CrossAmerica Partners' (CAPL) Management on Q2 2016 Results - Earnings Call Transcript

| About: CrossAmerica Partners (CAPL)

CrossAmerica Partners LP (NYSE:CAPL)

Q2 2016 Earnings Conference Call

August 05, 2016 09:30 AM ET

Executives

Randy Palmer - Investor Relations

Jeremy Bergeron - President

Steven Stellato - Chief Accounting Officer

Analysts

Ben Bienvenu - Stephens Inc.

Sharon Lui - Wells Fargo

Richard Verdi - Ladenburg Thalmann

Mike Gyure - Janney Montgomery

Patrick Wang - Robert W. Baird

Chris Mandeville - Jefferies

Operator

Welcome to the CrossAmerica Partners' Second Quarter 2016 Earnings Call. My name is Ellen and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded.

I will now turn the call over to Randy Palmer, Director of Investor Relations. Mr. Palmer, you may begin.

Randy Palmer

Thank you operator. Good morning, and thank you for joining the CrossAmerica Partners' second-quarter 2016 earnings call. With me today are Kim Lubel, Executive Chairman; Jeremy Bergeron, President; Clay Killinger, Chief Financial Officer; Steven Stellato, Chief Accounting Officer; and other members of our executive leadership team.

Jeremy will provide a brief overview of CrossAmerica's operational performance and an update on current strategic initiatives, and then we'll turn the call over to Steve to discuss the financial results. At the end, we will open up the call to questions.

I should point out that today's call will follow some presentation slides that we will utilize during this morning's event. These slides are available as part of the webcast and are posted on the CrossAmerica website. Before we begin, I would like to remind everyone that today's call, including the question-and-answer session, may include forward-looking statements regarding expected revenue, future plans, future operational metrics, and opportunities and expectations of the organization. There can be no assurance that management's expectations, beliefs and projections will be achieved or that actual results will not differ from expectations.

Please see CrossAmerica's filings with the Securities and Exchange Commission, including Annual Report on Form 10-K and Quarterly Reports on Form 10-Q for a discussion of important factors that could affect our actual results. Forward-looking statements represent the judgment of CrossAmerica's management as of today's date, and the organization disclaims any intent or obligation to update any forward-looking statements.

During today's call, we may also provide certain performance measures that do not conform to U.S. Generally Accepted Accounting Principles or GAAP. We've provided those schedules to reconcile these non-GAAP majors with our reported results on a GAAP basis as part of our earnings press release. Today's call is being webcast and a recording of this conference call will be available on the CrossAmerica website for a period of 60 days.

And with that, I'll now turn the call over to Jeremy Bergeron.

Jeremy Bergeron

Thank you, Randy. This morning, we reported strong second quarter earnings results, which Steve will go through in detail in a few minutes, but first, I want to discuss our continued strategic and operational initiatives and the success we are experiencing.

As you turn to Slide 4, you can see the scale to which the partnership has grown, with over 800 controlled sites shown on the map and wholesale fuel sales of over 1 billion gallons annually to nearly 1,200 locations. As we convert more company-operated stores to lessee-dealer locations, gross rental income has grown to a sizable portion of our revenues, as we're on track to recognize over $80 million this year.

We continue to hold a 17.5% interest in CST Fuel Supply, providing a $0.05 wholesale fuel margin on all gallons distributed. Following CST's divestiture of their California and Wyoming stores, CST Fuel Supply now distributes approximately 1.7 billion annual gallons, providing a $0.05 wholesale fuel margin on all gallons distributed. Steve will cover the specifics of the financial impact of CST's store divestiture to the partnership later in the presentation.

From a strategic standpoint, we constantly look for the right investment to provide further growth, diversify and stabilize our cash flow for our investors. If you turn to the next slide, I would like to discuss a recently announced transaction that we believe will do just that.

Last month, we announced that we reached agreement with Statoil to acquire their assets, including 59 sites and fuel supply contracts to over 80 locations in the Chicago market. Statoil was founded in 1947 and has grown to become one of the largest fuel distributors in Illinois, supplying over 60 million gallons per year. This is a great acquisition for us because it is one that we can execute and efficiently fold into our existing wholesale operations.

The Chicago market is one we know very well, as we are supplying over 50 locations in this market today. The Statoil acquisition allows us to expand our strong relationship with several suppliers in the Midwest market. We expect to close on this transaction later in the third quarter.

