Greetings and welcome to the Sunoco LP Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded. 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 and may include comments regarding the company’s objectives, targets, plans, strategies, costs and anticipated capital expenditures. They are subject to 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 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; Clare McGrory, our Chief Financial Officer. I would now like to turn the call over to Bob.

Thanks, Scott. Good morning, everyone, and thanks for joining us. This morning we'll review with you the results of the second quarter. In addition our recent accomplishments and developments, and growth objectives. Before going through 2Q results, let me touch on the recent SHC dropdown as well as other growth and touch on our distribution. Last Friday, Sunoco LP acquired Susser Holdings Corporation from affiliates of Energy Transfer Partners, L.P. for $1.934 billion. Susser's main assets are a chain of 679 predominantly Stripes branded convenient 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 please to complete this transaction at this time and at an attractive value for Sun L.P. unitholders. The transaction is expected to be significantly accretive in 2016 and beyond. Sunoco L.P. will also enjoy 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 1.16 billion gallons of motor fuel and $1.3 billion of merchandise which include sales to Laredo Taco Company which is a proprietary food service concept that sells freshly handmade 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 provide additional metrics about the business and performance 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…

Thanks, Bob. Good morning everyone. I'll begin with a few additional details around the Susser dropdown 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 minimum. As Bob mentioned, we also purchased the additional retail assets now to increase our retail sale and diversify our underlying business. With its dropdown we acquired a fast growing retail business at a value that with the underlying organic growth activities yielded us high single-digit multiple based on expected 2016 EBIDTA where we have a 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 dropdowns include the remaining 68.4% of Sunoco LLC which is also our fuel distribution business and approximately 440 retail stores operated by ETP through Sunoco, Inc. Most of the stores include convenience stores carrying the APlus brand. We are still targeting completion of the dropdown 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 up 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…

[Operator Instructions]. Our first question is Andrew Burd from JPMorgan.

So 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 coming out of that. First, does that include any assumption for bolt on M&A? And also that's on the base that's in Sunoco today. This is 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 $300 million-ish is for the total business. So future dropdowns will impact that.

Okay, great. And in terms of the dropdown period which seems on schedule for some time next year to be complete I think based on guidance, is there certain metrics that you're targeting for the end of the dropdown period, like a certain leverage level you want to hit to maintain M&A flexibility after the dropdowns or a higher coverage level to get some good growth visibility as you guys transition from dropdown fuel growth 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 dropdown period there will be some lumpiness to our balance sheet but overall our target is 50/50 debt to equity. We intend to be essentially there by the time we complete the dropdown period. And with respect to coverage ratio we've 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 dropdowns are complete those are the metrics that we're targeting.

And on the leverage I'll say we believe we get to the dropdown at maybe 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 that's a reasonable range to target beyond the dropdown period at this time.

Okay, great. That's helpful. And then thinking about M&A more broadly obviously a nice little bolt-on with these assets this quarter, tiny little one in the first quarter and then the nice Aloha one last quarter, ETP did some commentary on their call that they are looking for sizable M&A opportunity within Sunoco and the IDR benefits for 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's been an exciting time for Sunoco and there is a clear appetite for good deals that make sense. And 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 we are very open minded; we're interested in growing; we're interested in diversification. You've seen us diversify from a geographic standpoint. You've also seen us diversify in terms of type of operations, and that has high appeal for us going forward as we look to continue to smooth out earnings. So I would tell you while we're completing the dropdowns 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's attractive for our unit holders.

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

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

Yes. 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 two to three 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're 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 market place today, we also see it when we look at the performance of these assets from prior time periods prior to their bankruptcy.

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 dropdowns are completed you referenced organic growth, you've reference acquisitions, maybe if you can boil 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 mind a target kind of distribution growth?

Well, Stephen, good questions. I guess I would just kind of repeat how we're thinking about growing earnings. So 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 a year EBITDA minimum and we would like to get the as we compete the dropdowns 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 audit rigorously. So 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 kind of the range that we currently have is likely to continue. On the M&A side it is not easily predictably, 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 that lends itself to a good environment to continue to do roll ups both large and small.

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?

Well, we told the market to expect $70 million of synergies. We are tracking the -- 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're comfortable we'll 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 dropdown, the synergies Bob had mentioned in reference to the consolidated synergies from the original acquisition. And we'll have the benefit of them flowing through the business with the dropdown 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 build 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.

Our next question is from Theresa Chen from Barclays.

Good morning. In terms of the timeline for dropdowns given the currently high cost of equity capital which is really prevalent across the sector, are you still comfortable with the timeline 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 effected 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 a tell you we're always going to do what makes the most sense for the whole family of partnerships here. So should our timetable change, we'll let people know, but today we're comfortable that it makes sense to get these dropdowns 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 dropdown?

I think we've 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 in to 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 dropdown 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?

Yes. So, as I mentioned earlier in the remarks, Theresa, typically -- each one varies. If we have a location, for example, where we've got population growth they can kind of take a bit longer when we're out on the edge of kind of a green area. If it is a more developed area where we are buying and assembly 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. And as I mentioned earlier, the other benefit of these new larger sites 5,000 square feet multiple profit centers including restaurant operation, multiple fuelling point including diesel and in almost all cases we are seeing cash flows of two to three times industry averages of legacy sites.

[Operator Instructions]. Our next question is from Richard Verdi from Ladenburg.

Good morning folks and thanks for taking my call. Kind of a follow-up here to the last caller's inquiry. Wanted to focus on the new site build 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 the pushing the actually outcome to the high end of that range and what might push it to the lower end?

Yes. 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 location 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 corroder between Houston and Austin continues to be attractive. We're seeing other areas Nashville, Tennessee for example, Charleston, South Carolina for example where are see strong population growth and the 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's 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 helpful.

Yes. I think the way you should think about is take the capital guidance that we've 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'd 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'm thinking 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 the 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 be appreciated.

Yes. I think, Richard, what I would say is we're always rooting for a strong economy. 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 '08 we saw some demand disruption 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 earning standpoint and future earnings growth combined.

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