Crossamerica Partners LP (CAPL) 2014 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the transaction overview for CST Brands' acquisition of general partner of Lehigh Gas Partners and second-quarter 2014 earnings conference call for Lehigh Gas Partners.

(Operator Instructions).

This conference call may contain forward-looking statements relating to CST Brands and the partnership, future business expectations and predictions and financial conditions and results of the operation. These forward-looking statements involve certain risks and uncertainties. CST Brands and the partnership have listed some of the important factors that may cause actual results to differ materially from those discussed in forward-looking statements, which are referred to as cautionary statements in the transaction and second-quarter 2014 earnings news releases.

The news releases may be viewed on Lehigh Gas Partners' website at www.lehighgaspartners.com. All the subsequent written and oral forward-looking statements attributed to CST Brands or partnerships or persons acting on their behalf are expressly qualified in their entirety by such cautionary statements.

In addition, certain non-GAAP financial measures will be discussed on this call. The partnership has provided a description of these measures as well as a discussion of why they believe this information is useful to management and its Form 8-K furnished in SEC yesterday. The Form 8-K may be accessed through a link on the partnership's website at www.lehighgaspartners.com.

As a reminder this conference call is being recorded. I will now turn the conference call over to your host Mr. Joe Topper, the Chairman and CEO of Lehigh Gas Partners.

Thank you very much. Thank you and good morning.

Welcome to the transaction overview call for CST Brands' acquisition of the general partner of Lehigh Gas Partners and the second-quarter earnings call for LGP. We have prepared remarks today covering the transaction that was announced last night and we will also briefly touch on LGP's second-quarter earnings before turning the call over for your questions.

Today is a big day for the partnership and the start of a great relationship between LGP and CST Brands. Joining me on the call today as always is Mark Miller, LGP's Chief Financial Officer. In addition, we are thrilled to have joining us today to review the transaction Kim Bowers, the Chairman and Chief Executive Officer of CST Brands, and Clay Killinger, the Chief Financial Officer of CST Brands.

Together we will review the transaction announced last night from both CST's and LGP's perspective. Our remarks will make reference to the investor presentations filed on Form 8-K for both CST and LGP and available on the SEC website on both the websites of CST and LGP respectively.

I will now turn the call over to Kim Bowers, Chairman and Chief Executive Officer of CST Brands to start the review of the transactions. Kim?

Great. Thank you, Joe, and good morning everyone. Thank you for joining us today to discuss an exciting transaction for both CST Brands and Lehigh Gas Partners.

As we mentioned in our press release and our investor slides, we believe this is a transaction that will not only unlock value for CST shareholders and LGP unit holders, it provides both companies with an infrastructure for future expansion. As Joe mentioned with me from CST brands is Clay Killinger, our CFO. And we are thrilled to have Joe and his team here as well.

Before we dive into the presentation I just would like to turn your attention to the forward-looking statements that are on slide 1 of the presentation under the Safe Harbor statement. If you will turn to slide 2 this is an overview of the two companies.

CST's operations are primarily in the Southwest US and in Eastern Canada. Lehigh Gas operations are primarily centered on the East Coast. I've got a slide here in a minute that really shows how well both companies complement the other from a geography standpoint as well.

What's not in the slide is the fact that both CST and LGP are fairly new to the public company sector. CST went public in May 2013 and LGP not much before that in October 2012. So as young companies, so to speak, from a public sector standpoint, both CST and LGP have great, enthusiastic and motivated teams to really grow both companies together. If you do the math on these two, on this slides here, this effectively doubles our fuel sites in the US by coming together.

If you will turn to slide 3. This slide shows the details of the transaction. As you can see CST is buying the general partner of Lehigh Gas as well as 100% of the incentive distribution rights of LGP.

Public ownership remains as it is today with Joe Topper and other insiders at 44% and the public at 56%. I am very pleased that Joe has agreed to stay on as CEO and President of LGP and Joe will also be joining the CST Board following the closing.