Turning to Slide 6, I would like to discuss our growth and optimization strategy. As we have said before, by effectively managing our balance sheet and valuable embedded real estate, we believe we can continue to take advantage of acquisition opportunities at attractive multiples to grow in an accretive disciplined fashion. The Statoil transaction does just that, as does the holiday store acquisition that we completed at the end of the first quarter.

As we expected, the 34 Holiday Stationstores were positive contributors to the business in the second quarter, with strong fuel and inside store sales. We also completed a milestone in the second quarter by completing the integration of the assets we acquired from PMI in 2014 by converting to dealers the last of our company-operated stores acquired in this transaction.

Over the past 18 months, we have been actively divesting and integrating those acquired assets in order to optimize our portfolio. While this included divesting of approximately 80 million gallons of low-margin, high-operating expense commercial business, by divesting of the terminal and hauling assets supporting this business, we continued to demonstrate our active management of expenses, focus on our core competencies, and stabilize cash flow for our investors.

As we have said before, company-operated store conversions to the lessee-dealer cost of trade, likely accomplished with PMI, continues to be a focus of our post-acquisition strategy. This year alone, we have already converted 70 sites. And while this does eliminate the non-qualifying income, retail fuel and merchandise margin, and the variability that goes along with it, it also eliminates the operating expenses and maximizes qualifying income through dealer rent, as evidenced by our growing rental income we mentioned earlier. The chart at the bottom of this slide demonstrates the ongoing execution of our acquisition strategy and the successful repositioning of our portfolio from our retail segment to a more stable, tax-advantaged wholesale segment.

If you turn to the next slide, I would like to discuss some of our operating results achieved in the second-quarter, which underscore our focused transition to grow our wholesale segment. While our company-operated statistics are lower compared to last year, our qualified rental income is on the rise, while our expenses across the organization continue to decline.

Of note is that we actually experienced a slight improvement in our wholesale margin period-over-period at $0.054 per gallon for this recent quarter. This is despite lower terms of discount due to a weaker crude price environment this year versus last, which is another positive indication of the elimination of the lower-margin, higher-expense PMI commercial business we have divested. The charts on this page show the growth we have demonstrated since 2010 in controlled sites, fuel distribution and rental income.

But in summary, the partnership continues to execute and focus on completing the growth strategy we have outlined, which includes growing our distribution in 2016 by 5% to 7% over 2015. In today's market, there are ample third-party acquisition opportunities to satisfy our prudent growth appetite. In addition, there are several internal measures the team remains focused on to integrate our assets. Control expenses, improve the balance sheet, and successfully grow the business on behalf of our unitholders.

And with that, I will turn the call over to Steve.

Steven Stellato

Thank you, Jeremy. If you would, please turn to Slide 9. I would like to touch on our overall second quarter results at CrossAmerica. As Jeremy mentioned, today, we reported another strong quarter with adjusted EBITDA of slightly more than $27 million, up 42% compared to last year. Distributable cash flow was over $21 million or an increase of 48% when compared to the same period last year. The total distributions paid for the second quarter of 2016 were $20 million, resulting in a coverage of 1.07 times.

On the next slide, we compare our performance in the second quarter of this year against the comparable period in 2015. As noted previously, we are experiencing a significant contribution from our recent acquisitions. Wholesale gasoline prices this quarter were approximately $0.40 per gallon on average, below where they were at last year.

As we have discussed in prior periods, this directly impacts our wholesale margin, as the Prompt Pay discount we receive from our suppliers is a percentage of the total invoice on the fuel we purchase. Approximately 15% of our wholesale fuel volume is variably priced based on a rack-to-retail or dealer tankwagon margin.

As we have mentioned, while our wholesale margin is negatively affected by a lower absolute wholesale price, we do see a benefit as DPW margins expand as the prices are moving down. We did see a slight benefit this quarter compared to last year. Finally, through focusing on integration, expenses and the strength of our base business, we were able to contribute an additional $1.8 million in cash flow this quarter over the same period last year.

Turning to Slide 11, I would like to discuss some specific steps that we are using to take to strengthen our balance sheet. At the time of our acquisition of the Rocky Top sites in 2013, we entered into a master lease for 29 properties at a 7.7% cap rate with the intent to acquire the properties beginning this year. With the current strength in the real estate market, and continued softness in the equity markets, we decided the more prudent course of action would be to pursue a revised lease arrangement with the seller.

