Sunoco LP (SUN) 2015 Q2 法說會逐字稿

Greetings, and welcome to the Sunoco LP second quarter earnings conference call. (Operator Instructions). I would now like to turn the conference over to your host Scott Grischow, Director of Investor Relations and Treasury. Thank you. You may begin.

Thank you. Before we begin our prepared remarks, I have a few of the usual items to cover. A reminder that today's call will contain forward-looking statements. These statements are based on management's beliefs, expectations and assumptions. They may include comments regarding the Company's objectives, targets, plans, strategies, costs and anticipated capital expenditures. They are subject to the risks and uncertainties that could cause the actual results to differ materially as described more fully in the Company's filings with the SEC.

During today's call, we will also discuss certain non-GAAP financial measures including adjusted EBITDA and distributable cash flow. Please refer to yesterday's news release for a reconciliation of each financial measure.

Also a reminder that the information reported on this call speaks only to the Company's view as of today August 6, 2015, so time-sensitive information may no longer be accurate at the time of any replay. You'll find information on the replay in yesterday's news release.

On the call this morning are Bob Owens, Sunoco LP's Chief Executive Officer; and Clare McGrory, our Chief Financial Officer. I would now like to turn the call over to Bob.

Thanks, Scott, and good morning, everyone and thanks for joining us. This morning we will review with you the results of the second quarter. In addition, our recent accomplishments and developments and our growth objectives.

Before growing through 2Q results, let me touch on the recent SHC drop-down as well as other growth and touch on our distribution. Last Friday Sunoco LP acquired Susser Holdings Corporation from affiliates of Energy Transfers Partners LP for $1.934 billion. Susser's main assets are a chain of 679 predominantly Stripes branded convenience stores located in Texas, New Mexico and Oklahoma. Susser's operations also include retail fuel volumes sold on a consignment basis by approximately 85 third party dealers and transportation operations. We're very pleased to complete this transaction at this time and at an attractive value for SUN LP unitholders. The transaction is expected to be significantly accretive in 2016 and beyond.

Sunoco LP will also enjoy significant benefit from increased scale and exposure to this retail business segment due to strong operational and strategic execution. Supported by attractive fundamentals in its geographies and valuable brands that combined have driven Stripes' consistent same-store sales growth over many years. Last year the Stripes chain sold 1.16 billion gallons of motor fuel and $1.3 billion of merchandise which includes sales through Laredo Taco Company, which is a proprietary food service concept that sells freshly hand-made tacos and other Mexican and American food items.

In addition to the pro forma financials that were filed with the SEC in July, we recently posted a new slide deck describing the transaction and more about Susser on our website, which provides additional metrics about the business and pro formas for Sunoco LP.

Stripes which now represents the largest C-store brand in our retail portfolio has delivered positive same-store sales growth for 26 consecutive years. And its stores are in some of the fastest growing geographies in the United States. For the most recent quarter Stripes delivered 3.1% same-store sales growth, which includes strong Laredo Taco Company restaurant sales. Stripes also has a robust new build program that is a significant and reliable source of organic growth. We are on track to build more than 40 new Stripes sites this year. All of the Stripes new build stores and the majority of the stores overall include a Laredo Taco Company restaurant.

The typical profile of one of these new builds is a spend of about $4 million to $5 million in average cost depending on land value. And we achieve EBITDA at about a 6X to 8X multiple on average. The sites reach full cash flow and run rate in about a two to three year period. And these new larger configuration sites produce cash flows 2 to 3 times the average of legacy industry sites. The 2015 organic new build program represents year-over-year growth of 6.8% in Stripes site count which is expected to generate a higher overall increase in EBITDA growth. We have built approximately 80 Stripes sites combined over the three year period prior to 2015. With this we have a reliable pipeline of cash flow growth flowing through these results as these newer Stripes locations ramp up to full rate.

The Stripes organic growth program has a strong record and place delivering solid growth since 2010. With five years of data on the program we are continually driving higher returns through optimization of the site selection and predicative analytics. With the Susser holdings drop-down we also acquired a current land bank with approximately 70 bare ground sites that support our future new build program beyond 2015. We have current plans to continue our rate of build new sites growth in 2016 with at least another 40 new sites and have the flexibility in our land bank to continue above that level. Also as we build new locations, we will continue to repopulate the land bank using our selective criteria for economic returns and select strategic markets.