In addition to sticking around to help us lead and grow our two companies, Joe is taking 80% of his purchase price in CST stock. To say he is all in is an understatement. He is most definitely not selling out, he is buying in.

If you will turn to slide 4, this shows the structure of LGP after the closing. Again, just to emphasize we are buying the general partner of Lehigh Gas Partners. There is no change to the limited partner unit holders.

Over time CST does expect to receive an ownership in LGP common units as partial consideration for the drop-downs. But initially CST's interest in LGP is limited to the general partner and all of the incentive distribution rights.

Then if you will turn to slide 5. Slide 5 just really provides some of our thoughts on the strategic rationale behind the deal. For CST we get a growth vehicle for future expansion and we get an infrastructure for the continued development and maintenance of the wholesale fuel supply business, our new store growth platform and really giving us a front seat in what we see as a consolidating industry.

For LGP it gets a sponsor with a healthy portfolio of drop-down opportunities, over five year's worth, in fact. We get to bring two great teams with complementary skill sets together to enhance total shareholder and unit holder returns. This truly is a win-win, two strong companies coming together to grow stronger together.

I direct you to slide 6. This highlights some of the benefits we see for CST and CST shareholders.

As you can see we gain immediate access to MLP capital markets to really fuel our organic growth. We get to partially monetize the significant trading disparity between C-corp and MLP structures. Moreover we get incentive distribution rights that will reach the high splits sooner than if we had waited to form our own MLP in mid-2015.

CST will be better positioned to expand our core operations through third-party acquisitions and moreover we avoid the expense and risks of an IPO. And finally, we are expanding our reach across America and really gaining brand diversity as well. For slide 7 I will turn it over to Joe.

Thank you, Kim. The benefits for LGP unit holders are obvious and outstanding and great.

It provides for a better certainty of and an increased rate of future distribution growth, greater certainty of drop-down asset acquisitions versus third-party acquisitions, creates an enhanced platform which to pursue third-party acquisitions jointly with CST, lessons over time LGP's concentration with LGO, a private affiliate and increases its concentration with CST, a publicly traded company, and increases the geographic and brand diversity of LGP's current portfolio. I'll turn back to Kim for closing remarks.

Great. If you will turn to slide 8, it shows how the two companies will interact after closing. I'll just walk through briefly.

But in terms of drop-downs, Point A is the new constructions, so what we refer to on our calls as our NTIs, our new-to-industry builds, of real property will be drop-down or sold to LGP at fair market value. And we anticipate that CST will receive cash at at least 75% of that value and LP units up to 25% of that value.

In addition, equity in CST's wholesale fuels supply business will be dropped to LGP over time, also at fair market value with a similar cash to LP unit distribution of 75%/25%, is what we anticipate. And finally, CST will continue to receive ongoing income from distributions related to the incentive distribution rights and from the LP units that CST will receive over time in the drops, transactions in A and B above. So over time we will build an equity position in the LGP units but in the meantime there will be a cash flow back to CST when we drop our assets, both our new stores and again equity in our wholesale fuel supply business, over time.

If you turn to slide 9 I think Joe and I both really like this slide. It shows combined we have operations extending from California all the way to the eastern tip of Canada just shy of 3,000 sites. We are doubling our sites in the US alone.

But I think what this slide also shows you is how complementary our geography is. Really building up a presence on the East Coast will allow us to then continue to do new store growth this direction, look for acquisitions in this area but as well bring the wholesale business out West as well to marry up with our operations that direction. So this slide really speaks graphically to the combination of the two companies here and the strength we will have.

If you turn to slide 10 this shows both CST's and LGP's statistics. I want to emphasize a few key stats from this page.

We are going to have combined revenues of $16.3 billion. It moves us up significantly on the Fortune 500 list.

Our combined annual fuel volume, 3.9 billion gallons a year, 2.9 billion of those in the US. We are going to be in 31 US states and Canadian provinces.