In June, we were able to successfully renegotiate the terms of the master lease, thereby reducing our annual rent expense by $300,000 and freeing up approximately $26 million of additional borrowing capacity by eliminating the purchase obligation within the original lease. As we have mentioned before, we will continue to look for ways such as this to take advantage of the strong real estate market and have a balanced approach with our uses of capital.

As Jeremy mentioned, DST recently sold their California and Wyoming retail sites to 7-Eleven. As a result of this sale, the partnership received an $18 million refund due to purchase price paid by us for our 17.5% investment in CST Fuel Supply. The refund is the result of the sale of these sites to which CST Fuel Supply no longer supplies motor fuel. The purpose of the refund was to make the partnership whole for the decrease in the value of our interest in CST Fuel Supply arising from the sales volume decreases. We utilized these proceeds to pay down our revolver balance. As Jeremy also mentioned, we continue to own 17.5% of CST Fuel Supply after this refund.

We ended the second quarter of 2016 with $80 million of available capacity on our revolver. Our leverage ratio was 4.29 times at June 30 of 2016. As a result of these initiatives we have described above, we have been able to reduce our borrowings and increase our revolver availability to approximately $100 million as of today.

Turning to the last slide, we announced on July 28 that the Board of the Directors of the General Partner declared the distribution of $0.6025 per unit attributable to our second quarter results. This is a $0.005 per unit increase over the distribution attributable to the first quarter of 2016 and marks our ninth consecutive quarterly distribution increase.

As we have said, we expect the rate of CrossAmerica's distribution per unit attributable to 2016 will be between 5% to 7% over 2015 levels, and we continue to target a long-term distribution coverage ratio at or above 1.1 times. We expect our distributable cash flow growth to continue to be driven by a combination of accretive acquisitions, strong business performance, and expense reduction associated with the integration of our recently completed transactions.

In closing, we are very pleased with our second quarter results. We feel that the steps we are taking throughout the organization are demonstrating our ability to execute on our growth strategy through effectively integrating our acquisitions. The velocity at which we grow, including the potential for asset drops from CST, will be dependent upon the market environment and capital availability. Our focus on strengthening of the balance sheet, improvement in our distribution coverage ratio, and execution on accretive transactions, is the right strategy today for our unitholders, and places us in a position of strength for when the MLP equity market returns.

With that, we will now open it up for questions.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] And our first question is from Ben Bienvenu with Stephens Inc.

Ben Bienvenu

Thanks. Good morning.

Jeremy Bergeron

Good morning, Ben.

Ben Bienvenu

I'd be curious to hear if you saw any geographic differences in performance across your three or four primary clusters of stores?

Jeremy Bergeron

You mean geographic difference in performance across the stores? Well, I mean, if you look at what we've done over the past 12 months to 18 months, we have really concentrated our C-store operations to the Upper Midwest, which is, from our acquisition of Erickson Oil, the Freedom Valu stores, as well as the Holiday Stationstores we acquire. So we have really concentrated the business into one specific geographic region. And obviously, in that region, it's been pretty consistent. But it's been very good fuel margin environment for us in those particular regions, and we are very excited about the improvement we continue to see inside the store in the merchandise sales and margin capture.

Ben Bienvenu

Okay, great. And then, you noted – Steve, I think you noted potential for future dropdowns from CST. Are you able to provide any color on when or the magnitude of what sort of dropdowns we might be able to see?

Jeremy Bergeron

Yes, Ben, I'll take that. I mean, if you look at kind of where we're situated and what we see out there as the opportunities in the third-party acquisition market, what we are focusing on, what we continue to say, is we're focusing on strengthening of the balance sheet, improving our coverage ratio, and still continuing to execute on our growth strategy. But we really are looking at the balance sheet and improving that coverage ratio consistently over time. And with that, we think there is a lot of third-party acquisition opportunities that can give us the growth that we want to execute on.

And as Steve did mention a second ago, what we look forward to is, as we go deeper into 2017 -- and we'll monitor what goes on the overall equity markets – but then the equity markets do return, then we think we can return to the same velocity of growth we had in previous periods, but we don't think it does our unitholders justice to go to -- to grow for the sake of growing. We want to make sure we do it in a very smart, diligent fashion.