In addition to the retail store drop-down we expect to close next week on a small tuck-in acquisition of 28 Quick Stop convenience stores in the Rio Grande Valley, south Texas. A very desirable growth market that will geographically and operationally compliment the Stripes locations in that region. We'll purchase these stores for $41.6 million which equates to an approximate 7X multiple and we will eventually rebrand most of these locations to the Stripes store banner. We are quite pleased to have all these assets in our portfolio as we see strong value in this group of retail locations.

Combined with the acquisition of our previously announced 31.6% Sunoco LLC which is the wholesale fuel distributor that is still majority owned by ETP this latest drop-down of a significant portion of retail business into SUN and the recent south Texas acquisition expands Sunoco LP's sales channel portfolio. In addition the expanded footprint allows us to further leverage both the Sunoco fuel brand and the Stripes retail brands as a platform for new accretive growth opportunities. So with Sunoco, MACS, Tigermarket, Aloha and now Stripes we believe these brands provide the markets and opportunities to invest significant organic growth capital going forward. We believe up to $300 million annually can be expected in organic growth capital for the next several years based on the conditions and opportunities that we're currently seeing.

As of today, we have the Sunoco sign placed above 87 of our Company operated stores in Texas and we are adding new locations to that total each and every week. Clare will come back in a minute with a few more details on these transactions.

Next I would like to talk about our distribution increase announced in yesterday's earnings release. For the second quarter in a row we have announced a 7.5% quarterly increase in our distribution. Compared to the same period last year the growth is up a full 33.4% at $0.6934 per unit. This is our ninth consecutive quarterly increase and the fourth quarterly increase of 5% or more. We have been very deliberate with our distribution increases and we are very comfortable with the current growth rate.

Our distributable cash flow coverage for the latest quarter was 1.23 times and 1.37 times looked at on the bases of a trailing four quarter analysis. Long-term we continue to target a minimum of 1.1 coverage ratio. In the near-term obviously that will vary quarter-to-quarter as we see changes in our DCF due to the planned drop-downs and strategic acquisitions.

Finally before the discussion of the Q2 results, I will briefly address the transaction announced in mid July concurrent with the Susser drop-down related to our GP ownership. Energy Transfer Equity, ETE, will become Sunoco LP's new parent later this month as a result of a planned transaction where ETP will exchange 21 million ETP common units currently owned at ETE for 100% of SUN's general partner interest and incentive distribution rights.

This exchange has no impact on SUN at all other than the change in parent partnership. We expect to continue to receive the same level of support from the Energy Transfer family. After the exchange is complete ETP will still hold about 37.8 million common units in SUN. ETP will also continue to own the remaining 68.4% of Sunoco LLC and the legacy Sunoco retail assets until we complete those drop-downs which we have announced are planned to complete by year end of next year.

Now let's move to the Partnership's second quarter performance. SUN LP delivered another solid quarter of financial and operating performance even as volatility in fuel prices impacted our industry more broadly. Our adjusted EBITDA attributable to partners excluding transaction related costs more than tripled to $58.2 million. And our distributable cash flow attributable to Partners as adjusted increased by 2.5 times to $39.3 million compared to the second quarter of last year. The very favorable year-over-year comparison in our adjusted EBITDA and our distributable cash flow mainly reflects growth from the MACS and Sunoco LLC drop-downs as well as from the Aloha Petroleum acquisition.

We also benefited from growth in fuel volumes sold to affiliates at Stripes sites, which is driven by organic growth execution at Stripes in the form of same-store sales growth and new site builds. Additionally our MACS and Aloha acquisitions continue to perform well helped by strong growth in the same-store merchandise sales of 7.1% and 10.3% respectively, and for same-store fuel volumes of 1.3% overall driven largely by the MACS assets that achieved a 2.6% same-store sales growth. Again overall a very solid performance last quarter reflecting the solid fundamentals of our business in a very volatile commodity price environment.

In a minute Clare will speak in more detail about the 2Q results. I would like to wind up my prepared remarks though with a few observations about the market for MLPs and the outlook for this space as that affects Sunoco LP. Clearly the group has struggled over the last two to three months. We believe there should be a differentiation however between partnerships that have significant risk exposure to general macro economic factors and low oil prices. And that should be differentiated from partnerships like Sunoco LP whose assets and operations are not impacted by the absolute price of oil, which makes Sunoco a very good diversification opportunity we believe related to other MLPs including during periods or even more -- especially during periods of volatility.

