Stan Johnson Company | Convenience Store Sector

Convenience Store Sector: Q3 2016 Wrap

Presented by: Scott Merkle Senior Director smerkle@stanjohnsonco.com +1 646.845.8429 Rowland Yang Associate ryang@stanjohnsonco.com +1 415.293.7715

C-Store 3Q'16 Key Takeaways Historical Crude and Wholesale Oil Prices

Large, public, corporate level

$70.00

3Q’15

WTI

transactions as well as private-

Couche-Tard (TSE: ATD.B) announced the $4.4 BN acquisition of CST Brands

•

Gulf Coast Gasoline

$60.00

Crude Oil Price per Barrel

•

$2.30

NY Harbor Gasoline

company-driven acquisitions marked the quarter

3Q’16

$1.70 $50.00

$1.40 $40.00

$1.10 $30.00

Delek sold MAPCO for $535 MM

$2.00

$0.80

Wholesale Motor Fuel Price per Gallon

Meaningful Portfolio Growth:

to a subsidiary of COPEC, one of the largest companies in Chile •

GPM Investments acquired 137 c-stores with fuel sales from

•

Admiral Petroleum Company

Growth Through Nonfuel

Regional Performance Variations:

Segments:

Certain geographies reported

Murphy USA had construction in

Merchandising and new retail

greater softness in c-store

progress in 28 new sites and is

formats helped improve nonfuel

performance

on pace to meet its target of 60-

metrics for select companies

80 openings in 2016 Fuel Margin Pressure:

• •

Fuel margins moderated in 3Q’16 as crude and wholesale oil prices decreases in 3Q’15 During 3Q’15, average daily spot price per barrel of WTI crude oil decreased by 20% over the

•

•

•

Murphy USA discussed weakness

Couche-Tard has expanded into

in its Midwest geographies

higher margin offerings such as

negatively impacting its same

fresh food and its Simply Great

store metrics

Coffee concept

were far less volatile than the sharp

•

$0.50

$20.00

•

Flooding, hurricane activity, and

ATD SS merchandise sales in

the Colonial Pipeline outage

3Q’16 increased by 2.3% while

disproportionately affected

margins increased by 20 bps

stores in the Southeast

Wherever interior space or lot

•

Couche-Tard referenced

previous quarter

size permits, TA continues to

weakness in Texas and

seek internal growth through

Oklahoma due to headwinds in

In contrast, WTI crude oil prices

fresh foods, branded QSRs, car

the shale oil industry

decreased by 1% in 3Q’16

washes, etc.

2 Source: Company filings and earnings transcripts. Crude and wholesale oil price information from EIA.gov

Convenience Store Sector: Q3 2016 Wrap

Public C-Store Price Performance (1 Year) 40.0% 7 Eleven

ATD

CASY

TA

MUSA

6/3/2016

7/3/2016

CST

30.0%

20.0%

10.0%

0.0%

-10.0%

-20.0%

-30.0%

-40.0%

-50.0% 1/3/2016

2/3/2016 3/3/2016

4/3/2016

5/3/2016

8/3/2016

9/3/2016 10/3/2016 11/3/2016 12/3/2016

Companies

1 Month

3 Months

6 Months

1 Year

3 Year

CST*

0.2%

0.4%

9.8%

23.0%

35.7%

Couche-Tard

-1.1%

-7.1%

6.2%

5.3%

87.0%

7 Eleven

-1.0%

-10.3%

0.4%

-12.1%

2.6%

Casey's

-1.6%

-0.2%

-8.8%

-1.3%

73.3%

TravelCenters

10.9%

-0.8%

-13.0%

-24.5%

-25.7%

Murphy USA

-10.6%

-13.7%

-17.9%

1.2%

46.5%

3 Source: Pitchbook as of 12/30/16. *Couche-Tard announced its acquisition of CST, which is expected to close in 1Q’17.

Convenience Store Sector: Q3 2016 Wrap

C-Store Owners / Operators MRQ Earnings Wrap Earnings Recap Company

Quarter

Quarter End

EPS

Hit / Miss

SS Fuel Gallons MRQ Change (1)

SS Merchandise MRQ Sales Change (2)

Retail Fuel Margin Change (cpg) (3)

SS Merchandise MRQ Margin Change (4)

Convenience Store Owners and Operators Alimentation Couche-Tard

2Q17

10/9/16

$0.58

($0.01)

