CFA Institute Research Challenge

Boston, MA - Local Competition

The Fletcher School of Law and Diplomacy
Medford, MA.

Tanay Tatum - Jared Holst - Riya Sridhar

Giacomo Canepa - Ronen Shohat
Introduction
Master limited partnership in the energy sector
In 2015-2016 high commodity exposure led to drop in share price
Diversified income base through strategic acquisitions

GLP Share Price

22

20

18

16

14 List Price
$15.90
12
(as of 12/8/16)
10
12.8.15 1.8.16 2.8.16 3.8.16 4.8.16 5.8.16 6.8.16 7.8.16 8.8.16 9.8.16 10.8.16 11.8.16 12.8.16

Industry &
Business Financial
Introduction Competitive Valuation Risk Analysis
Overview Analysis
Positioning
Introduction
Vertical integration to drive earnings and support cash flows
Sustainable dividend yield over 3-6 month investment horizon

GLP Share Price

22

Intrinsic Value
20 $18.50
18

16

14 List Price
$15.90
12
(as of 12/8/16)
10
12.8.15 1.8.16 2.8.16 3.8.16 4.8.16 5.8.16 6.8.16 7.8.16 8.8.16 9.8.16 10.8.16 11.8.16 12.8.16

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Introduction Competitive Valuation Risk Analysis
Overview Analysis
Positioning
Business Overview
Midstream petroleum logistics company
57% of revenue derived from wholesale segment
Constrained growth due to debt covenant Segments as a percentage of total
revenue:

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Introduction Competitive Valuation Risk Analysis
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Business Overview
Growth of GDSO

Year-Over-Year Revenue by Segment Number of Owned, Leased and/or

16,000,000 Supplied Gasoline Stations
14,000,000 1600 1509

12,000,000 1400
1200
10,000,000 1000 1000 1000
1000
8,000,000 800
800
6,000,000 600
4,000,000 400
190
200
2,000,000
0
0 2010 2011 2012 2013 2014 2015
2013 2014 2015 2016 (9 mo.)

Wholesale GDSO Commercial

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Industry Overview
Threat of New Entrants

4
3

Porters Five Forces

2
1
0

Analysis

Legend
0 No threat to GLP
5 High threat to
GLP

Source: Team
Estimates

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Industry Overview

Competition

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Financial Analysis

Key Takeaways

Wholesale product margin decline

from 3.7% in the 9 months ended
2015 to 3% in the 9 months ended
2016 can be attributed to:
a. High correlation with commodity
fluctuations.
b. Uncertainties in the crude oil
market.
c. Large impairment cost incurred
in 2016.

The GDSO segment leveraged its

storage capacity to exploit market
opportunities in the northeast region.

Industry &
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Introduction Competitive Valuation Risk Analysis
Overview Analysis
Positioning
Financial Analysis
Decline in crude oil prices in 2015

Wholesale: Rising
wholesale gasoline prices
GDSO: Business Transition

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Introduction Competitive Valuation Risk Analysis
Overview Analysis
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Financial Analysis
Peer Analysis YE 2015 Peer Analysis Q2 2016
PERFORMANCE GLP ARCX SRLP SUN PERFORMANCE GLP ARCX SRLP SUN
EBITDA 230.6 30.2 130.7 519.3 EBITDA 41.2 13.6 2.6 202.9
EBITDA Margin 2.24 36.92 3.75 3.07 EBITDA Margin 1.92 51.87 0.55 5.01
Revenue 10,314.9 81.8 3,481.9 16,935.3 Revenue 2,146.2 26.2 477.5 4,052.2
Revenue Growth -40.27 48.96 -31.32 64.14 Revenue Growth -19.92 37.33 -27.84 -20.95
Operating expenses 482.9 74.1 186.2 1,139.9 Operating expenses 117.4 20.0 40.4 456.4
Distribution Coverage 1.06 1.08 2.45 2.78 Distribution Coverage 4.84 1.30 -0.06 2.01

Peer Analysis Q1 2016 Peer Analysis Q3 2016

PERFORMANCE GLP ARCX SRLP SUN PERFORMANCE GLP ARCX SRLP SUN
EBITDA 42.9 12.1 43.3 169.9 EBITDA -103.7 14.0 5.1 181.8
EBITDA Margin 2.45 46.55 5.98 5.30 EBITDA Margin -5.11 52.48 1.21 4.39
Revenue 1,750.8 26.1 722.9 3,202.3 Revenue 2,030.2 26.7 422.8 4,137.3
Revenue Growth -41.23 92.28 -54.77 -26.25 Revenue Growth -18.34 10.75 -24.24 -15.68
Operating expenses 115.8 21.3 46.0 406.9 Operating expenses 264.9 20.3 40.8 473.2
Distribution Coverage 0.13 1.46 3.06 1.46 Distribution Coverage 1.61 1.44 0.45

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Financial Analysis
M&A Activity (in $millions)
600

400 Sale of non-strategic

assets amounting to
200 $40 in the year 2016.