Our diverse geographic reach and channels of business provide built-in stability. We have stable long-term contracts that support the wholesale business and our retail store operation has spread across some of the fastest growing markets in the United States. All of which helps mitigate the impact of commodity price volatility and growth differentials in particular regions or in particular states. And while fuel margins may swing from month to month or from quarter-to-quarter overtime our fuel margins trend consistently year in, year out. And on top of that merchandise sales at convenience stores industry wide have proved to be largely recession proof.

In addition, our unique built in growth comes in the form of drop-downs as well as growing organic growth program and acquisition opportunities. We believe these will continue to generate value and make Sunoco an attractive investment opportunity going forward.

I would now like to turn the call over to Clare McGrory, who will cover additional highlights of our second quarter performance and business updates. After that, we will be happy to take your questions.

Thanks, Bob. Good morning, everyone. I will begin with a few additional details around the Susser drop-down transaction. We paid total consideration of $966.9 million in cash and issued to ETP 21.98 million Class B SUN units also valued at $966.9 million. These Class B units will not be eligible for our recently announced Q2 distribution, but will immediately convert to common units after the Q2 record date and will be eligible for distributions moving forward.

The Susser assets will be owned by our Susser Petroleum Property Co. LLC subsidiary or PropCo. While the income from the Susser operations will be non qualifying for tax purposes, we expect cash taxes at the PropCo level to be minimal. As Bob mentioned, we opted to purchase the additional retail assets now to increase our retail scale and diversify our underlying business. With this drop-down we acquired a fast growing retail business at a value that with the underlying organic growth activities yielded a high single-digit multiple based on expected 2016 EBITDA where we have clear line of sight on the expected 2016 performance. That was very attractive to us.

Just to remind you, the other assets that we expect will come down to SUN through future drop-downs include the remaining 68.4% of Sunoco LLC which is the wholesale fuel distribution business and approximately 440 retail stores operated by ETP through Sunoco Inc. Most of these stores include convenience stores carrying the A plus brand. We are still targeting completion of the drop-down program by the end of next year.

Further we are continuing to evaluate third party acquisition opportunities and with that continuing to keep our eye out for assets that would diversify our overall business. Our strategy for financing this growth has not changed. We are targeting a roughly equal balance of debt and equity. Depending on our unit price and capital market conditions at the time we will evaluate what we think will build the most value for unitholders over time.

Our plan going forward is to focus our equity efforts on an ATM, an at the market program. And we will expect to stay out of the market until sometime in 2016 depending on any sizable acquisition opportunities that arise and the remaining drop schedule which I will touch on below.

Now let's look at some of the highlights of the second quarter. Adjusted EBITDA attributable to Partners increased from $15.6 million dollars in the second quarter of last year to $58.2 million in 2Q 2015 excluding expenses related to acquisition and drop-down transaction costs. Distributable cash flow attributable to partners as adjusted increased from $13.7 million a year ago to $39.3 million in Q2. These amounts attributable to partners exclude non controlling interest.

It is important to clarify what we mean by excluding non controlling interest. The non controlling interest that is adjusted to arrive at adjusted EBITDA attributable to partners consist of a VIE interest and the non controlling interest in Sunoco LLC. On the VIE approximately $4 million of adjusted EBITDA attributable to non controlling interest in this quarter relates to this VIE from the MACS transaction. This is consistent with 1Q 2015. However the majority of this non controlling interest in 2Q 2015 relates to Sunoco LLC.

Because Sunoco LP has a controlling interest in Sunoco LLC the legacy Sunoco wholesale fuel distribution business as a result of its 50.1% voting interest, our consolidated financial statements include 100% of Sunoco LLC. We deduct the 68.4% interest that we do not own through the non controlling interest line. We have provided pro forma operating data in both the earnings release and the 10-Q which provide the relevant volume and margin stats reflective of the actual 31.6% interest owned of Sunoco LLC and that which is included in earnings attributable to partners.

