Sunoco LP (SUN) Q2 2015 Earnings Report, Transcript and Summary

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 stores are in some of the fastest growing geographies in the United States. For the most recent quarter, Stripes delivered 3.1% same-store sales growth which includes strong Laredo Taco Company restaurant sales. Stripes also has a robust new build program that is a significant and reliable source of organic growth. We're on track to build more than 40 new Stripes sites this year. All of the Stripes new build stores and the majority of the stores overall include a Laredo Taco Company restaurant. A typical profile of one of these new builds is a spend of about $4 million to $5 million in average cost depending on land value and we achieve an EBIDTA at about a 6x to 8x multiple on average. The sites reach full cash flow run rate in about a two to three-year period and these new larger configuration sites produce cash flows produce two to three times the average of a legacy industry sites. The 2015 organic new build program represents year-over-year growth of 6.8% in Stripes site count which is expected to generate a high overall increase in EBIDTA growth. We built approximately 80 Stripes sites combined over the three-year prior to 2015. With this we have a reliable pipeline of cash flow growth flowing through these results as these newer Stripes ramp up to full rate. The Stripes organic growth program has a strong record in place delivering solid growth since 2010. The five years of data on the program were continually driving higher returns through optimization of the site selection and predictive analytics. With the Susser Holdings dropdown we also acquired a current land bank with approximately 70 bare ground sites that support our future new build program beyond 2015. We have current plans to continue our rate of build new sites growth in 2016 with at least another 40 new sites and have the flexibility in our land bank to continue above that level also. As we build new locations we will continue to repopulate the land bank using our selective criteria for economic returns in select strategic markets. In addition to the retail store dropdown, we expect to close next week on a small tuck-in acquisition quick stop convenient stores in Rio Grande Valley, South Texas; very desirable growth market that would geographically and operationally complement the Stripes locations in that region. We purchased these stores for $41.6 million which equates to an approximate 7x multiple and we will eventually rebrand most of these locations to the Stripes store banner. We're quite pleased to have all these assets in our portfolio as we see strong value in this group of retail locations. Combined with the acquisition of our previously announced 31.6% Sunoco LLC, which is the wholesale fuel distributor that is still majority-owned by ETP, this latest dropdown of a significant portion of retail business into SUN and recent South Texas expands Sunoco LP's sales channel portfolio. In addition, the expanded footprint allows us to further leverage both the Sunoco fuel brand and the Stripes retail brands as a platform for new accretive growth opportunities. So with Sunoco, MACS/Tigermarket, Aloha and now Stripes we believe these brands provide the markets and opportunities to invest significant organic growth capital going forward. We believe up to $300 million annually can be expected in organic growth capital for the next several years based on the conditions and opportunities that we're currently seeing. As of today, we have the Sunoco sign placed above 87 of our company-operated stores in Texas and we're adding new locations to that total each and every week. Clare will come back in a minute with a few more details on these transactions. Next, I'd like to talk about our distribution increase announced in yesterday's earnings release. For the second quarter in a row we have announced a 7.5% quarterly increase in our distribution. Compared to the same period last year the growth is up a full 33.4% at $0.6934 cents per unit. This is our ninth consecutive quarterly increase and the fourth consecutive quarterly increase of 5% or more. We've been very deliberate with our distribution increases and we're very comfortable with the current growth rate. Our distributable cash flow coverage for the latest quarter was 1.23 times and 1.37 times looked at on the basis of a trailing four-quarter analysis. Long-term, we continue to target a minimum of 1.1 coverage ratio. In the near term obviously that will vary quarter to quarter as we see changes in our DCF due to the planned dropdowns and strategic acquisitions. Finally, before the discussion of the 2Q results, I will briefly address the transaction announced in mid-July concurrent with the Susser dropdown related to our GP ownership. Energy Transfer Equity, ETE, will become Sunoco LP's new parent later this month as a result of planned transaction where ETP will exchange 21 million ETP common units currently owned at ETE for 100% of