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Friday, March 18, 2016

Analysis: MLPs Going on the Market?
Industry expert skeptical of Sunoco, CST Brands sale rumors

Source: CSP Daily News
By Samantha Oller, Senior Editor/Special Projects Coordinator, CSP

SCOTTSDALE, ARIZ. – The rumor mill has had its way with two major industry players in recent weeks, suggesting selloffs of chains as large as 1,900 convenience stores as a whole or in pieces. But one industry expert believes the speculation is premature, bad for the industry and, likely, outright wrong.

It’s no coincidence that the rumors come as master limited partnerships (MLPs) come off a rough year, one in which falling oil prices dragged down stock prices and investor enthusiasm for these energy-focused entities. This whipped up speculation that some MLPs connected to this industry—Energy Transfer Equity (ETE) and CST Brands’ CrossAmerica Partners (CAPL), among others—could sell off convenience-store assets to raise much-need capital.

Rumors such as these “tend to rattle investors and employees,” said Dennis Ruben, executive managing director of NRC Realty & Capital Advisors LLC, Scottsdale, Ariz. “[It] tends to make it more difficult for companies to focus on what is important.”

Ruben told CSP Daily News that the talk is just that: talk.

Shopping Sunoco?

Take, for example, a recent Reuters report that ETE had discussed but eventually rejected selling its general-partner interest in Sunoco LP, which operates 900 c-stores and gas stations, including Stripes, Mid-Atlantic Convenience Stores (MACS) and Tigermarket in the continental United States, and Aloha, Shell and Mahalo c-stores and gas stations in Hawaii.

In a letter this week to employees, Sunoco LP president and CEO Bob Owens denied that the general partner was for sale. ETE issued its own statement, saying, “We have no interest in selling,” despite receiving “many unsolicited calls from parties interested in purchasing the Sunoco assets.”

“You can say everything is for sale at the right price,” Ruben said. “If someone offered them a whole bunch of money, maybe they’d have to look at it.” (Sunoco is a past client of NRC Realty.) That said, Ruben said he takes Owens’ statement at face value and puts talk about a possible sale in the category of “rumor, nothing much to it.”

Tense in Texas

Meanwhile, San Antonio-based CST Brands has been attempting to assuage two activist shareholder groups that are unhappy with the company’s perceived underperformance and are demanding a shake-up in its strategy and board. Some have also criticized its management of CrossAmerica Partners.

As a result, CST, which was spun off in 2013 from refiner Valero Energy and today has more than 1,900 Corner Store c-stores in the United States and Canada, announced it would explore strategic alternatives to enhance stockholder value, including possibly selling the company. This came after company executives played down rumors of a potential selloff, telling employees, “ Don’t let market rumors distract you.”

Still, Ruben does not believe a sale is a given.

“With CST, they need to find out who they want to be,” he said. “They’ve grown so fast, assimilating pieces from the spinoff; they need time to execute that. … It’s something that doesn’t happen overnight. Investors need to be more patient.”

He considers a few acquisitions by CST—first of CrossAmerica Partners (then Lehigh Gas Partners) and then of Nice N Easy Grocery Shoppes, which NRC represented in the transaction—as smart and strategic moves.

“People are dancing on their grave prematurely,” said Ruben, who credits CST for its recent decision to add board members with c-store operational backgrounds. “It will give a fresh perspective to things.”

But should a suitor offering “the right price” come along, who would be the likely buyers? Ruben said he expects someone completely new to the industry.

“You might have some people not currently in the industry, private-equity firms that have flirted with a deal,” Ruben said. This could also include foreign companies from countries such as Israel that are intrigued by the U.S. petroleum industry. Another possibility: oil companies looking to return to retail.

Just don’t expect MLPs paying huge multiples to be driving the action, he said. “For the right deal, viewed to be synergistic and that moves the needle for a company, people will still see value in paying a premium to get that,” he said. “But I don’t think it will be the norm.”