Item 1. Business
General
We are a growth-oriented Delaware limited partnership formed in June 2012 by Susser Holdings Corporation, ("SUSS") and its wholly owned subsidiary, Susser Petroleum Partners GP LLC (our "general partner"), to engage in the primarily fee-based wholesale distribution of motor fuels to SUSS and third parties. In September 2012, we completed our initial public offering (the “IPO”) and our common units representing limited partner interests now trade on the New York Stock Exchange under the symbol “SUSP.” Prior to completion of the IPO, our operations were conducted by Susser Petroleum Company LLC (“Predecessor”). For the year ended December 31, 2012, we and our Predecessor distributed 889.8 million gallons of motor fuel to Stripes® convenience stores and SUSS consignment locations and 560.2 million gallons of motor fuel to other third-party customers. We believe we are the largest independent motor fuel distributor by gallons in Texas, and among the largest distributors of Valero and Chevron branded motor fuel in the United States. We also receive rental income from real estate that we lease or sublease.
Our principal executive offices are located at 555 East Airtex Drive, Houston, Texas 77073. Our telephone number is (832) 234-3600. Our internet address is http://www.susserpetroleumpartners.com. We make available through our website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, as soon as reasonably practicable after we electronically file such material with, or furnish such material to, the Securities and Exchange Commission, or the SEC. The SEC maintains an internet site at http://www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.
References in this annual report to “Partnership,” "SUSP," “we,” “us,” and “our,” refer to Susser Petroleum Partners LP, our predecessors and our consolidated subsidiaries, as applicable and appropriate.
Our Relationship with Susser Holdings Corporation
One of our principal strengths is our relationship with SUSS. SUSS operates approximately 560 retail convenience stores under its proprietary Stripes® brand, primarily in growing Texas markets. Stripes is a leading independent operator of convenience stores in Texas, based on store count and retail motor fuel volumes sold. Our business is integral to the success of SUSS' retail operations, and SUSS purchases substantially all of its motor fuel from us.
The Susser family entered the motor fuel retailing and distribution business in the 1930's. Sam L. Susser, the President and Chief Executive Officer of SUSS and Chief Executive Officer and chairman of the board of directors of our general partner, joined SUSS in 1988, when it operated five retail stores and had revenues of $8.4 million. SUSS has demonstrated a strong track record of internal growth and the ability to successfully integrate acquisitions into its operations, completing 13 multi-unit acquisitions consisting of both retail stores and wholesale distribution contracts since 1988. In addition, SUSS constructed 141 large‑format convenience stores from January 2000 through December 31, 2012, and intends to construct 29 to 35 stores during 2013. SUSS has also developed Laredo Taco Company®, a proprietary in-house restaurant concept, and implemented it in over 352 Stripes® convenience stores, and intends to implement it in all newly constructed Stripes® convenience stores. Shares of SUSS' common stock are listed on the New York Stock Exchange under the ticker symbol "SUSS".
Commercial Agreements
Two long-term, fee-based commercial agreements with SUSS were contributed to us in connection with the IPO. These commercial agreements with SUSS consist of:
In addition to the above commercial agreements, we also entered into an Omnibus Agreement with SUSS in connection with the IPO. Pursuant to the Omnibus Agreement, among other things, the Partnership received a three-year option to purchase from SUSS up to 75 of SUSS' new or recently constructed Stripes® convenience stores at SUSS' cost and lease the stores back to SUSS at a specified rate for a 15-year initial term, and the Partnership will be the exclusive distributor of motor fuel to such stores for a period of ten years from the date of purchase. The Partnership also received a ten-year right to participate in acquisition opportunities with SUSS, to the extent the Partnership and SUSS are able to reach an agreement on terms, and the exclusive right to distribute all motor fuel SUSS purchases for its own account which would generally include all of SUSS' newly constructed convenience stores and independently operated consignment locations. In addition, the Partnership agreed to reimburse the general partner and its affiliates for the costs incurred in managing and operating the Partnership.
For more information regarding the commercial agreements and the Omnibus Agreement, please read ''Item 13. Certain Relationships, Related Transactions and Director Independence.”
Our Business and Properties
We are a wholesale distributor of motor fuels and other petroleum products, and we lease or sublease to SUSS, third-party dealers, and independent operators of consignment locations, real estate used primarily in the retail distribution of motor fuels. We do not operate or intend to operate any retail convenience stores.
Wholesale Motor Fuel Distribution
We purchase motor fuel from refiners and distribute it throughout Texas and in New Mexico, Oklahoma and Louisiana to (i) Stripes® convenience stores, (ii) SUSS' independently operated consignment locations; (iii) convenience stores and retail fuel outlets operated by third parties and (iv) other commercial customers. Subsequent to our IPO, we classify sales to SUSS for its Stripes® stores and consignment locations as affiliated sales. Prior to our IPO, our Predecessor supplied the SUSS consignment locations directly and therefore these sales were included in third-party sales. The following table highlights our total motor fuel gallons sold during each of the last five fiscal years (gallons in thousands):
Year Ended December 31,
2008
2009
2010
2011
2012 (1)
Customer Group
Affiliates
609,821
707,106
739,104
789,578
889,755
Third‑party dealers and other commercial customers
486,516
494,821
494,209
522,832
560,199
Total
1,096,337
1,201,927
1,233,313
1,312,410
1,449,954
________________
(1) SUSS consignment gallons are included in Third-party dealers and other commercial customers prior to September 25, 2012 and are included in Affiliates beginning September 25, 2012.
The following table highlights the number of locations as of the end of the year, by principal customer group:
As of Year Ended December 31,
512
526
541
648
Third‑party contracted dealer locations
372
390
431
565
490
884
916
957
1,106
1,138
(1) SUSS consignment locations are included in Third-party dealers and other commercial customers prior to September 25, 2012 and are included in Affiliates beginning September 25, 2012.
Sales to Affiliates.
Pursuant to the SUSS Distribution Contract and the Omnibus Agreement, we are the exclusive distributor of motor fuel purchased by SUSS' Stripes® convenience store locations and independently operated consignment locations. We charge a fixed profit margin of three cents per gallon to all SUSS-supplied stores existing at the time of the IPO and purchased by us pursuant to our sale and leaseback option. Unless other fuel supply terms are negotiated between SUSS and us, the profit margin for other additional Stripes® or consignment locations will be at the alternative fuel sales rate, as determined annually pursuant to the Omnibus Agreement.
As of December 31, 2012, SUSS operated 559 Stripes® convenience stores, 512 of which were in Texas, 29 of which were in New Mexico, and 18 of which were in Oklahoma. As of December 31, 2012, 553 Stripes® convenience stores were supplied by us, predominately at a fixed profit margin of three cents per gallon. Approximately 85% of the Stripes® convenience stores are open 24 hours a day, 365 days a year. SUSS has built over 141 Stripes® convenience stores since January 1, 2000 through December 31, 2012, which average approximately 5,000 square feet and are built on large lots with much larger motor fueling and parking facilities as compared to older stores and many of our competitors' stores. According to a report of 2011 industry data issued by the National Association of Convenience Stores, the average size of new stores in the U.S. was 4,083 square feet in urban areas, and 4,024 square feet in rural areas. The average size of existing stores in the industry is 2,813 square feet.