SUN's general partner interest and incentive distribution rights. This exchange has no impact on SUN at all other than the change in parent partnership. We expect to continue to receive the same level of support from the Energy Transfer family. After the exchange is complete, ETP will still hold about 37.8 million common units in SUN. ETP will also continue to own the remaining 68.4% of Sunoco LLC and the legacy Sunoco retail assets until we complete those dropdowns which we've announced or plan to complete by year-end next year. Now let's move to the Partnership's second quarter performance. SUN LP delivered another solid quarter of financial and operating performance even as volatility in fuel prices impacted our industry more broadly. Our adjusted EBIDTA attributable to partners excluding transaction related costs more than tripled to $58.2 million, and our distributable cash flow attributable to partners as adjusted increased by 2.5 times to $39.3 million compared to the second quarter of last year. The very favourable year-over-year comparison in our adjusted EBIDTA and our distributable cash flow mainly reflects growth from the MACS and Sunoco LLC dropdowns as well as from the Aloha Petroleum acquisition. We also benefitted from growth in fuel volumes sold to affiliates at Stripes sites which is driven by organic growth execution at Stripes in the form of same-store sales growth and new site builds. Additionally, our MACS and Aloha acquisitions continue to perform well helped by strong growth in the same-store merchandise sales of 7.1% and 10.3% respectively and for same-store fuel volumes of 1.3% overall driven largely by the MACS assets [indiscernible] to 2.6% same-store sales growth. Again, overall a very solid performance last quarter reflecting the solid fundamentals of our business in a very volatile commodity price environment. In a minute, Clare will speak in more detail about the 2Q results. I'd like to wind up my prepared remarks. So with a few observations about the market for MLPs and the outlook for the space as that affects Sunoco LP, clearly the group has struggled over the last two to three months. We believe there should be a differentiation, however, between partnerships that have significant risk exposure to general macroeconomic factors and low oil prices. And that should be differentiated from partnerships like Sunoco LP whose assets and operations are not impacted by the absolute prices of oil, which makes Sunoco a very good diversification opportunity we believe related to other MLPs including during periods or even more especially during periods of volatility. Our diverse geographic reach and channels of business provide built in stability. We have stable, long-term contracts that support the wholesale business and our retail store operation is spread across some of the fastest growing markets in the United States, all of which helps mitigate the impact to commodity price volatility and growth differentials in particular regions or in particular states. And while fuel margins may swing from month to month, quarter to quarter, over time our fuel margins trend consistently year in year out. On top of that merchandise sales at convenient stores industry-wide have proved to be largely recession proof. In addition, our unique built in growth comes in the form of dropdowns as well as growing organic growth program and acquisition opportunities. We believe these will continue to generate value and make Sunoco an attractive investment opportunity going forward. I now like to turn the call over to Clare McGrory who will cover additional highlights of our second quarter performance and business updates. After that we'll be happy to take your questions.

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 equity. Depending on our unit price and capital market conditions at the time we will value a what we think will build the most value of freeing orders over time. Our plan, going forward, is to focus our equity efforts on an ATM, an at-the-market program. We will expect to stay out of the market until sometime in 2016 depending on any sizable acquisition opportunities that arise and the remaining drop schedule which I will touch on below. Now let's look at some of the highlights of the second quarter. Adjusted EBIDTA attributable to partners increased from $15.6 million in the second quarter of last year to $58.2 million in Q2 2015 excluding expenses related to acquisition and dropdown transaction cost. Distributable cash flow attributable to partners as adjusted increased from $13.7 million a year ago to $39.3 million in Q2. These amounts attributable to partners exclude non-controlling interest. It is important to clarify what we mean by excluding non-controlling interest. The non-controlling interest that is adjusted to arrive at adjusted EBIDTA attributable to partners consists of a VIE interest and the non-controlling interest in Sunoco LLC. On the VIE approximately $4 million of adjusted EBIDTA attributable to non-controlling interest in