Ben Bienvenu

Great. Thanks so much for taking my question.

Steven Stellato

Thanks, Ben.

Operator

The next question is from Sharon Lui with Wells Fargo.

Sharon Lui

Hi. Good morning.

Jeremy Bergeron

Hi, Sharon.

Sharon Lui

Maybe if you could just talk about, I guess, the performance of the holiday sites since the acquisition, whether gallons or merchandise sales have been in line with expectations?

Jeremy Bergeron

Sure, Sharon. I can touch on that and Steve can chime in on the specifics. But, yes, we are very excited about that acquisition. I mean, the Holiday stores in the Upper Midwest market is a very well-respected brand up there. We have a great relationship with the Holiday team, and our team has been working very well with them on integrating the stores, and continue to see growth on sales inside the stores. So I would say we are pleasantly pleased and, actually, performance is probably higher than our expectations when we made the acquisition earlier in the year.

Steven Stellato

No, that's correct, Jeremy. Based on the economics of when we look at those deals and where our volumes are at in gross profit percentage as well as dollars, everything seems to be in line or exceeding those expectations.

Sharon Lui

Okay. And with the Statoil transaction, in terms of thinking about the expected return, was the multiple in line with, I guess, historical transactions? Or how should we think about that?

Jeremy Bergeron

Yes. Yes, Sharon, that's right. It's in line with the types of transactions we have done historically. That's correct.

Sharon Lui

Okay. And I guess the last question. Maybe if you could talk about how many sites have been dealerized year-to-date? And just thoughts on the pace of conversions going forward?

Jeremy Bergeron

Yeah. I think we have converted 70 sites year-to-date. And so – I mean, if you recall, we really have made a concerted effort starting earlier last year, absorbing the PMI assets, acquiring the One Stop chain last year as well as the Erickson oil chain and then the Holiday chain earlier this year. And we continue to make efforts to dealerize them.

With the One Stop, which was in West Virginia, and the PMI assets that were in Virginia and West Virginia, we've completely dealerized those sites into lessee dealers, so we are getting the good, consistent dealer rent coming into the partnership, finding really good operators to run them inside the store, capturing a very strong wholesale margin there, and really have concentrated our focus in the Upper Midwest market.

We still think there's an opportunity to dealerize some more stores, and we look to continue to do that, but we are going to do that in a smart, diligent way. I mean, we're -- the team is doing a great job of running those stores today. They are bringing in good cash flow for the partnership. But we are going to look for the right dealer, the right opportunity to bring them in to further consistently get those cash flows stabilized over long-term. But in the interim, we look forward to continuing to operate those today.

Sharon Lui

Okay, thank you.

Operator

Our next question from Richard Verdi with Ladenburg Thalmann.

Richard Verdi

Hi good morning everyone, nice quarter and thank you for taking my call here. My first question is kind of a follow-up to the first caller's inquiry. I guess I'm not quite clear on the CST drops versus third-party transactions. Maybe, Jeremy, you can help me clear it up? I mean, earlier this year, maybe it was at the end of Q4 2015 in there, you guys are providing - provided guidance in terms of what we should expect in terms of percentage dropdowns for the CST drops to CAPL. Is that, I mean, is that guidance no longer the case? And should we be thinking that CAPL will just pursue third-party acquisitions now? And what's the thinking behind that? Is that because maybe we can obtain a better multiple on those third-party acquisitions? Just some color would be really helpful for me, please.