3.5%

2.3%

-22.6%

20 bps

Murphy USA

3Q16

9/30/16

$1.16

($0.41)

-3.1%

-2.6%

-24.3%

NA

CST Brands

3Q16

9/30/16

$0.51

($0.07)

-1.3%

-2.9%

-44.6%

60 bps

TA

3Q16

9/30/16

$0.28

($0.03)

-1.8%

0.4%

-21.2%

180 bps

Casey's

2Q17

10/31/16

$1.44

($0.15)

3.7%

3.1%

-24.7%

50 bps

MLPs, Oil Refiners, and Marketers with Convenience Store Operations

4

Western Refining

3Q16

9/30/16

$0.46

$0.04

NA

NA

-29.3%

NA

Sunoco LP

3Q16

9/30/16

$0.24

($0.22)

NA

-2.1%

-11.9%

NA

Alon USA Energy

3Q16

9/30/16

($0.09)

$0.00

5.3%

-3.0%

-8.3%

30 bps

Source: Company Filings.

Note: Excludes Seven & i Holdings. TA operational metrics only for c-store segment. Growth figures represent change from prior year quarter. Sunoco LP metrics are for retail segment.

(1) MUSA represents fuel gallons per month. CST represents motor fuel gallons per store per day for core segment.

(2) CASY represents "Grocery and Other Merchandise". CST represents merch. sales per store per day for core segment.

(3) TA represents same site data. Western Refining is an average of its Southwest retail and SuperAmerica regions.

(4) CST for core segment.

Convenience Store Sector: Q3 2016 Wrap

Earnings Release Highlights Declining Fuel Margins

Retail and Merchandising Improvements

“Our 77 same-site standalone convenience stores

“And finally, as an attest to our ability to balance

generated site level gross margin in excess of site level

acquisitions with organic growth, same store metrics

operating expenses of $5 million, a decrease from

continued to expand on both continents. These were

the 2015 third quarter all of which can be attributed

fueled by the growing popularity of our expanded food

entirely to the outsized fuel margins per gallon during

service offering, our effective merchandising strategies

the 2015 third quarter. Our success in nonfuel and in

as well as the rollout of our coffee concept, Simply

operating expense control overcame over half of the

Great Coffee, in a growing number of stores in North

decline in fuel gross margin which appears to have

America.”

been felt industry wide.”

Andrew J. Rebholz, EVP, Treasurer, and CFO, TA

Brian Hannasch, President and CEO, Alimentation Couche-Tard (Q2'17 Earnings Release)

(3Q’16 Earnings Call) “We continue to see record levels of merchandise margins in conjunction with lower store operating expenses, resulting in continued improvement to our fuel breakeven metric. However, atypical seasonal weakness in the fuels business was attributable primarily to a rising crude and wholesale price environment as well as market disruption created by the September Colonial pipeline shutdown, which challenged both volume and margins.”

Andrew Clyde, President & CEO, Murphy USA (3Q’16 Earnings Release)

Regional Performance Variations “And as we said before, weak Midwest geographies in the 2015 build class continue to negatively impact our network volumes as evidenced when comparing to same store sales. And last, specific identifiable external events such as flooding in Louisiana over the summer, the Colonial Pipeline outage and the after effects of Hurricane Matthew in the Carolinas this quarter have all contributed to incremental volume loss.”

Andrew Clyde, President & CEO, Murphy USA (Q3’16 Earnings Transcript)

5 Source: Company filings and earnings transcripts.

Convenience Store Sector: Q3 2016 Wrap

Valuation and Credit Metrics: C-Store Operators, MLPs, Oil Refiners and Marketers Enterprise Value ($ in billions)

EV / FY + 1 EBITDA * 14.0x

$40.0 $35.6

12.3x

12.3x

$35.0

12.0x $28.4

$30.0

10.7x

$25.0

9.7x

9.7x

10.0x

8.1x

8.0x

6.9x

$20.0

6.0x

4.9x

$15.0

4.0x

$10.0 $5.5 $5.0 $0.0

$6.5

$5.5 $3.0

7 Eleven

ATD

CST

CASY

MUSA

$6.1

$0.9 TA

SUN

WNR

2.0x

$2.2

$1.8

$1.1

DK

GLP

ALJ

Net Debt / LTM EBITDA *

6.0x

7 Eleven

CASY

MUSA

TA

DK

WNR

SUN

GLP

12.2%

12.0%

5.4x

5.0x

9.5%

10.0%

4.0x

8.0%

3.2x

3.2x

3.0x

6.0%

2.0x

1.5x

1.4x

TA

CST

CASY

5.3% 4.0%

4.0%

1.1x

1.0x

6

CST

14.0%

6.2x

0.0x

0.0x

Dividend Yield *

7.0x 6.0x

6.9x

ATD

1.0x

MUSA

2.0%

SUN

GLP

ALJ

WNR

0.0%

2.5%

1.9%

7 Eleven

0.8%

0.5%

CASY

ATD

Source: Pitchbook as of 12/30/2016; company filings.