For instance there are 440 convenience stores that are operated by ETP's subsidiary Sunoco Inc. and supplied under a long-term agreement by Sunoco LLC. In our pro forma numbers we are including just 31.6% of the volumes which represents 87 million of the total 408 million gallons sold to all affiliates from Sunoco LP in the quarter. All other operating stats that I'll be walking through will be on the same basis reflecting just our true economic ownership interest.

As Bob mentioned, we had very robust increases in most key metrics, which primarily reflects the acquisitions and drop-downs made over the last three quarters, but also with the help of organic growth in retail merchandise sales and also Stripes volumes, which shows up for us through sales to affiliates in 2Q. The MACS and Aloha assets continued to perform well, and except for the impact of rising crude costs on fuel margins last quarter these assets continue to exceed acquisition economics on most other operating metrics.

Volumes sold by partnership to affiliates increased by 39% year-over-year to 408 million gallons. This includes 87 million gallons related to the 31.6% interest in Sunoco LLC and the remaining increase driven by organic growth at Stripes in the form of new Stripes stores built as well as 2.4% same-store sales volume growth in Stripes for 2Q. The supply margin we earned on these gallons was $0.033 per gallons on a weighted average basis. Incorporating a $0.04 per gallon fee on the volume sold by Sunoco LLC and $0.03 per gallon on the Sunoco LP volume sold to Stripes retail sites and consignment sites.

Other wholesale volume sold to independent dealers, distributors and other commercial customers increased by 231% to nearly 560 million gallons. The increase in third party gallons again reflects the Sunoco LLC MACS and Aloha acquisitions. The third party wholesale business in the Texas regions saw lower volumes versus prior year by approximately 20% driven in large part by slower demand related to oil production pockets. Gross profit on these gallons was $0.082 per gallon versus $0.049 a year earlier. With a higher CPG margin driven by the mix of generally more profitable regions from the recent acquisitions.

As Bob mentioned earlier, we achieved very strong performance in our retail segment in both fuel and merchandise, which again demonstrates the benefits of diversification within Sunoco LP. Overall fuel same-store sales volumes increased 1.3% driven by the MACS assets. Merchandise sales from the MACS and Aloha chains delivered same-store sales increases of approximately 7.1% and 10.3% respectively versus a year ago. This is exceptional growth and reflective of the strong efforts and integration activities on our recent acquisitions.

Additionally the Stripes chain, which we now own effective July 31 and which we'll start to see the benefit of in 3Q results, also continues to deliver strong growth in the convenience stores with 3.1% of same-store merchandise growth in 2Q inclusive of strong Laredo Taco performance. Remember this is on top of Stripes fuel volume same-store growth of 2.4%. Impressive considering that we did continue to see declines in certain regions that are most impacted by fall off in oil production.

Our assets portfolio was weighted more heavily towards fuel in the second quarter with a full quarter's contribution from our interest in the Sunoco LLC wholesale distribution business. And our weighted average fuel margin for all gallons sold increased from [$0.030] per gallons a year ago to $0.076 in Q2 excluding the non controlling interest. The higher margin again reflects the addition of MACS and Aloha's higher margin retail gallons and a change in the wholesale fuel customer mix related to Sunoco LLC, MACS and Aloha acquisitions.

Our retail margins were on average $0.274 per gallon. Those retail fuel margins were lower than normalized levels for the current Sunoco LP portfolio due to rising crude costs during the quarter which impacted the retail segment in particular. Third party wholesale margins were helped by supply optimization and timing benefits which offset some of the pressure of rising costs. As we have noted before while we do see volatility month to month or quarter-to-quarter our fuel margins are generally ratable over an annualized period.

In Q3 the mix will shift more towards retail stores with the Susser drop-down and thus we will benefit from the diversification of the merchandise sales. Stripes achieved $353 million of merchandise sales in the second quarter reported within ETP results. And this is a 34.3% net merchandise margin on the Stripes sites. Effective July 31 Sunoco LP is benefitting from these strong results and nice diversification in businesses. With retail and merchandise operations we expect to see both higher gross profit contributions and higher expenses reflecting labor, maintenance, operating and depreciation expense from those stores as was reflected in the pro forma filed in July.

To wrap up the main components of adjusted EBITDA rental and other income components of gross profit increased approximately $26 million entirely due to acquisition. G&A and other operating expenses were also in line with expectations with the increases from prior year due entirely to the acquisition of Sunoco LLC, MACS and Aloha. Note that effective 2Q 2015 we consolidated personnel expenses back into the other operating line for simplicity.

