Lehigh Gas Partners LP: Reports Third Quarter 2013 Results and Announces a 5.2% Increase in Its Quarterly Cash Distribution

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Lehigh Gas Partners LP Reports Third Quarter 2013 Results and Announces a 5.2% Increase in Its Quarterly Cash Distribution

ALLENTOWN, PA (November 7, 2013) - Lehigh Gas Partners LP (LGP) (the "Partnership," "we," or "us") today reported its financial results for the quarter ended September 30, 2013, and announced that the Board of Directors of its general partner approved a 5.2% increase in the Partnership`s cash distribution per unit from the current annual rate of $1.91 per unit ($0.4775 per quarter) to $2.01 per unit ($0.5025 per quarter).  In addition to the actual financial results for the quarter, the Partnership is providing certain pro forma results for the periods ended September 30, 2012.  The Partnership completed its initial public offering on October 30, 2012, and, as such, management believes that the pro forma results for the periods ended September 30, 2012 provide investors with a more relevant comparison than the actual results of our predecessor for the periods ended September 30, 2012.  Please see the section entitled "Pro Forma Financial Results" for additional information on our pro forma financial results.

In the Third Quarter of 2013, the Partnership: 

·         Distributed 160.5 million gallons of fuel compared to pro forma third quarter 2012 volume of 153.6 million gallons of fuel, a 4.5% increase.
·         Generated gross profit from fuel sales of $11.7 million compared to pro forma third quarter 2012 gross profit from fuel sales of $9.4 million, a 24.5% increase.
·         Generated Adjusted EBITDA of $14.1 million compared to pro forma third quarter 2012 Adjusted EBITDA of $9.4 million, a 51.1% increase.
·         Generated Distributable Cash Flow of $11.0 million or $0.73 per common unit.
·         Completed two acquisitions of a total of 50 sites in the Knoxville, TN and Tri Cities, TN areas for total consideration of approximately $58 million, increasing the Partnership`s owned or leased site portfolio by approximately 10%.
·         Assumed 50 commission agent site leases and related commission agent agreements from Lehigh Gas - Ohio LLC ("LGO"), an affiliate of the Partnership.
·         Declared a third quarter distribution of $0.5025 per unit, a 5.2% increase over the current quarterly distribution of $0.4775 per unit, and its third consecutive quarterly distribution increase.

Third Quarter 2013 Results

Net income for the third quarter of 2013 totaled $4.9 million or $0.33 per common unit.  For the quarter, EBITDA totaled $12.8 million, Adjusted EBITDA totaled $14.1 million and Distributable Cash Flow amounted to $11.0 million or $0.73 per common unit.  Please refer to the section included herein under the heading "Non-GAAP Financial Measures of "EBITDA", "Adjusted EBITDA" and "Distributable Cash Flow" for a discussion of our use of non-GAAP adjusted financial information.

"It was another solid quarter for LGP, and we are pleased to announce our third consecutive quarterly distribution increase," said Chairman and CEO Joe Topper.  "It was a very active quarter with the completion of $58 million in acquisitions and the assumption of the 50 commission agent site leases.  We continue to focus on finding accretive growth opportunities while at the same time, optimizing the existing portfolio to increase our efficiency and profitability," Topper added.

Total revenue amounted to $490.1 million for the quarter ended September 30, 2013, consisting of $480.0 million of aggregate revenues from fuel sales, including revenues from fuel sales to affiliates, and $10.1 million of aggregate rent income, including rent income from affiliates.  Included in the aggregate rent income is a $0.4 million write-off of deferred rent income primarily recorded as the result of the termination of the leases with LGO at the commission agent sites and the assumption of leases directly with the third party commission agents at these sites.  During the quarter, we distributed 160.5 million gallons of fuel at an average selling price of $2.991 per gallon and an average margin of $0.073 per gallon, resulting in a gross profit of $11.7 million.  For the quarter ended September 30, 2012, on a pro forma basis, the Partnership distributed 153.6 million gallons of fuel at an average selling price of $3.14 per gallon and an average margin of $0.061 per gallon, resulting in a gross profit of $9.4 million.  On a pro forma basis in the third quarter of 2012, the Partnership recorded $6.6 million in rent income.