Note: Blue represents c-store operators and green represents MLPs / oil refiners and marketers with c-store operations *EV / EBITDA excludes ATD and ALJ. Net Debt / EBITDA excludes 7 Eleven and DK. Dividend Yield excludes TA and MUSA.

Convenience Store Sector: Q3 2016 Wrap

SUN

GLP

ALJ

WNR

DK

C-Store Growth Trends •

While Couche-Tard made its mark on 3Q'16 with the announcement of a major corporate acquisition, several of its public U.S. peers relied on development to meet their new store targets ͦ​ͦ

•

TravelCenters noted the high “seller expectations” in the c-store space as an acquisitions hurdle

Several private companies have also been very active on the acquisition front ͦ​ͦ

GPM acquired 170 Admiral stores (including tobacco shops) from private equity sponsor Sun Capital • GPM also closed on 17 Jiffi Stop c-stores in Midwest

ͦ​ͦ

Nouria Energy Corp. acquired 26 c-stores in MA and CT from F.L. Roberts & Co. Inc.

ͦ​ͦ

Empire Petroleum Partners acquired 21 c-stores in Kansas, Missouri and Oklahoma

C-Store Operator Growth Recap Acq. / Openings Guidance

Company

Guidance Period

MRQ Acq. / Openings

Commentary • During the quarter, acquired 2 sites in US • Opened / constructed / added 11 • Closed / disposed 51, and converted 80 • Closed or divested 90 properties during 9/30/16

Couche-Tard

• NA

• NA

• Announced CST acq.

• Agreed to purchase 53 sites in Louisiana under Cracker Barrel banner • Announced 278 site acq. from Imperial Oil in Canada

CST Brands

• Guidance Withdrawn

• Guidance Withdrawn

• 9 New-To-Industry stores opened

Casey’s General Stores

• Build / acquire 77 – 116 stores

• FY 2017 (April 31, 2017 FY)

• Currently has 39 new stores, 22 replacement stores, and 37 • Through 6 months, built / opened major remodel stores under 11 new stores, acquired 6 stores, construction completed 12 replacements, and • 84 sites are under contract for remodeled 24 stores future new store construction and 15 acquisition stores are under contract to purchase

Murphy USA

• 60 – 80 store openings

• 2016

• 21 stores opened during 3Q16 with construction in progress at 28 new sites

• 70 new sites expected per year during 2017 – 2019 with majority in the express format

• No c-stores

• “Seller expectations of price remain high” for c-stores • 6 standalone restaurants and 1 travel center under agreement for $19 mm

TravelCenters

• NA

• NA

7 Source: Company filings.

Convenience Store Sector: Q3 2016 Wrap

M&A Corner Completed Oil Retail and C-Store M&A Transactions •

Strong C-Store M&A activity has continued as owners seek to capitalize on favorable valuations ͦ​ͦ

•

2014-2016 consisted of more than $15.8 Bn of closed transactions (deals over $25 mm where disclosed)

Companies based outside the U.S., such as Couche-Tard and COPEC, have aggressively expanded in the U.S. market ͦ​ͦ

Seven & i Holdings (7-Eleven) plans to add 1,000+ c-stores in North America by FY 2019

•

Private companies, such as Tedeschi, took advantage of attractive valuations to sell to larger public entities

•

Oil refining companies and MLPs have also been active acquirers across different types of transactions ͦ​ͦ

Vertical integration through acquisition of refining, marketing, and logistics companies • Tesoro announced ~$6.4 Bn acquisition of Western Refining in November 2016

ͦ​ͦ

Dropdown transactions with affiliated entities: •

Energy Transfer Partners completed ~$5.7 Bn of retail business dropdowns (including wholesale fuel and retail marketing) to Sunoco LP since Q4 2014

Select 2016 Oil Retail and C-Store M&A Transactions (Over $250 MM) Transaction Notes Value ($ MM)

Complete Date

Target

Buyer

Announced (11/17/16)

Western Refining

Tesoro

11/14/16

MAPCO

COPEC

$535

Delek's sale of MAPCO to a subsidiary of a large Chilean enterprise marks the Latin American company's entry into the US market.