Jeremy Bergeron

Sure, Richard. And I'll be taking a step back further beyond last year, is when the two organizations came together and CST acquired the General Partner of the partnership. We even said at that point in time, we look forward and expect CrossAmerica to continue to go forward and execute on third-party acquisitions. We thought, we saw that it was a fragmented marketplace and an opportunity for further consolidation. And really, the CrossAmerica team had a history, and that's how the organization was built, was on successfully executing third-party acquisitions, integrating them into the fold, and then turning them into lessee-dealers to stabilize cash flow into the partnership. And even at that time, we didn't say, we said, we were very careful in saying that the third-party was going to be a key part of our overall growth. And we look forward to doing the drops to the Fuel Supply with CST because they provided a long runway of consistent solid cash flow into the partnership that we could grow when the markets were timed right. And we did that with the first couple of drops with CST, but I think - and we did provide some guidance that we looked forward in 2016 to potentially grow the amount of drops with CST. However, what we have to do is look at the overall equity markets and look at what's happening, and understand that the times have changed. And growing for the sake of growing or growing at the level we've grown previously, to the extent we are levering up the balance sheet just to do it, just to grow because we said we'd grow, isn't the prudent course of action for us to do. There are good cash flow streams to be dropped from CST. They closed on this last food acquisitions. What that does for us, it just further elongates the amount of opportunities down the road to drop those assets into the partnership. So, we see that there are third-party acquisitions at very attractive multiples today. So, we look forward to continue to execute on those, integrate those assets, improve that multiple post-integration, and continue to grow. And as we get down the road, and the equity markets return, we'll have those - that fuel supply from CST to drop, and continue to grow the partnership long-term. So that's just - that's how we look at the business today.

Richard Verdi

That's great color. That's excellent. Thank you, Jeremy. And then my next question pertains to the acquisition front on third parties here. I look at what has been released so far for CrossAmerica this year, and quite frankly, to be honest, you guys have crushed what I - my estimates, you beat them by a long shot in terms of acquisitions, which is great. But I'm thinking here, I mean, what should I think for the back-half here of 2016 in terms of acquisitions? And we maybe expect a run rate like this in 2017. I mean I'm not going to hold you to it, but just some high-level information would be helpful for my estimates.

Jeremy Bergeron

Sure. I mean, we are very pleased with the acquisitions we have done to date. And I think what we have said before is that we look to manage our overall balance sheet to put us in position to continue the growth. I think the restructuring of the lease agreement, that Steve and the team did this particular quarter on the Rocky Top deal, provides us with additional capacity, and in addition to, more importantly lowering our overall interest expense into the partnership. But it gives us additional capital with which to go out and execute on these types of transactions. So, we are very pleased with the acquisitions we've done so far. We still think there's a lot of opportunities out there. But we pass up on a lot of opportunities as well. There's a lot of deals out there that, really, for where we are situated and where our balance sheet is, and where we are trading today, we are going to do the deals that makes sense for us long-term. So an acquisition like State Oil, where it's an immediate tuck-in to our existing business in the Upper Midwest, and it's different than maybe some of our prior deals, where it was company-operated stores that we found dealers come in, that is a kind of a tuck-in acquisition that we can do, seamless to the organization, and immediately go out and just add cash flow to the bottom line. So those opportunities excite us, but we are going to continue to look. But I think the pace of growth you have seen from us over the past 12 months is probably something you could continue to see.

Richard Verdi

Excellent. Okay, great. Thank you for that, Jeremy. And then just two more questions here. You know, you had mentioned in the answer to my first question that there is an incremental impact from the CST drops longer-term. I'm assuming probably internally there's some sort of thinking/target of the positive impact from that growth. And with what has happened at CST recently, has that outlook changed? Or I would assume it's probably declined? And is that discouraging? Or are we not even concerned with what's happened there, and we still expect the same sort of growth?

Jeremy Bergeron

Well, I mean, with respect to what we think as far as on the CST and the growth we can get from the drops, I mean, we still see those as great opportunities down the road. And CST is going through the strategic review. And whatever the outcome of that is, we still expect to see that long-term relationship between the two organizations and the opportunity to grow. But whatever happens out of that will dictate that. But we have to look at what we can do within the partnership, and what our capital availability is today. But we do like the fact that we have that opportunity down the road to do those acquisitions and those drops, and grow the partnership at a much greater velocity than we've done over the past 12 months.

Richard Verdi

I see. Okay, great. And then just the last question. I appreciate the time, too, guys. When we look at the CrossAmerica geographic footprint across the United States, it's very healthy, clearly. But if you had to maybe pick, Jeremy, what would be a locale where you guys would like to - a state you guys aren't in, and maybe we say we'd like to enter this state sometime in the next couple of years?

Jeremy Bergeron

You know, Rich, I don't know if we have a particular geographic region or even one that we would want to comment on, a state we're looking to get into. Obviously, one that has a long-term growth profile would be great. But we have shown that in just about any geographic market, if it's in the New England market, if it's mid-Atlantic, if it's Upper Midwest, if it's Southeast, you know the team can go in and execute on the business model. Great relationship with suppliers who have supply and terminals in various markets that we can leverage and we can grow the business. So, the model, that's the great thing about the model we have in place. It works just about anywhere in the United States, and we have a team that can go out and execute on that.