And just as important, combined the two companies will be marketing fuel under 11 different fuel brands, so real brand diversity from a fuel standpoint. For slide 11 I'm going to turn the slide over the Clay and have him walk through this slide.

Thanks, Kim. Slide 11 outlines the assets that CST has the option to drop-down over time into the partnership.

The most significant of these assets is our US wholesale fuel supply margin, which we expect to be in the range of $0.03 to $0.05 per gallon. CST's wholesale fuels volumes were 1.9 billion gallons in 2013 and this represents the fuel distributed to our existing company-operated retail locations in the United States. Applying the 1.9 billion gallons of fuel volume to our expected cents-per-gallon margin results in potential annual cash flow margins of $57 million to $95 million.

In addition to these base wholesale fuels volumes, we expect to construct new-to-industry retail locations each year that we expect will add 100 million additional wholesale gallons per year, or approximately $3 million to $5 million of margin. The real property related to these newly constructed stores is expected to approximate $100 million annually, which could be dropped into the partnership and lease back to CST creating more cash flow to LGP.

Now please note that the metrics I just provided are estimates and all future business transactions between CST and LGP are subject to LGP's Conflicts Committee and CST's Board of Directors. Kim?

All right. So if you will turn to slide 12 this gives you an idea of how today at least we're envisioning the operations will work post-close for both companies.

You can see on the left-hand side of the slide that CST will stay focused on C-store operations while LGP will continue to focus on the wholesale fuel business. I think another skill set that LGP definitely brings to the table is a very strong and experienced M&A team that will really help us continue to grow both companies.

And you can see our middle column here shows the shareholder value that CST is creating both from our US C-store operations. There's going to be no change in our Canadian operations. Cash flow from the drop-downs of CST's wholesale fuel supply business over this 5-plus year timeframe, cash flow from the drop-downs of the newly constructed real property and then the ongoing income and cash flow from the incentive distribution rights and the common units that CST receives as partial considerations for the drops.

So there is a number of points of shareholder value creation here from the CST standpoint. For Lehigh Gas they will continue to manage all US wholesale fuel operations, they will manage the US dealer and agent network and will continue to lease real property and receive lease income from both CST-operated stores as well as third parties.

So if you will turn to the final slide, it shows you our closing conditions of which there are actually few, very few. Our credit facilities -- we are expecting a close date early in the fourth quarter of 2014. We don't anticipate any issues with meeting our closing conditions.

And also for those of you who have listened to the CST earnings calls over the last year or so, you'll recall we have discussed some of the limitations we faced coming out of the spin. And this transaction structure fully complies with our tax matters agreement with Valero.

In sum, both companies are very excited about this transaction and the potential growth it brings to both our companies including the potential to unlock $300 million to $500 million in value to CST shareholders really enabling our $200 million stock buyback program we also announced today while LGP unit holders will get the benefits of a sponsored MLP with a long-term potential drop-down story. And with that I will turn back over to Joe.

Thank you, Kim. Let me briefly touch on LGP's second-quarter earnings before we turn the call over to your questions.

For the quarter, EBITDA totaled $8.9 million, adjusted EBITDA totaled $10 million and distributable cash flow amounts to $6.4 million, or $0.33 per basic common unit. Included in these amounts are $5.6 million in acquisition-related expenses, $1.5 million in non-cash charges associated with purchase accounting requirements related to our PMI acquisition.

Adjusting the results for these non-recurring items, EBITDA totaled $16.1 million and adjusted EBITDA totaled $17.1 million and distributable cash flow amounted to $13.5 million, or $0.71 per common unit. As a reminder, our results this quarter contain approximately two months worth of results for PMI and a little over a month of results from Atlas assets. We believe the adjusted results are more indicative of the earnings and distributed power of the partnership as a result of the recent acquisitions but are not still fully indicative of the run rate of the partnerships given the recently acquired assets.