7/8/2016

79 CST Stores

7-Eleven, Inc.

$408

CST officially exited the California (76) and Wyoming (3) markets with this transaction.

Announced (8/22/16)

CST Brands

Couche-Tard

6/23/2016

Northern Tier Energy

Western Refining

In addition to acquiring the refinery and wholesale distribution network, $1,500 Western Refining expanded its retail stores from 261 to over 500 stores under SuperAmerica and Southwest Retail Brands.

3/31/2016

Sunoco, LLC / Sunoco Retail LLC

Sunoco LP

In this final dropdown, SUN paid Energy Transfer Partners for the remaining $2,226 68.42% interest in Sunoco, LLC and 100% interest in Sunoco Retail LLC, which owns the legacy Sunoco c-store business

2/1/2016

Flash Foods

CST Brands

8 Source: Pitchbook and company filings

Convenience Store Sector: Q3 2016 Wrap

Expands Tesoro's refining systems and creates opportunities for logistics $6,400 growth. Results in multi-brand marketing and c-store portfolio with over 3,000 combined branded retail stations.

$4,400 Pro forma company will exceed 10,000 North American stores.

$425

CST acquired 164 c-stores in GA and FL, 21 quick service restaurants, and a retail distribution center.

Case Study: Couche-Tard Acquisition of CST Brands Transaction Overview •

Store Count

In August 2016, Alimentation Couche-Tard (ADT) announced the $4.4 BN acquisition of CST Brands ͦ​ͦ

Represents post-synergies CST EBITDA

multiple of 7.0x – 7.6x •

The acquisition presented a strong geographic and strategic fit ͦ​ͦ

Entry into growing TX market with 600+ sites

ͦ​ͦ

Fills in last remaining void in SE U.S. with

CST’s acquisition of Flash Foods in GA

and FL

ͦ​ͦ

Strengthens ADT’s network in CO, AZ, Canada

ͦ​ͦ

Increased scale and leverage to create

brand awareness and take advantage of

merchandise and fuel procurement

opportunities

Rank

Chain Name

No. of Stores

#1

7 Eleven

8,273

#2

Couche-Tard/Circle K

7,276

#3

Speedway

2,770

#4

Casey’s General Stores

1,896

#5

CST Brands/Corner Store

1,318

#6

Aplus, MACS/Tigermarket, Stripes, Aloha (Sunoco 1,309 Inc.)

#7

Murphy USA, Murphy Express

1,296

#8

ampm

970

#9

Kroger: Turkey Hill, Kwik Shop, Quik Stop, etc.

790

#10

Suncor Energy: Petro-Canada, Neighbours, SuperStop

750

Couche-Tard Stores Acquired * 3,000 CST (US)

•

Acquisition includes CST's equity participation in

CST (Canada)

2,500

CrossAmerica Partners LP, a distributor of branded and unbranded petroleum for motor vehicles in the U.S. •

“Our analysis suggests that ATD's acquisition of CST Brands should drive double digit accretion in F18 (first full year post-transaction), driven by the implementation of best practices, the complementary store network, and the realization

2,000 1,500 305

2,506 1,000

1,660 1,146

500 0

47

326

2011

2012

515

166 2013

2014

2015

2016

2017

of cost synergies.” – Irene Nattel, Analyst, RBC Capital Markets

9

Source: Company filings and CSP * CST figures only include company operated sites.

Convenience Store Sector: Q3 2016 Wrap

Appendix

10 Convenience Store Sector: Q3 2016 Wrap

Publicly Traded C-Store Operators, MLPs / Oil Refiners and Marketers USD in Millions Equity Value

