CST Brands, Inc., one of the largest independent retailers of motor fuels and convenience merchandise in North America, on Jan. 6 announced that its board of directors has authorized management to pursue a potential real estate venture.
As initially discussed on CST’s second quarter 2015 earnings call, the company has been evaluating alternative financial structures to efficiently monetize its New-To-Industry (NTI) real estate and fund its accelerated new store growth plan. After reviewing various alternatives, with the assistance of its financial and legal advisors, the company has decided to pursue a real estate venture structure to achieve these goals.
Beginning in 2017, the company expects that new stores will be constructed as build-to-suit locations directly funded by the venture. Since the beginning of 2014, CST has opened over 100 new stores and secured locations to sufficiently meet its plans to open 120 new stores in the next two years. Additionally, the company has plans to open more than 350 NTIs over the next five years. These large stores provide the space for a superior customer experience, expanded merchandise offering and high value fresh food programs.
Built on sites large enough to also accommodate the company’s high volume fuel business, these stores yield significantly higher returns with a higher percentage coming from less volatile non-fuel margins.
“We are pleased to announce the Board’s approval of a plan to pursue a real estate venture to enhance value for our stockholders. While there is more work ahead to complete the transaction, we expect the real estate venture to significantly lower CST’s cost of capital and provide an attractive financial platform to accelerate new store growth, help fund future acquisitions and potentially purchase existing real estate from CST and CrossAmerica Partners as well,” stated Kim Lubel, Chairman, chief executive officer and president of CST. “We expect this innovative structure will free up substantial capital that will enhance the Company’s ability to pursue its strategic growth initiatives, while also providing an opportunity to unlock additional long-term value for CST stockholders from potential upside in the Company’s ownership interest in the real estate venture.”
The company has successfully completed a number of acquisitions over the past two years both through the CST network as well as through CrossAmerica Partners. Consistent with that strategy, in November 2015, the company announced that it had entered into a definitive agreement to acquire Flash Foods for $425 million, which will add 164 stores, many of them large format stores, and a substantial land bank in fast growing southeast markets. The company believes Flash Foods creates a platform to expand its customer base and continue to capitalize on their successful merchandise and fresh food offerings.
Based in San Antonio, Texas, CST employs over 14,000 team members at approximately 1,900 locations throughout the southwestern United States, New York and eastern Canada offering a broad array of convenience merchandise, beverages, snacks and fresh food.
In the US, CST Corner Stores proudly sell fuel and signature products such as Fresh Choices baked and packaged goods, U Force energy and sport drinks, Cibolo Mountain coffee, FC Soda and Flavors2Go fountain drinks. In Canada, CST is the exclusive provider of Ultramar fuel and its Dépanneur du Coin and Corner Stores sell signature Transit Café coffee and pastries.