The increase in gross profit from fuel sales for the third quarter of 2013 relative to 2012 was due primarily to the higher average fuel margin and, to a lesser extent, the higher overall fuel volume for the third quarter of 2013 relative to 2012.  The increase in fuel volume was primarily due to the Express Lane acquisition completed in the fourth quarter of 2012 and, to a lesser extent, Getty lease sites acquired during the fourth quarter of 2012 and the acquisitions closed during the third quarter, offset primarily by marketplace volume declines at certain sites and, to a lesser extent and on a net basis, certain dealer supply contracts that did not renew.  The increase in rent income in the third quarter of 2013 relative to 2012 is due to the additional rent associated primarily with the Express Lane and Dunmore acquisitions completed in the fourth quarter of 2012 and, to a lesser extent, certain Getty leases signed in the fourth quarter of 2012 and the acquisitions completed during the third quarter.

Total expenses amounted to $483.1 million for the quarter ended September 30, 2013, including rent expense of $3.7 million, operating expenses of $1.3 million, depreciation and amortization of $5.2 million, and selling, general and administrative expenses of $4.6 million.  Included as a reduction to rent expense is a $0.3 million gain related to certain sites leased from Getty where the Partnership provided notice to Getty that it intends to terminate the leases at these sites in accordance with the terms of the master lease.  Included in selling, general and administrative expenses for the quarter is $0.3 million in transfer tax expense associated with the contribution of certain sites to the Partnership at the time of the initial public offering in 2012 and $0.4 million in expenses related to the acquisitions that were completed during the quarter.  For the quarter, the Partnership also recorded a net income tax benefit of $0.7 million.  Included in this benefit is a $0.9 million benefit related to the release of a valuation allowance on previously recorded deferred tax assets.  Excluding this benefit, the Partnership would have recorded a net income tax expense for the quarter of approximately $0.2 million.  For the quarter ended September 30, 2012, pro forma total expenses amounted to $482.9 million, including rent expense of $3.5 million, operating expenses of $1.1 million, depreciation and amortization of $3.4 million and selling, general and administrative expenses of $2.4 million. 

The increase in rent expense in the third quarter of 2013 relative to 2012 is due to the increase in leasehold sites, primarily as a result of the Express Lane acquisition and the Getty leases signed last year in the fourth quarter.  The increase in operating expenses for the third quarter of 2013 relative to 2012 is due to the increased number of owned and leased sites relative to the previous year.  In addition to the previously noted items, the increase in selling, general and administrative expenses in the third quarter of 2013 relative to 2012 is primarily due to increased professional fees, equity compensation expense and public company expenses.

Commission Agent Site Leases

During the quarter, the Partnership assumed 50 commission agent site leases and related commission agent agreements from LGO.  The Partnership already owns or leases the real estate at these commission agent sites and had previously leased these sites to LGO, who in turn, leased the sites to the commission agents.  At the commission agent sites, the Partnership will set the retail price for motor fuels and retain ownership of the motor fuels until it is sold to the end consumer.  The Partnership will pay the commission agent a set price per gallon for each gallon of fuel sold at the site.  The amount of the commission paid to the agent is specified by contract and varies across the 50 sites.  The commission agent pays rent to the Partnership for the use of the site.  The leases for these sites are generally on a triple net basis, with the exception that it excludes the motor fuel equipment, which remains the responsibility of the Partnership.  The commission agent operates the inside store operations at the sites as well as any other on-site operations for its own account and retains all of the revenue related to the site other than the motor fuel revenues.  The operations of the Partnership at the 50 commission agent locations are structured such that the retail fuel margin will be in the Partnership`s taxable subsidiary, consistent with other sources of non-qualifying income.  As a result of the inclusion of the commission agent sites in the Partnership, the Partnership will report its financial results in two segments, wholesale and retail, going forward.  For the quarter, the retail segment had an immaterial impact on the Partnership`s reported financial results.