Debt

Enterprise Value

EV / FY+1 EBITDA

Net Debt / EBITDA

Net Debt / TEV

Seven & i Holdings

$36,435

$9,548

$35,645

10.7x

NM

NM

Alimentation Couche Tard

$25,677

$3,571

$28,355

NA

1.1x

9.2%

Casey's General Stores

$4,649

$930

$5,455

9.7x

1.4x

13.8%

CST Brands

$3,639

$1,465

$5,507

12.3x

1.5x

23.1%

Murphy

$2,471

$679

$2,965

6.9x

1.0x

15.9%

TravelCenters of America

$262

$743

$869

4.9x

5.4x

69.7%

8.9x

2.1x

26.4%

Name C-Store Operators

Sub - Average MLPs / Oil Refiners and Marketers Western Refining

$3,662

$2,110

$6,113

9.7x

3.2x

30.2%

Sunoco LP

$2,068

$4,478

$6,468

8.1x

6.2x

68.0%

Delek US Holdings

$1,492

$828

$2,206

12.3x

NM

23.2%

Global Partners

$652

$1,157

$1,800

6.9x

6.0x

63.5%

Alon USA Energy

$802

$550

$1,149

NA

3.2x

24.9%

9.3x

4.6x

41.9%

Sub - Average

11 Source: Pitchbook as of 12/30/16.

Convenience Store Sector: Q3 2016 Wrap

Convenience Store Operators

12

Name

# of Stores

Name

# of Stores

1

7 Eleven

8,273

31

Global Partners: Xtra Mart and Alltown

285

2

Couche-Tard/Circle K

3

Speedway

7,276

32

Maverik

278

2,760

33

SuperAmerica

274

34

Western Refining/Giant, Mustang, Sundial, Howdy's

262

4

Casey's General Stores (CASY)

1,896

5

CST Brands, Inc. (NYSE:CST)

1,482

Aplus, MACS/Tigermarket, Stripes, Aloha (Sunoco Inc.)

35

Convenient Food Mart

250

6

1,309

36

CEFCO Convenience Stores

228

7

Murphy USA Inc. (NYSE:MUSA)

1,296

37

Meijer Gas Stations

223

8

ampm

970

38

Jacksons Food Stores

215

9

Kroger: Turkey Hill, Kwik Shop, Quik Stop, etc.

790

39

Landmark Industries

212

10

GPM Investments

732

40

Anabi Oil/Shell

196

11

QuikTrip

723

41

GetGo

196

12

Chevron

708

42

United Dairy Farmers

185

13

Wawa

706

43

Thorntons

182

14

Pilot Travel Centers LLC

688

44

Admiral

171

15

Cumberland Farms

586

45

Royal Farms

166

16

Kum & Go

560

46

Terrible Herbst

166

17

Kwik Trip

515

47

Flash Foods

164

18

Sheetz

515

48

Holtzman Corp.

150

19

Holiday Stationstores

510

49

G&M Food Mart

148

20

TravelCenters of America LLC (NasdaqGS:TA)

499

50

Quick Chek Corporation

143

21

RaceTrac

442

51

American Retail Services

142

22

Delek (Including MAPCO)

385

52

Hy-Vee Gas

135

23

Love’s Travel Stops & Country Stores

365

53

GoMart Food Stores

124

24

Stewart’s Shops

365

54

Duchess Shoppes

122

25

United Pacific

332

55

Blarney Castle/EZ Mart

120

26

Allsup's Convenience Stores

320

56

Jet-Pep

116

27

Alon Brands

318

57

Huck’s

115

28

Sunshine Gasoline Distributors

309

58

Petroleum Marketing Group, Inc.

115

29

United Refining Company (Kwik Fill / Red Apple)

303

59

Quality Mart/Quality Plus/GOGAS

115

30

E-Z Mart Stores

301

60

7-Eleven Stores of Oklahoma

112

Source: CSP as of 12/1/15. *Note: Excludes companies with primary operations in Canada.

Convenience Store Sector: Q3 2016 Wrap

If you are interested in learning more about net lease real estate transactions, or would like to meet your Stan Johnson Company team, we invite you to contact our office today.

We're confident that you'll find an experienced group of net lease professionals ready to go beyond the expected to ensure a high quality experience – and the successful outcome you seek.

Convenience Store Sector: Q3 2016 Wrap

13

Scott Merkle

Senior Director smerkle@stanjohnsonco.com +1 646.845.8429

Rowland Yang

Associate ryang@stanjohnsonco.com +1 415.293.7715

Stan Johnson Company

180 Madison Ave, Suite 1500 New York, NY 10016 P: (646) 778-5560

stanjohnsonco.com

Š2016 Stan Johnson Company. All rights reserved.

No part of this publication may be reproduced by any means without prior written permission of Stan Johnson Company. The information contained in this publication has been compiled from sources believed to be reliable. Stan Johnson Company accepts no liability or responsibility for the accuracy or completeness of the information contained herein and no reliance should be placed on the information contained in this publication.