Looking next at recent financings and our liquidity position. On July 20th we issued $600 million of 5.5% senior notes due 2020 at par through an upside private offering that raised net proceeds of $592.5 million. The proceeds were used to fund a portion of the purchase of Susser Holdings Corporation from ETP. Also in connection with the Susser transaction we issued 5.5 million common units through a public offering at a price of $40.10 per unit. The offering was completed on July 21 and raised net proceeds of $212.9 million.

As I mentioned earlier, we currently do not foresee a need to undertake any overnight or market equity offering until sometime in 2016 dependent on the drop schedule timing or any notable acquisition opportunity.

As of June 30th we had borrowings against our recently expanded $1.5 billion revolving credit facility of $724.7 million plus $11.1 million in standby letters of credit. This is leaving us with unused availability of $764 million at the end of the second quarter. Since that time borrowings under the revolver have increased by approximately $175 million to a total of $900 million. This increase was primarily driven by remaining cash funding needs for the Susser Holding drop-down. We also assumed approximately $2.5 million of additional Susser Holdings standby letters of credit. This activity left us with approximately $586 million in unused availability as of July 31.

Depending on market conditions and pricing we could decide to access the debt capital markets during the remainder of 2015 to further reduce the revolver balance. We remain well within our leverage covenant with net debt to EBITDA of 4.9 times on the trailing 12-month basis as of June 30. This is pro forma for the acquisitions that have been completed by the end of the first half and also pro forma for the Susser Holdings Corporation acquisition completed in July.

During the second quarter we purchased six sites and sale lease back transactions with Susser Holdings Corporation for $32 million. Effective with the acquisition of Susser Holdings all new Stripes sites will be purchased directly within our PropCo subsidiary and we will no longer have need for the sale lease back program. Sunoco LP will benefit entirely from the organic growth program in Stripes going forward.

Including an additional $10 million that was invested in connection with new dealer and distributor supply contracts and $7 million in maintenance capital our capital expenditures for the second quarter excluding acquisitions totaled $48.4 million on a consolidated basis. Accounting for the capital shift related to our purchase of a 31.6% equity interest in Sunoco LLC and for Susser Holdings Corporation our expected growth CapEx is in the range of $220 million to $270 million for the full year 2015. Maintenance CapEx now reflecting the drop-downs competed is expected to be between $40 million and $50 million excluding non controlling interest with the change entirely relating to the drop-down activity. Our growth CapEx includes the development of 35 to 40 new Stripes stores in 2015.

All in all with our current level of liquidity we believe we are well positioned from a capital standpoint to manage the drop-down plan, continue the organic growth within our existing footprint and grow through strategic third party acquisitions that will drive value for our investors.

So before I conclude, allow me to review the Investor Relation schedule for the next six weeks or so. Sunoco LP will be participating in the following upcoming conferences. The Goldman Sachs Power Utilities and MLP Pipeline Conference in New York next week on August 11th. The City MLP Midstream Infrastructure Conference in late August in Las Vegas, and JPMorgan Midwest Energy Infrastructure MLP Forum in Chicago on September 16th. We hope to see you there.

That concludes our prepared remarks this morning. Operator, we are ready to take questions.

Thank you. (Operator Instructions). Our first question is from Andrew Burd from JPMorgan.

Hi, good morning and congratulations on the nice distribution, Bob.

Thanks, Andrew.

I guess the first question, Bob, you had mentioned that there is roughly $300 million of organic growth capital opportunity each year for the next few years outside of this year. I guess two questions come out of that first does that include any assumption for bolt-on M&A and also that's on the base business that's in Sunoco today I'm assuming and then if more drops come down is it possible that number goes up?

First off, it does not include M&A capital. That would be more opportunistic. Secondly the $300ish million number is for the total business so future drop-downs would not impact that.

Okay, great. In terms of the drop-down period which seems on schedule for some time next year to be complete I think based on guidance. Is there a certain metrics that you're targeting for the end of the drop-down period like a certain leverage level you want to hit to maintain M&A flexibility after the drop-downs or higher coverage level to give some good growth visibility as you guys transition from drop-down fuel growth to primarily M&A and organic opportunity?

