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CST Brands Pursuing Sale/Leaseback Venture for C-Store Portfolio

Real Estate Venture Could Reduce Cost of Capital and Accelerate Future Growth
January 6, 2016
Kim Lubel, CEO of CST Brands, is pursuing sale/leaseback of owned store portfolio.
Kim Lubel, CEO of CST Brands, is pursuing sale/leaseback of owned store portfolio.
CST Brands Inc., one of the largest independent owners and operators of combination gas station/convenience stores in North America, is pursuing a potential sale/leaseback real estate venture involving a bulk of its store portfolio.

CST Brands operates about 1,900 locations throughout the Southwestern U.S., New York and Eastern Canada. The company has been evaluating alternatives for monetizing its real estate and fund new stores.

The San Antonio-based company has decided to pursue a sale/leaseback deal initially involving its most recently constructed convenience stores.

Since the beginning of 2014, CST has opened more than 100 new stores and has secured locations to open another 120 new stores in the next two years. All told, the company has plans to open more than 350 stores over the next five years.

It has also pursued other growth initiatives, including acquisitions. In November 2015, the company agreed to acquire Flash Foods for $425 million, which will add 164 stores.

CST estimates the value of its planned store expansion in the U.S. to be in a range of $1.1 billion to $1.2 billion in property value.

Beginning in 2017, the company expects that new stores will be constructed as build-to-suit locations directly funded by the proposed sale/leaseback venture.

According to CST, its larger new store format provide more space for expanded merchandise and fresh food offerings which, along with its high volume fuel business, the company expects will yield significantly higher returns, with a higher percentage coming from less-volatile non-fuel margins.

The company said it expects that any real estate venture it would enter into would substantially enhance its new store return on investment from unleveraged returns of 15% to over 30% under the new venture structure.

“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," said Kim Lubel, chairman, CEO and president of CST.

As part of the plan to upgrade its store portfolio, the company also expects to dispose of select non-core legacy locations.

RBC Capital Markets has been retained as financial advisor to CST in connection with the potential transaction.

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