Richard Verdi

Perfect. Thank you for the time, Jeremy. I appreciate it. And congrats again on a good quarter.

Jeremy Bergeron

Thanks Richard.

Operator

The next question is from Mike Gyure with Janney Montgomery.

Mike Gyure

Yeah, good morning. Wondered if you could talk a little bit about your G&A specifically cutting costs? It looks like you are down about $6 million year-over-year for the first half. How should we think about that going forward? Have you wrung out, what you think you can do there? Or is there anything in there and maybe that's been one-time benefits this year?

Steven Stellato

Mike, this is Steve. I guess to really understand the change when we think about G&A year-over-year, and kind of walk you back a little bit, in the prior years, we had G&A associated with back offices for PMI and Erickson acquisitions. Throughout the year, what we do as we integrate these companies, we put those assets into our platform from a back-office standpoint, and we are able to eliminate that G&A. If you look at that change between the two periods, that's what you're seeing. You are seeing the elimination of a significant amount of back-office activity related to those acquisitions. With respect to a go-forward basis and do we expect to see something like that, again, those were acquisitions with back-offices. Obviously, the acquisitions we've done in the latter half of 2015 and into 2016 with our Holiday stores, those don't really, they were asset acquisitions, so they really don't have back-offices that we would have to integrate. So, I guess what you are looking at today for the second quarter, we always look to cut costs out and we'll continue to keep doing that.

Mike Gyure

Great. Thank you very much.

Operator

[Operator Instructions] Our next question is from Patrick Wang with Robert W. Baird.

Patrick Wang

Hi good morning. Could you speak a bit about recent fuel volume trends, particularly on the wholesale side? Was there anything that, and I'm looking at 2Q right now, was there anything that came in either a bit above or below what you had expected? And then if you could speak to this metric in both volumes in aggregate and volumes on the same-store sales basis?

Jeremy Bergeron

Sure, Patrick. So, I mean, everything for us came in kind of as expected. One of the things we've spoken about in prior calls is the integration we have continued to take on with respect to the PMI acquisition that was done in 2014. In 2015, there was a concerted effort to really focus in that operations to put it into really the lessee-dealer model, and to divest of certain businesses that were part of the PMI organization previously, that really is not core to what we do going forward.

These sorts of businesses would be bulk terminal assets that they were operating, as well as some fuel distribution businesses that they had as well, which really doesn't really fit our model. I mean, ours is more of a cost-plus basis with our fuel distributors. It's a pretty simplified business model that we operate, and we are really trying to drive and lower expenses. The commercial business, there was a commercial business that was supporting that overall, which was a very low-margin business. So what you've seen over the past 12 months is a reduction in approximately 80 million gallons in the PMI business. But that is a very low-margin business that had a fair amount of operating expenses to run it as well.

So once you consider the overall thin margin on those 80 gallons, as well as the OpEx to run it, it was basically a neutral impact to the cash flow of the partnership. So, if you're looking specifically just at the wholesale gallons, you'll see that reduction. The benefit we had in prior periods, as we had done acquisition through those periods that was kind of adding that many more gallons that maybe you weren't seeing it, but most of that reduction was done in prior periods. But that's the 80 million gallons or so associated with the PMI integration.

Patrick Wang

Okay. That's very helpful color there. And then does the elimination of those gallons, does that change the historical seasonality pattern at all? And could you speak really quick on how you feel about volumes in the quarter ahead?

Jeremy Bergeron

It doesn't really change the seasonality overall, but what I would point to, if you notice, we actually saw a slight improvement in our overall wholesale margin in the period from Q2 of this year versus Q2 of last year. That's despite having a lower crude oil environment, which, as you know, getting the terms' discount of the partnership is an important part of our overall margin capture. So although we actually were impacted negatively by terms discount, you saw an improvement in our wholesale margin, which is primarily attributable with those gallons going away in the lower margin and the overall pool having a higher margin for them as well. So, not a seasonality effect, but I think you were able to see maybe a margin effect in the quarter.

Patrick Wang

Okay, that's great. That's very helpful. That's it from me.

Steven Stellato

All right. Thanks, Pat.

Operator

The next question is from Chris Mandeville with Jefferies.