Our earnings press release filed yesterday has more details on our earnings as well as the non-recurring items for the quarter. In general it was a solid quarter for the partnership as margins and volumes were materially improved from the weakness of the first-quarter results. We are busy at work integrating the Atlas and PMI acquisitions that we closed during the quarter and both acquisitions added positively for the results for the quarter.

The partnership declared a second-quarter distribution of $0.5225 per unit, an increase of 2% from the first quarter of 2014 distribution. Based on our distributable cash flow of $0.71 per common unit as adjusted for non-recurring items in my earlier comments, the coverage ratio for the declared second-quarter distribution is approximately 1.35 times.

The second-quarter distribution represents a 9.4% increase from the second quarter of 2013 distribution rate. We are pleased to announce yet another distribution increase this quarter, our fifth distribution increase in the six full quarters that we have been a public partnership.

As we stated previously, our goal is to return cash to our unit holders at a sustainable rate and to grow the amount of cash returned over time. One of the main benefits of the transaction to LGP unit holders is that we expect the new relationship with CST to provide greater certainty of and an increased rate of future distribution increases to LGP upholders. That concludes our prepared remarks, operator, and I would like to open up the line for questions.

Thank you. (Operator Instructions). Bonnie Herzog, Wells Fargo.

Good morning and congratulations. My first question is, you mentioned this $300 million to $500 million value creation. I guess I just want to verify, I assume this is for the five-year period, or all in when you think about it?

Right. That's the drop-down in the equity in the fuel supply side.

You can calculate it at 1.9 billion gallons annual times the range at $0.03 to $0.05 and then the difference in an MLP multiple of 14 versus the CST multiple, or a retail C-store multiple of 8.5.

Okay. So that's kind of the roadmap of how some of the assumptions you are making to get to that range?

Yes.

All right, and then I had a question just in terms of the tax implications of the transaction. Some of the assets you are dropping down I believe are non-qualifying so could you touch on that? And then the ultimate potential for drop-down, I.E. is it on leave the NTIs, Kim, or would you consider dropping down some of your older stores, possibly all of them eventually?

No, I think as we view it today it's really more focused on the NTIs where we aren't fully depreciated at this point in time. So the legacy stores will very likely stay where they are. It's the fuel supply piece that's a really bigger -- not there, and it's the fuel supply into our stores.

Ben Brownlow, Raymond James.

Good morning, thanks for taking the question. Can you talk about how does the restriction on the asset sales that you have, Kim or Clay, affect the timing of the drop-down? And just following up on Bonnie's question, that five-year timeline of that $300 million to $500 million, is there any additional color you can give within that general timeframe on the drop-downs?

Sure, Ben. With respect to the asset drops we do actually -- we are restricted for dropping assets down that existed prior to our spin date of May 1. But we have had a sufficient amount of new constructed assets since that time and those assets would not be restricted from a time perspective that we could accumulate and drop those down fairly rapidly.

Now of course after May 1 of 2015 the restrictions expire both with respect to assets and the fuel supply. Now the fuel supply numbers in the EBITDA I talked about, those do relate to the fuel supply agreement that existed as of May 1, 2013. So that's restricted in terms of when we would be able to drop, that wouldn't occur until after May 1, 2015.

Okay, great. Are there any -- I guess there wouldn't be any direct purchasing synergies -- on the fuel side between the two companies as you grow and in aggregate are there any initial thoughts on over time purchasing synergies?

I think as we see it as we do third-party acquisitions it is smaller chains that have less buying power and together clearly LGP and CST will be a significant brand of distributors for a number of different brands. And so I think we will bring value with the acquisition frame there as well.

For CST we get some fuel diversity as well. And I think then, one of the conversations we have had is the challenge that all of our stores are tied to one brand and getting brand awareness for our store brand. This will help us as we continue to build our new stores to be able to have some optionality, particularly as we move to other parts of the country.