I think the way we would answer that, Andrew, is to refer back to what we've been saying all along. As we go through the drop-down period there will be some lumpiness to our balance sheet but overall our target is 50/50 debt equity. We intend to be essentially there by the time we complete the drop-down period and with respect to cover ratio we have said consistently that we're looking at targeting a 1.1 coverage ratio. Over time that again can move up and down but once the drop-downs are complete those are the metrics that we're targeting.

And on the leverage I will say we believe that when we get to the drop-down period that it would be reasonable to more or less maintain a range of 4 to 4.5, of course if there are opportunistic acquisitions that can temporarily vary or pike up a bit but we believe that is a reasonable range to target beyond the drop-down period at this time.

Okay, great. That is helpful. And then thinking about M&A more broadly obviously a nice little bolt-on with the [Ades] assets this quarter, tiny little one in the first quarter and then the nice Aloha one last quarter. ETE/ETP did some commentary on their call that they are looking for sizable M&A opportunity within Sunoco and the IDR benefits to them would be obvious in a transformative deal so what is the appetite for a larger more transformative deal? And in markets like this would ETE or ETP potentially step in and support a deal if the right opportunity came up but capital markets weren't necessarily supportive?

I guess I would answer it this way. Since October of 2012 when we became a member of the Energy Transfer family it has been an exciting time for Sunoco and there is a clear appetite for good deals that make sense. So you mentioned some smaller deals that had been done over the three quarters but if you go back beyond that the Susser deal was certainly a scale and MACS was not a small deal either. So I would tell you that we are very open minded; we're interested in growing; we're interested in diversification. You have seen us diversify from a geographic standpoint. You've also seen us diversify in terms of type of operations, and that has high appeal to us going forward as we look to continue to smooth out earnings. So I would tell you that while we're completing the drop-downs we have not stopped our look for good value creation in the form of M&A and one of the real benefits of being a member of the Energy Transfer family is the help and flexibility that can come should we find a deal that is extremely attractive for our unit holders.

Great. That's it for me. Thanks for taking my questions.

Thanks.

Thanks, Andy.

Our next question is from Ray Fu of Bank of America.

Two very quick questions on the 28 Quick Stop convenience store acquisition. Early on the call you guys were talking about a $4 million to $5 million number for new stores and the acquisition price seems to be meaningfully below that. Do we anticipate to deploy a lot more CapEx in association with this acquisition?

I think, Ray, what we did was we differentiated between new to industry sites which we're building which are large footprints with multiple profit centers that as we mentioned in the call remarks typically have 2 to 3 times the cash flow of legacy sites. And we contrast that to M&A activity where we're are buying more traditional sites. So in the case of the Quick Stops in the Rio Grande Valley they are smaller facilities and as a consequence we were able to acquire them for a lower average cost per unit.

Got it. Got it. And our understanding is the assets recently came out of a bankruptcy auction. Could you just comment on why it went into bankruptcy in the first place?

Well, I think that the -- I'm not sure what's publicly available there. I would state it this way. In our opinion the financial difficulties were not related to the quality of the assets. We are very pleased with the quality of the assets and very comfortable with the likely performance going forward. And we see that given that we're in the marketplace today. We also see it when we look at the performance of these assets from prior time periods prior to their bankruptcy.

Got it. That's very helpful. Thank you very much. That's it for me.

Sure, Ray.

Our next question is from Stephen Grambling from Goldman Sachs.

Good morning. Thanks for the question. I guess as we look longer term after the drop-downs are completed you have referenced organic growth, you have referenced acquisitions. Maybe if you can boil it all down to just talk about what you're assuming in terms of EBITDA growth both organically, what you think you can contribute on top of that from acquisitions and how this will potentially -- if there is even something in your own minds a target distribution growth?

Stephen, good questions. I guess I would just repeat how we're thinking about growing earnings. We believe the industry continues to be extremely fragmented and we believe the underlying fundamentals of the industry are very attractive. So the combination of those two things point us in the direction to continue to look for opportunities in the M&A area. With respect to specific targets we've told the market that our objective is to be at $1 billion EBITDA minimum and we would like to get there as we complete the drop-downs and execute on additional growth. Beyond that number we think there are opportunities organically. We think the 40 to 50 new ground up sites is a very manageable number. We are extremely disciplined in terms of site selection for bare ground sites. We're very disciplined about the construction process and we post on it rigorously. I don't see that in the short term significantly being expanded. There are limited opportunities where we see the kind of -- we see the population growth, where we see demand adequate to justify a $4 million to $5 million capital investment. So I would tell you the range that we currently have is likely to continue. On the M&A side it is not easily predictable but I would just point you to the fact that in the United States almost 60% of the convenience stores are owned by single operators and we think that lends itself to a good environment to continue to do roll ups both small and large.