In evaluating the assumption of the commission agent site leases, the Partnership considered a number of factors.  By establishing a direct relationship with the commission agents at the sites and controlling the retail pricing, the Partnership is better positioned to manage these sites to maximize the revenues to the Partnership.  Also, the assumption further diversifies the Partnership`s revenue sources and lessens its revenue concentration with LGO. 

"We studied the assumption of these commission agent site leases in great detail and believe that in the long run, having these commission agent relationships directly with the Partnership is the best course of action," said Chairman and CEO Joe Topper.  "The direct relationship enables the Partnership to most effectively manage the assets at these locations," Topper further added.

Acquisition and Financing Activity

Acquisitions

As previously announced, the Partnership closed on two transactions during the quarter.  On September 19, 2013, the Partnership closed on the acquisition of 13 fee and 4 leasehold sites from Rogers Petroleum, Inc. and affiliates ("Rogers") for total consideration of $20.0 million.  Subsequent to the quarter end, the Partnership purchased one of the 4 leasehold sites from Rogers for $1.1 million, bringing the aggregate total consideration to $21.1 million.  The Rogers portfolio sites are located in eastern Tennessee, with a concentration in the Tri-Cities region and along Interstate 81.  In 2012, the sites sold 18.7 million gallons of motor fuel.

Effective September 24, 2013, the Partnership closed on the acquisition of 30 fee and 3 leasehold sites from Rocky Top Markets, LLC and Rocky Top Properties, LLC (collectively, "Rocky Top") for total consideration of $36.8 million, of which $10.6 million was paid at closing.  The Rocky Top portfolio sites are located in and around the Knoxville, TN region and along Interstate Highways 40 and 75.  The total portfolio sold 34.1 million gallons of motor fuel in 2012. 

Together, the 50 sites acquired in the two acquisitions increased the Partnership`s owned or leased portfolio of sites by approximately 10% relative to the owned or leased portfolio of sites as of June 30, 2013. 

 

Financing Activity

The Partnership financed the $21.1 million Rogers purchase price and the $10.6 million paid at closing in the Rocky Top transaction under the Partnership`s credit facility.  In the Rocky Top transaction, concurrent with the closing, the Partnership entered into a lease for 29 motor fuel stations that the Partnership, at the election of the sellers, will be obligated to purchase either (a) in whole for $26.2 million on or about August 1, 2015, or (b) in approximately equal parts over a 5 year period for an average of $5.3 million per year beginning in 2016.  Due to the obligation to purchase the sites under the lease, the lease is accounted for as a $26.2 million financing, which is reflected as long term debt on the Partnership`s balance sheet.

As of September 30, 2013, the Partnership had $216.1 million of outstanding borrowings and $93.0 million available for borrowing, net of outstanding borrowings and letters of credit, under the Partnership`s credit facility.

Distributions to Unitholders

The Partnership announced today that the Board of Directors of its general partner approved a 5.2% increase in the Partnership`s cash distribution per unit from the current annual rate of $1.91 per unit ($0.4775 per quarter) to $2.01 per unit ($0.5025 per quarter).  The increased distribution represents an annual distribution rate of 7.2% based on the Partnership`s common unit closing price on November 6, 2013 of $28.10.  The new quarterly distribution rate of $0.5025 per unit commences with the payment of the third quarter cash distribution, payable on December 3, 2013 to all unitholders of record as of November 22, 2013.  In total, the annual cash distribution per unit has increased 14.9%, or $0.26 per unit, from the initial annual distribution rate of $1.75 per unit at the time of the initial public offering in October 2012.  In reviewing its distribution policy, the Board determined that it will continue to evaluate the Partnership`s distribution each quarter.  As previously announced, it is the intent of the Partnership going forward to declare its quarterly cash distribution concurrently with its earnings release.