Then, I might add size matters. And I would say that for every acquisition that we have done we have increased purchasing power of those assets and I think this can only be more accretive having the partnership with CST.

Damien Witkowski, Gabelli & Company.

Good morning, Kim, Joe and Clay. The $0.03 to $0.05 range on the wholesale fuels gallons, what is behind the numbers because they could be actually higher if you decided to? And then how quickly do you think you can actually get the entire 1.9 billion gallons and growing into the MLP?

Well the $0.03 to $0.05 is the current estimate and so we are giving a general range there. And it needs to be determined based on the fair value of a transfer price between CST and LGP. It needs to be approved by the Conflicts Committee and the Board of Directors by CST.

We have done significant analysis on the amount of margin that is related into our wholesale fuels. If you recall what is currently in the wholesale fuel supply business is all fuel that is currently supplied to our retail stores. And so it's all internal fuel volume and we are still in the process of determining what range would be appropriate from a fair value standpoint.

So it is still trying to be determined and it will need to be approved by both Boards but we feel pretty comfortable that it will fall within that range. Clearly the higher end of that range is more valuable to the partnership. We just need to see how that works out.

And then with respect to how long, I guess the run rate -- we have disclosed 5-plus years and we think we are very comfortable with disclosing that. It will be at least a five-year drop rate and likely longer.

Okay. And then just as a follow-up, the initial investment, $17 million in cash and $2 million of your own shares which is worth a little bit more today, internally what kind returns are you looking for on that initial investment? Because you don't have any economic ownership in the LGP currently, it is just the IDRs, so can you just talk me through how you had thought about that?

Certainly. So running our models we expect over a four-year period, of course the Company just recently reached the 15% IDR splits with the anticipated asset drops over a four-year period. And we looked at the four-year period -- we look at it from a return on investment, not necessarily multiples.

And that ROI certainly exceeds our cost of capital and is very consistent with what our NTIs are achieving right now. So it's a good investment for us.

Carla Casella, JPMorgan.

My question relates to CST's your comfort with leverage and as you look towards this transaction and into the future, what is your comfort level with how high you can take your leverage?

We anticipate that the general partner will be in an unrestricted subsidiary. And so we look at leverage both from the CST-only level and also at the LGP-only level. And our current leverage is slightly above 3 times EBITDA and we anticipate that that will improve over time as we amortize our term loan and there is no change to that and we don't anticipate the CST level incurring any level of significant debt.

We do have a revolver that we use for working capital purposes. And so we are comfortable where the debt level is now.

And looking at the LGP side we are going to inherit the credit facility from LGP. And they are currently at 5 is the max and it can go down to 4 and we look at that. So we are going to -- we think we are comfortable with where they have been operating and look to that to continue forward.

Great, thank you.

Bernard Colson, Oppenheimer.

Good morning. So just real quickly here, you were just talking about leverage, it seems like LGP is now running in excess of about 4 times debt to EBITDA basis. And I was just wondering is that an okay level for you guys?

I would tell you that the leverage ratio right now, kind of reflection as I mentioned earlier in my comments, we didn't have a full quarter for the two acquisitions that we had. And that we would expect that we would delever from those earnings as they more fully online.

The second thing is is that we have a history of using the revolver to make acquisitions and then paying them down by follow-on equity offerings over time when the market presents itself. So I would tell you that we like the range of 3 to 4.5 times and I would tell you that after the acquisitions are fully on board we would be less than 4.5. And so I think I am comfortable with the range between 3 and 4.5 times on an ongoing basis.

Okay. And the other question was, specific to LGP, are you, Joe, going to continue to look for a third-party acquisition to do at the LGP level now? Or is this relationship and drop-downs from CST going to preclude you from doing that step?

No actually, I think this is a great partnership on many different levels. We get the security of the drop-downs from a continuity of dividends and dividend increases. But also we see this as a way to increase our wholesale business as well as our using CST as the operator of the stores as we go out and hunt for more acquisitions.