Okay, that is helpful. And then changing gears a little bit. On Susser specifically can you just remind us how you're thinking about potential accretion dilution, what maybe has been achieved so far and what are some of the buckets that are still left?

We told the market to expect $70 million of synergies. We are tracking north and we said we'd get that over the first couple of years. We're a little bit less than one year since closing. We're greater than 50% of the way through that. And we have identified opportunities that exceed the $70 million and we are comfortable we will get there as we told the market by year two as a run rate. I think that what we're seeing is what we hope to see in that when we look at the legacy Sunoco locations the MACS and Tigermarket the Stripes locations that came with Susser and Aloha Petroleum we are finding opportunities to take the best of what each entity had been doing from a practice standpoint and apply it across the chain that in addition to the supply chain economics that we had identified prior to the deal. So we feel very good about the acquisitions that we've done to date. As we look forward we think there will be additional opportunities like the ones we've done in the past but we're going to be awfully selective and extremely disciplined.

And to bridge that further for you to the drop-down the synergies Bob had mentioned reference the consolidated synergies from the original acquisition. And we will have the benefit of them flowing through the business with the drop-down of Susser and such. You heard what we said on the call and in the transcript about the organic growth that's in Susser is really what's driving -- is very helpful in driving strong accretion with the acquisition of Susser into Sunoco LP and it is that built-in organic that is a big driver and we'll also have some incremental benefit of synergy flow through subsequently as well, which for us is a bit of gravy so to speak.

Great, thanks so much. I'll jump back in the queue.

Our next question is from Theresa Chen from Barclays.

Good morning. In terms of the time line for drop-downs given the currently high cost of equity capital which is really prevalent across the sector are you still comfortable with the time line you've laid out or is there some flexibility around it? And I thought I would take your point on how the general sell off in the sector has probably affected your currency way more than it should have given the fundamentals but are you still comfortable with everything coming down by the end of 2016 given this macro headwind?

Well, as we sit here today yes we are. But I would tell you we're always going to do what makes the most sense for the whole family of partnership here. Should our time table change, we'll let people know. But today we're comfortable that it makes sense to get these drop-downs complete, get the clarity that comes with the assets within the right families and more to come on that. But yes, we're comfortable with the time table we've outlined.

Okay. And related to doing what makes sense for the whole family in terms of funding options, what do you think is the likelihood that your parent might continue to take units as partial payments for the drop-downs?

I think we have said all along that we were going to move forward on basically a 50/50 debt equity as we grow SUN LP what had been a very small company into a much larger company. Energy Transfer Partners has tax considerations to manage taking equity is helpful in that regard and we will -- I think we'll approach each drop-down and take a look at the specific situation and address it at the time.

Got it. And lastly, when you speak about the organic CapEx and build out, what kind of returns or multiples do you target for new store builds and the raise in rebuild programs and how long does it typically take for the newly build or newly improved stores to be fully cash flowing?

As I mentioned earlier in the remarks, Theresa, typically each one varies. If we have a location for example where we have got population growth they can kind of take a bit longer when we're out on the edge of a green area. If it is a more developed area where we are buying and assembling parcels and then building a site they can mature much quicker. But over the average we're realizing the equivalent of a 6X to 8X kind of a multiple on the $4 million to $5 million we're spending. And we're hitting maturity in over two to three years with the sites.

Thank you.

And as I mentioned earlier the other benefit of these new larger sites 5,000 square feet multiple profit centers including restaurant operation, multiple fueling points including diesel and in almost all cases we are seeing cash flows of 2 to 3 times industry averages of legacy sites.

Thank you very much.

Thank you.

(Operator Instructions). Our next question is from Richard Verdi from Ladenburg.

Good morning folks and thank you for taking my call. Kind of a follow-up here to the last caller's inquiry. I wanted to focus on the new site builds from Susser Holdings. So we are expecting 35 to 45 new sites per year and can you maybe talk a little bit about what you see pushing the actual outcome to the high end of that range and what might push it to the lower end?