Third Quarter Earnings Call

The management team of the Partnership will hold a conference call on Friday, November 8, 2013 at 9:30 AM EDT to discuss the quarterly results.  The dial-in information for the call is

Live Dial-in Information:

Primary Dial-in #:                       888-424-8151
Secondary Dial-in#:                   847-585-4422
Participant Passcode:               7762510#
Preregistration:                          No

Replay Dial-in Information

Available From:                         11/8/2013 12:00 PM ET
Available To:                             11/29/2013 11:59 PM ET
Primary Dial-in #:                       888-843-7419
Secondary Dial-in #:                  630-652-3042
Participant Passcode:               7762510#

About Lehigh Gas Partners LP

Lehigh Gas Partners, headquartered in Allentown, PA, is a leading wholesale distributor of motor fuels and owner and lessee of real estate used in the retail distribution of motor fuels.  Formed in 2012, Lehigh Gas Partners owns or leases more than 500 sites in twelve states: Pennsylvania, New Jersey, Ohio, Florida, New York, Massachusetts, Kentucky, New Hampshire, Maine, Tennessee, Georgia and Virginia.  The company is affiliated with several major oil brands, including ExxonMobil, BP, Shell, Chevron, Sunoco and Valero.  LGP ranks as one of ExxonMobil`s largest distributors by fuel volume in the United States and in the top 10 for many additional brands.  For additional information, please visit www.lehighgaspartners.com.

Investor Contact:

Karen Yeakel
Vice President, Investor Relations
Lehigh Gas Partners
610-625-8126
kyeakel@lehighgas.com

Forward Looking and Cautionary Statements

This press release and oral statements made regarding the subjects of this release may contain forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, or the Reform Act, which may include, but are not limited to, statements regarding our plans, objectives, expectations and intentions and other statements that are not historical facts, including statements identified by words such as "outlook," "intends," "plans," "estimates," "believes," "expects," "potential," "continues," "may," "will," "should," "seeks," "approximately," "predicts," "anticipates," "foresees," or the negative version of these words or other comparable expressions.  All statements addressing operating performance, events, or developments that the Partnership expects or anticipates will occur in the future, including statements relating to revenue growth and earnings or earnings per unit growth, as well as statements expressing optimism or pessimism about future operating results, are forward-looking statements within the meaning of the Reform Act.  The forward-looking statements are based upon our current views and assumptions regarding future events and operating performance and are inherently subject to significant business, economic and competitive uncertainties and contingencies and changes in circumstances, many of which are beyond our control.  The statements in this press release are made as of the date of this press release, even if subsequently made available by us on our website or otherwise.  We do not undertake any obligation to update or revise these statements to reflect events or circumstances occurring after the date of this press release.

Although the Partnership does not make forward-looking statements unless it believes it has a reasonable basis for doing so, the Partnership cannot guarantee their accuracy.  Achieving the results described in these statements involves a number of risks, uncertainties and other factors that could cause actual results to differ materially, including the factors discussed in this report and those described in the "Risk Factors" section of the Partnership`s Form 10-K filed on March 28, 2013 with the Securities and Exchange Commission as well as in the Partnership`s other filings with the Securities and Exchange Commission.  No undue reliance should be placed on any forward-looking statements.

Note to Non-United States Investors: This release is intended to be a qualified notice under Treasury Regulation Section 1.1446-4(b).  Brokers and nominees should treat one hundred percent (100%) of Lehigh Gas Partners LP`s distributions to non-U.S. investors as attributable to income that is effectively connected with a United States trade or business.  Accordingly, Lehigh Gas Partners LP`s distributions to non-U.S. investors are subject to federal income tax withholding at the highest applicable effective tax rate.

 

For full press release including financial tables click the link below:

LGP3Q 2013 Earnings Release final



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Source: Lehigh Gas Partners LP via Thomson Reuters ONE

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