Chris Mandeville

Yes, good morning. Just to kind of begin with the balance sheet, you guys now have some pretty decent breathing room there at 4.3 times levered. Kind of curious on what you're seeing out there these days from sellers, and what they are expecting from a multiple perspective?

Jeremy Bergeron

Chris, yes, I mean, we are seeing a live range of sellers of what they are expecting. But for us, what's most important is what we are willing to execute on. And what we've done here recently -- and we've said this in prior calls, a 6 to 8 times cash flow multiple for us is kind of right in the sweet spot and where we think we can execute on. And that's what we've done over the past few acquisitions. So, there's a lot of sellers who are looking for a lot of different things, but that isn't necessarily what we are going to go out there and capture. So, we want those acquisitions that are immediately accretive to our unitholders that we can tuck into our business, and we can potentially recognize further synergies as we integrate.

Chris Mandeville

Great. And then it's nice to see that you guys continue to perform conversions. But I guess I'm curious, looking at slide 6, the Erickson sites, they kind of - they are kind of the consistent banner throughout all the quarters where it doesn't look like the store count has changed all that much. I guess I'm curious, is there something there where you guys are not necessarily willing to convert these locations? Or is it maybe inversely something where the third-party aren't necessarily interested in these sites?

Jeremy Bergeron

No, I think what that's probably indicative of is that was really our entrance into the Upper Midwest market. That's a market where we hadn't operated in before. And so, going in there, just finding dealers to fill in, just for the sake of having dealers, wasn't going to be the right strategy for us long-term. We needed to make sure we understood the market, understood the dynamics, and that we could find the right dealer to go in, and to execute and to move into those particular locations. The One Stop stores were in West Virginia. The PMI stores were in Virginia. Those are markets we are very comfortable with. So, we are seeing movement in moving dealers into those particular stores. But like I said, it isn't that we have a clock that we need to get them in by a certain time. We're going to continue to execute, but we are going to do it in a very smart way.

Chris Mandeville

Okay. And then maybe I missed it, but can you help me understand what opportunity you have to further renegotiate lease terms and to lower your rent expense, like you did with Rocky Top? And can you just remind me what percentage of your real estate you actually own these days?

Steven Stellato

This is Steve. You know, Chris that was an awful large obligation that we had in the Rocky Top acquisition, so it was something we had been focusing on for a period of time. With respect to similar types of obligations that exist like that within our balance sheet, we really don't have that. Obviously, we continue to evaluate where it does make sense to utilize our retail, our real estate as a form of liquidity, but that's an ongoing process. You know, relative to the number of sites we actually own, I don't know that number. Obviously, when you look at our balance sheet relative to the amount of land and equipment we do own, that does give you somewhat of an idea of the magnitude that we have in our portfolio.

Chris Mandeville

Okay. And then, I guess, just for the third parties whom you are providing the wholesale fuel to, have you seen any changes of late as it relates to the terms that they are requesting, whether it be on the margin or maybe the length of said contracts to which they are willing to participate in?

Jeremy Bergeron

No, no real change. Understand that we have two different, primarily two different types of dealers. We have one where we own the dirt or control the dirt, and for those type of contracts we tend to have them shorter in length, because we want to ensure that we have the right dealer in place, maximizing the value out of that particular store and getting the most fuel volume out of it. And then we have the independent dealers where we don't have control there; we just have a fuel supply arrangement with that particular dealer. Those tend to be longer-term lengths, 7 to 10 years or so in nature.

Those are the ones we have to be more competitive on, and that we have to make sure that we are on top of those particular expiring contracts, and that we are doing everything we can to treat the dealer correctly and on servicing him, and continue to get that business going forward. But I think with our relationship with our suppliers, we are able to do that. And that's why we continue to see sustaining growth or sustaining volume in an overall wholesale market, both with the lessee dealers and the independent dealers.

Chris Mandeville

All right, guys. Thank you very much.

Steven Stellato

Thanks, Chris.

Jeremy Bergeron

Thanks, Chris.

Operator

And we have no further questions at this time, so I'd like to turn the call back to Randy Palmer for closing remarks.

Randy Palmer

Okay. Thank you, operator. That does complete today's conference call. We appreciate each of you joining us today. If you do have any follow-up questions, please feel free to give us a call. Thank you very much and have a good weekend.

Operator

Thank you.

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