And so they are a great operator and actually I'm more confident of their performance than our performance. And I think we will get better returns because of this partnership.

David Hartley, Credit Suisse.

Thanks, good morning and congratulations. Just on the $0.03 again, I guess the existing stores or points of distribution with LGP you are getting $0.03 to the GP plus $420 a month for management, does that structure change at all? And you mentioned $0.03 to $0.05 based on transfer pricing, will you be mixing the cents per gallon with the existing stores, how should I think about that?

Well, I think what's happened as the LGP level will continue. There is no changes. And the $0.03 to $0.05 is solely with respect to CST's existing company operated retail operations and so they really are separate.

And like I said, the $0.03 to $0.05 is still under evaluation but we are very comfortable that we think it's going to fall within that range. So we do look at them separately and I don't think there's going to be any intermingling between (multiple speakers)

But I think our margin this month, this quarter, was $0.066 which is approximately the five-year average for our margin. So our base business I would expect to continue in that range of a cents per gallon margin.

And I think I would view the transaction from CST and LGP as on a more fixed rate between the two companies on an ongoing basis similar to the way Susser did it with Susser Partnership. And they really are two different transactions but we will always continue to maximize from the LGP wholesale business the returns to the unit holder.

Okay, thanks, that's great. In terms of the selling of the fuel contracts to LGP, can you talk about, being a newbie to this, can you talk about the mechanism involved there and the kind of pricing you would expect?

Yes. There will not actually be a selling to the fuel contracts. It will actually be a selling or a dropping of an equity interest in a wholly-owned partnership under CST, so it's an equity interest sale between CST and LGP.

The fair value of that sale or drop needs to be determined between the Conflicts Committee and the Board of Directors. That hadn't been determined at this time.

John Lawrence, Stephens.

Thank you and good morning. Clay, would you walk through just a couple of things. As far as if you looked at the pro forma on this most recent quarter, I mean starting off with the $0.5225 and you mentioned that's in the 15% split, so am I right the way to look at that is a -- if you did 9% a year from now you would move up to that 25% split?

We haven't run any pro formas on the current. We have run a model going forward, John. But we do anticipate -- I will answer a question, maybe it's not the one you asked but we do anticipate reaching the advanced splits in the 25% and 50% within a two- to three-year period.

So a two- to three-year period there?

Yes.

And secondly, if you just looked at that -- so the mechanics today without anything really being dropped in, you exchange the difference for those split increase is all that is really there along with -- until you drop something down? Is that correct? There is no real change until something is actually dropped?

That's correct. No real change. We will participate since we do own the IDRs and the IDRs are in the 15% split level, any acquisitions that occur in LGP continues to be in a very acquisitive mode and I know Joe is out there hunting all the time.

So anything that closes between now and before we start doing those drops, the IDRs will pay out at an incremental 15%, so that's what we will return. That's all status quo without any drop.

Abhi Sinha, Wunderlich Securities.

Good morning, everybody. A quick question, basically I need some color if you could provide on what kind of CapEx you have in mind on an annual basis, or run rate basis going forward for next two or three years.

So that we can think of what kind of drop-down you could possibly make and how would that translate to growth in distribution sales? Any guidance you can provide on that also for next two to three years, or maybe the next one to two years?

Certainly, Abhi. As discussed on slide 11, we are expecting around $100 million of real property CapEx that has a full amount of basis that would be able to be dropped into the partnership and then subsequently leased back to CST at a lease rate. And the assumption is a 7.5% cap rate on that leaseback.

Once again that cap rate needs to be approved by the Conflicts Committee and Board but for modeling purposes we think that is, so far it is reasonable and it is an estimate. So we are fairly comfortable for modeling that $100 million of real property annually is a good number.

Okay. That's all I have. Thank you very much.

James Jampel, HITE Hedge.