this quarter relates to this VIE from the MACS transaction. This is consistent with 1Q '15. However, the majority of this non-controlling interest in 2Q '15 relates to Sunoco LLC. Because Sunoco LP has a controlling interest in Sunoco LLC, the legacy Sunoco wholesale fuel distribution business, as a result of its 50.1% voting interest, our consolidated financial statements include 100% of Sunoco LLC. We deduct the 68.4% interest that we do not own through the non-controlling interest line. We have provided operating data in both the earnings release and the 10-Q which provide relevant volume and margin stats reflective of the actual 31.6% interest owned of Sunoco LLC and that which is included in earnings attributable to partners. For instance, there are 440 convenient stores that are operated by ETP subsidiary Sunoco, Inc., and supplied under a long-term agreement by Sunoco LLC. In our pro forma numbers we are including just 31.6% of the volumes which represent 87 million of the 408 million gallons sold to all affiliates from Sunoco LP in the quarter. All other operating stats I'll be walking through will be on the same basis reflecting just our true economic ownership interest. As Bob mentioned, we had very robust increases in most key metrics which primarily reflects the acquisitions and dropdowns made over the last three quarters but also with the help of organic growth and retail merchandise sales and also Stripes volumes which shows up for us through sale to affiliates in 2Q. The MACS and Aloha assets continued to perform and except for the impact of rising crude cost on fuel margins last quarter these assets continued to exceed economics on most other operating metrics. Volume sold by the partnership to affiliates increased by 39% year-over-year to 408 million gallons. This includes 87 million gallons related to the 31.6% interest in Sunoco LLC and the remaining increase driven by organic growth at Stripes in the form of new Stripes stores built as well as 2.4% same-store sale volume growth in Stripes for 2Q. The supply margin we earned on these gallons was $0.033 per gallon on a weighted average basis incorporating a $0.04 per gallon fee on the volume sold by Sunoco LLC and $0.03 per gallon on the Sunoco LP volume sold to Stripes retail sites and consignment sites. Other wholesale volume sold to independent dealers, distributors and other commercial customers increased by 231% to nearly 560 million gallons. The increase in third party gallons again reflects again the Sunoco LLC, MACS and Aloha acquisition. The third party wholesale business in the Texas region saw lower volumes versus prior year by approximately 20% driven in large part by slower demand related to oil production pockets. Gross profit on these gallons was $0.082 per gallon versus $0.049 a year earlier with a higher CPG margin driven by the mix of generally more profitable regions from the recent acquisition. As Bob mentioned earlier, we achieved very strong performance in our retail segment in both fuel and merchandise which again demonstrates the benefits of diversification within Sunoco LP. Overall fuel same-store sales volume increased 1.3% driven by the MACS assets. Merchandise sales from the MACS and Aloha chain delivered same-store sales increases of approximately 7.1% and 10.3% respectively versus a year ago. This is exceptional growth and reflective of the strong efforts integration activities on our recent acquisition. Additionally, the Stripes chain which we now own effective July 31 and which we'll start to see the benefit of in 3Q results also continued to deliver strong growth in the convenient stores. With 3.1% of same-store merchandise growth in 2Q inclusive of strong Laredo Taco performance. Remember, this is on top of Stripes fuel volume same-store growth of 2.4%. Impressive considering that we did continue to see declines in certain regions that are most impacted by the fall off in oil production. Our asset portfolio was weighted more heavily towards fuel in the second quarter with the full quarter's contribution from our interest in the Sunoco LLC wholesale distribution business. And our weighted average fuel margin for all gallons sold increased from $0.33 a year ago to $0.76 in Q2 excluding the non-controlling interest. The higher margin again reflects the addition of MACS and Aloha's higher margin retail and a change in the wholesale customer mix related to Sunoco LLC, MACS and Aloha acquisition. Our retail margins were on average $0.274 per gallon. Those retail fuel margins were lower than normalized level for the current Sunoco LP portfolio due to rising crude cost during the quarter which impacted the retail segment in particular. Third party wholesale margins were helped by supply optimization and timing benefits which offset some of the pressure of rising cost. As we have noted before very well we do see volatility month to month or quarter to quarter, our fuel margins are generally ratable over an annualized period. In Q3 the mix will shift more towards retail stores