreements with third-party landlords had an average remaining lease term of 5.6 years as of December 31, 2021.
CST Fuel Supply
In 2015, the company purchased a 17.5% limited partner interest in CST Fuel Supply (CST Fuel Supply LP is indirectly owned by Circle K and is the parent of CST Marketing and Supply, LLC) from CST (CST Brands LLC, which merged into Circle K Stores. Inc. on February 28, 2020, and subsidiaries, indirectly owned by Circle K). The company received pro rata distributions from CST Fuel Supply related to CST Marketing and Supply, LLC’s distribution of motor fuel to the majority of CST’s legacy U.S. retail sites.
Effective March 25, 2020, the company divested its entire interest in CST Fuel Supply in the CST Fuel Supply Exchange (Exchange Agreement, dated November 19, 2019, between the company and Circle K, which closed effective March 25, 2020. Pursuant to the Exchange Agreement, Circle K transferred to the company certain owned and leased convenience store properties and related assets (including fuel supply agreements) and wholesale fuel supply contracts covering additional sites, and, in exchange, the company transferred to Circle K 100% of the limited partnership units it held in CST Fuel Supply.).
Retail segment
The Retail segment includes the sale of convenience merchandise items at company operated sites and the retail sale of motor fuel at company operated and commission sites.
Company Operated Sites
The company owns or leases the property, operates the retail site and retains all profits from motor fuel and retail site operations.
The company owns the merchandise inventory and retains the profits from the sale of convenience merchandise items.
The company owns the motor fuel inventory and set the motor fuel pricing.
The company maintains inventory from the time of the purchase of motor fuel from third-party suppliers until the retail sale to the end customer. On average, the company maintains approximately 5-days’ worth of motor fuel sales in inventory at each site.
LGW and CAPL JKM Wholesale distribute on a wholesale basis all of the motor fuel required by the company operated sites to LGWS and Joe’s Kwik Marts, respectively, which owns the motor fuel inventory and sells motor fuel to retail customers. LGW records qualifying wholesale motor fuel distribution gross income in the company’s Wholesale segment and LGWS and Joe’s Kwik Marts record the non-qualifying retail sale in the company’s Retail segment.
Commission Sites
The company owns or leases the property and then leases or subleases the site to the commission agent, who pays rent to the company and operates all the non-fuel related operations at the sites for its own account.
The company owns the motor fuel inventory, sets the motor fuel pricing and generates revenue from the retail sale of motor fuels to the end customer.
The company pays the commission agent a commission for each gallon of motor fuel sold.
LGW distributes motor fuel on a wholesale basis to LGWS, which owns the motor fuel inventory and sells motor fuel to retail customers. LGW records qualifying wholesale motor fuel distribution gross income in the company’s Wholesale segment and LGWS records the non-qualifying retail sale in the company’s Retail segment.
As of December 31, 2021, the average remaining motor fuel distribution and lease agreement term for the company’s commission agents was 1.2 years.
Business Strategy
The company’s business strategy is to expand within and beyond its existing markets through acquisitions; enhance its real estate business’ cash flows by owning or leasing sites in prime locations; increase its Wholesale segment by expanding market share and growing rental income over time; maintain strong relationships with major integrated oil companies and refiners; and optimize the operations of acquired assets to the most appropriate format (lessee dealer, independent dealer, and retail site).
Supplier Arrangements
The company distributes branded motor fuel under the Exxon, Mobil, BP, Shell, Chevron, Sunoco, Valero, Gulf, Citgo, Marathon and Phillips 66 brands to its customers. Branded motor fuels are purchased from major integrated oil companies and refiners under supply agreements. For 2021, the company’s Wholesale segment purchased approximately 37%, 22%, 11%, and 10% of its motor fuel from ExxonMobil, BP, Motiva (Motiva Enterprises, LLC), and Marathon, respectively. As of December 31, 2021, the company’s supply agreements had a weighted-average remaining term of approximately 4.9 years.
Seasonality
The company’s business exhibits substantial seasonality due to its wholesale and retail sites being located in certain geographic areas that are affected by seasonal weather and temperature trends and associated changes in retail customer activity during different seasons. Historically, sales volumes have been highest in the second and third quarters (during the summer activity months) and lowest during the winter months in the first and fourth quarters (year ended December 2021).
Trade Names, Service Marks and Trademarks
The company is a wholesale distributor of motor fuel for various major integrated oil companies and is licensed to market/resell motor fuel under their respective motor fuel brands.
History
The company was founded in 1992. It was incorporated as a Delaware limited partnership in 2011. The company was formerly known as Lehigh Gas Partners LP and changed its name to CrossAmerica Partners LP in 2014.