I think, Richard, what I would tell you is opportunity is what would push it high end to the low end. So for example in our pick a number 70ish bare ground sites that we have currently available for development, we're looking and updating our models constantly. So when we saw crude oil adjust from a price standpoint and we saw resulting layoffs in the E&P oil sector we had some new locations planned that we put on wheels, right. Not to say those won't be good Stripes locations at some point in the future when commodity prices recover to more normal levels, but for right now it did not make sense to go ahead and construct those sites.

Conversely we have seen opportunities in other markets where the growth has accelerated. So you see us building for example with the Stripes model a lot more sites in Houston which is enjoying significant growth despite commodity price adjustment. The corridor between Houston and Austin continues to be attractive. We're seeing other areas Nashville, Tennessee for example Charleston, South Carolina for example where we are seeing strong population growth and opportunities for new ground-up type sites. So we're not going to be dogmatic about this. We feel the 40 to 50 number is a manageable number to ensure that we're only building sites that are going to be really attractive financially, and that will have flex in it. We're not going to build a site that doesn't make sense just to hit a new construction number.

Okay, that is great color. Thank you for that. And you somewhat answered my second question. You addressed the land bank at about 70 sites right now. I'm wondering how aggressive is Sunoco with ensuring that land bank will stay robust as sites roll out and come online. Should we continue to think 70 sites is a good figure or will that come down, go up, just a little color will be really helpful.

I think the way you should think about is to take the capital guidance that we have given that equates to about 40 to 50 new ground-up sites per year. And with respect to the land bank what we're doing is repopulating it as we build out a site. So the flex in it would be driven if we get to a point where we don't see continued opportunity to get good returns with new ground-up sites we would stop building them. But the land bank is simply there to make available locations to construct new facilities. You're not going to see a big accordion on that one way or the other.

Okay, great. And last kind of a high level maybe simplistic question but I would just like to hear your thoughts on it. Let's hypothetically say the economy turns downward, how much of a benefit would Sunoco see? Because I am thinking that people would drive more instead of utilizing airlines for travel so that could be a benefit. But then in-store food sales may decline as the consumer becomes more wise with a dollar, shops at a grocery store. But at the same time in-store sales might perform well because the food isn't that expensive and many people purchasing those food and beverage and other products will do so in any environment. So just some color on how you see the Company performing in a challenging climate would really be appreciated.

I think, Richard, what I would say is we are always rooting for a strong economy. A strong economy implies employment. People drive to their job more miles driven is generally better for us. And when people have jobs they have money in their pocket so they spend more. Having said that, I would point you to the fact that an awful lot of driving turns out not to be a discretionary activity. And when we saw the big downturn in 2007 and 2008 we saw some demand destruction, and it also coincided with high gasoline prices but not like you see in other industries. And conversely the convenience store side of the business remains essentially recession proof. So you see people actually moving from larger quantity purchases in grocery stores during tight times to smaller purchases in convenience stores. We have a wide array of products that people continue to buy regardless of economic conditions tobacco, beer seems to be -- in fact during recession beer sales typically go up and our food offering with Laredo Taco is a value offering. So I think for our investors as they look at alternative places to buy units that they ought to feel awfully good about SUN LP's position from a stability of earnings standpoint and future earnings growth combined.

Okay, great. That's it for me. Thank you for the excellent color and good quarter. Thank you.

Thanks, Richard.

Ladies and gentlemen, this does conclude the question-and-answer session. I will now turn the floor back to Bob Owens for closing comments.

Thank you very much. In closing, I would like to say these are very exciting times for our business. We see a lot of opportunity for continued growth as we work to roll out the iconic Sunoco brand in new markets and as we expand our retail footprint through sizable acquisitions and drop-downs, through organic growth in our existing franchises and through consolidation in growth markets of what continues to be an extremely fragmented industry. We're very proud of the hard work and what has been successfully accomplished in less than 12 short months since the Energy Transfer Partner acquisition of Susser. We remain committed to growing unitholder value and growing distributions for our unitholders both in the near and long-term. Our plan is to continue to execute regardless of the market environment. We feel that this approach will continue to put us in a position to be the leading wholesale and retail fuel distributor in the country.

Thanks very much for joining us and we very much appreciate your continued support. That concludes our call this morning.