with the Susser dropdown and thus we will benefit from the diversification of the merchandise sales. Stripes achieved $353 million of merchandise sales in the second quarter reported within ETP results. And this is with 34.3% net merchandise margin on the Stripes sites. Effective July 31, Sunoco LP is benefitting from these strong results and nice diversification in businesses. With retail and merchandise operation we expect to see both higher gross profit contribution and higher expenses reflecting labor, maintenance, operating and depreciation expense from those stores as was reflected in the pro forma filed in July. To wrap up the main components of adjusted EBIDTA rental and other income components of gross profit increased approximately $26 million entirely due to acquisition. G&A and other operating expenses were also in line with expectations that the increases from higher year due to entirely to the acquisitions of Sunoco LLC, MACS and Aloha. Note that effective 2Q '15 we consolidated personnel expenses back into the other operating line for simplicity. Looking next at recent financing and our liquidity position. On July 20, we issued $600 million of 5.5% senior notes due 2020 at par through an outsize private offering that raised net proceeds of $592.5 million. The proceeds were used to fund a portion of the purchase of Susser Holding Corporation from ETP. Also in connection with the Susser transaction, we issued 5.5 million common units through a public offering at a price of $40.10 per unit. The offering was completed on July 21 and raised net proceeds of $212.9 million. As I mentioned earlier, we currently do not foresee a need to undertake any overnight or marketed equity offering until sometime in 2016 depending on the drop schedule timing or any notable acquisition opportunity. As of June 30, we had borrowings against our recently expanded $1.5 billion revolving credit facility of $724.7 million plus a $11.1 million in standby letters of credit. This is leaving us with unused availability of $764 million at the end of the second quarter. Since that time borrowings under the revolver have increased by approximately $175 million to a total of $900 million. This increase was primarily driven by the remaining cash funding needs for the Susser Holdings dropdown. We also assume approximately $2.5 million of additional Susser Holdings standby letters of credit. This activity left us with approximately $586 million in used availability as of July 31. Depending on market conditions and pricing we could decide to access the debt capital market during the remainder of 2015 to further reduce the revolver balance. We remain well within our leverage covenant with net debt to EBIDTA of 4.9 times on the trailing 12 month basis as of June 30. This is pro forma for the acquisitions that have been completed by the end of the first half and also pro forma for the Susser Holdings Corporation acquisition completed in July. During the second quarter, we purchased six sites in sale lease back transaction with Susser Holdings Corporation for $32 million. Effective with the acquisition of Susser Holdings all new Stripes sites will be purchased directly within our PropCo subsidiary and we will no longer have need for the sale lease back program. Sunoco LP will benefit entirely from the organic growth program in Stripes going forward. Including an additional $10 million that was invested in connection with new dealer industry fuel supply contracts and $7 million in maintenance capital, our capital expenditures for the second quarter excluding acquisitions total $48.4 million on a consolidated basis. Accounting for the capital shift related to our purchase of 31.6% equity interest in Sunoco LLC and for Susser Holdings Corporation, our expected growth CapEx is in the range of $220 million to $270 million for the full year 2015. Maintenance CapEx now reflecting the dropdowns completed is expected to be between $40 million and $50 million excluding non-controlling interest with the change entirely relating to the dropdown activity, our growth CapEx includes the development of 35 o 40 new Stripes stores in 2015. All in all, with our current level of liquidity we believe we are well-positioned from a capital standpoint to manage the dropdown plan, continue the organic growth within our existing footprint and grow through strategic third party acquisition that will drive value for investors. So before I conclude, allow me to review the Investor Relation schedule for the next six weeks or so. Sunoco LP will be participating in the following upcoming conferences. The Goldman Sachs Power Utilities and MLP Pipeline Conference in New York City next week on August 11. The Citi MLP Midstream Infrastructure Conference in late August in Las Vegas and JPMorgan Midwest Energy Infrastructure MLP Forum in Chicago on September 16. We hope to see you there. That concludes our prepared remarks this morning. Operator, we're ready to take questions.

[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.