Thanks for taking the call. I've got a couple of questions.

First, if you could spare us digging up the math here. Given the distribution, what is now $0.52 per quarter, more or less, and where is the 50% split level?

$3.

$3, or $0.75 a quarter?

Right.

Great, and Joe, we have been holders of the Lehigh for quite some time and we have certainly enjoyed the ride here. We would like to be a bigger portion but liquidity is so tight. Do you plan on doing anything to enhance the liquidity of the trading of LGP units?

There's not much I can do to increase liquidity other than increasing the float over time, which I think this transaction as we have announced will increase the float over time. But I would tell you that Susser and Global's market outstanding shares are significantly larger than ours and they trade at a lower volume than we do. So I would tell you that the next time we do a follow-on offering you will have a great window to get into buy some more shares.

Matthew Boss, JPMorgan.

Good morning. Can you guys talk about potential use of the proceeds and would you consider accelerating the pace of the NTI store growth here as we look forward?

Certainly. Under the bond indenture the use of proceeds is mandated to be reinvested in the Company in either capital expenditures or a pay down of our existing debt. Now that's officially what needs to be done with those proceeds but because CST receives this cash it essentially frees up other cash that CST is generating.

And that other cash is what would be used to fund next year's NTI growth, which then gets subsequently dropped and monetized and liquidated into -- reimbursed, if you will -- by the partnership. You would also take that cash and use to fund our stock repurchase program, which was announced today.

And then with respect to the last part of your question of have we considered expanding, I know that we have expanded our NTI construction from previous years. We don't think we are at a saturation point in our markets. And in fact with this acquisition in joining forces with LGP, it gives us a lot of a tremendous amount of other market areas on the East Coast that would give us more development opportunities.

And so we will certainly be evaluating what we can do to accelerate and grow that. Once again we have some restrictions in our existing debt covenants and debt restrictions, but as we mentioned earlier, as a condition of close we need to open those credit facilities up for modification and consent. And so we will be discussing certain things with our bankers at that time and we will see where we go from there.

Great. And then I just have one follow-up. How should we think about valuing the real estate drop-down opportunity and is any portion of this embedded in this $30 million to $500 million range that you guys spoke about?

No. It's not in the $300 million to $500 million, that was solely fuel supply. And in terms of value the real property is basically a cost because it's just been acquired and newly constructed, so it will be fair value but a large portion of that is full basis of cost.

And net insurers, this gets back to an earlier question of what about existing assets that you have owned for several years? Those assets have a low tax basis due to tax depreciation and selling those to the partnership and leasing them back would just be too much tax leakage to make it economical. So it's going to be newly constructed assets and the cost basis will be very very close to fair value.

(Operator Instructions). John Lawrence, Stephens.

Yes, thanks for the follow-up. Could you tell me, Clay, in your pro forma what is basically -- how significant is the change of cost of capital overall in certain scenarios as far as once you go through this process and get that higher return, or access to capital?

John, looking at this -- we are looking at general trading multiples of LGP and CST. Of course obviously they change on a daily basis. It looks like the market is reacting positively, so they do change today, as well.

But assuming a 14 times enterprise multiple -- cash flow multiple enterprise value, for LGP and then around an 8.5 times for CST. Clearly the acquisition currency and currency to be used for expansion is in the, to the extent that it can be, to the extent that it's fuel related, should be in the partnership. And then nonfuel-related C-store operations-type capital needs to be in the CST because it doesn't get the tax treatment that an MLP gets.

So clearly the cost of capital is cheaper under LGP. And so we anticipate and the expectation is that is the acquisition currency we would use going forward.

Great. Thanks a lot. Congratulations.

Thank you all for your time and questions. They were very good and we look forward to further calls announcing great news for the partnership between CST and Lehigh Gas Partners. Have a great day.

Thank you. And thank you, ladies and gentlemen. This concludes today's conference.

Thank you for participating. You may now disconnect.