0 Completed a $63.5
2013 2014 2015 2016 2017
million sale-leaseback
-200 transaction with a
premier institutional
-400 real estate investor.

-600

-800

DEBT OFFERINGS EQUITY OFFERINGS DIVESTITURES ACQUISITONS

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 Financial Analysis
2012 2013 2014 2015 2016
GLP Dividend Distribution Distributable cash flow 80.8 105.2 161.2 126.9 -69.5
Dividend payouts 2.06 2.34 2.53 2.74 1.85
200
Stock Price 17.7 26.5 33.2 27.5 17.2
(in millions)

150
Dividend Payouts

100 2.9

2.7

2.5
50
2.3

2.1
0
2012 2013 2014 2015 2016 1.9

1.7
-50 1.5
2012 2013 2014 2015 2016

-100

Distributable cash flow Dividend payouts Stock Price

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Valuation
Valuation Summary
Best Case Base Case Worst Case
$18.50
25.00
$23.26
$21.19 $21.68
$19.72
20.00

15.00
$17.37

10.00 $12.62 $12.78

$11.52
$15.90
5.00

0.00
DCF Value at 4.5x-6.5x Exit DCF Value at 0.0%-2.0% DDM Value 52 Week Market High/Low
EBITDA Range Perpetuity Range

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Valuation

WACC - Assumed a 2-year horizon.

Debt - Premium to the existing cost of debt
Debt to capital - Maintained at current levels

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Valuation

Source: Bloomberg Terminal

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Risk Matrix
Operational Risk (OR1)
Dependence on M&A activity
Leverage Risk (OR2)
Question of Solvency/Liquidity
Market & Interest Rates (MR1)
Rise in Interest Rates, Drop in Oil Prices
Economic Risk (ER1)
Risk of Vertical Integration Model Failing
Regulatory Risk (RR1)
Non-Renewable Energy Policy
Director Independence (OR3)
The Slifka Family

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Decrease in Oil Prices GLP vs WTI Crude Oil
$120.00

$100.00
Beta of 0.649
$80.00

$60.00

$40.00

$20.00

$0.00
2012 2013 2014 2015 2016

GLP WTI
World Liquid Fuels Production and Consumption Balance

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Increase in Interest Rates
GLP vs 10 Year US Treasury
20.00%

15.00%

10.00%

5.00%

0.00%
2012 2013 2014 2015 2016
GLP Dividend Yield 10 Year Treasury Yield GLP 6.25% 7/15/2022 Corp

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Credit Downgrade
Description Principal Due YTM Increase in YTM if Credit Rate
Downgraded
2022 Term Note $375M 6.719% 7.708%
2023 Term Note $300M 7.120% 8.109%

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Lack of Access to Capital
Current Debt Covenant
$2,500 m

$2,000 m

$1,500 m
12/22/2016
Signed pact to terminate $1,000 m

railcar leases early, saving $500 m

$10.2m over the next 3 years $0 m
2012 2013 2014 2015 2016

GLP Long Term Debt ($ millions) Current Largest Debt Covenant

2/6/2017 Financial Leverage Ratio

Sold nonstrategic natural 8
7
gas/electricity business to Financial Leverage Ratio 6
Sprague Resources for 5

$17.3m cash 4
3
2
1
0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

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Conclusion
Dividend yield (9%) and distribution ($1.85) as of 2/10/17
Stock is now fully valued List Price
$20.50
GLP Share Price (as of 2/10/17)

22

20

18

16
Intrinsic Value
$18.50
14

List Price
12
$15.90
(as of 12/8/16)
10
12.8.15 1.8.16 2.8.16 3.8.16 4.8.16 5.8.16 6.8.16 7.8.16 8.8.16 9.8.16 10.8.16 11.8.16 12.8.16 1.8.17 2.8.17
Appendix 1 Income Statement Forecasted
Appendix 2 Balance Sheet Forecasted
Appendix 3 Multiples Valuation
Appendix 4 Terminal Value
Appendix 5 Valuation Weighting

Two Valuation Methods

The Discounted Cash Flow (DCF)

Dividend Discount Model (DDM)

Findings

GLP offers a high distribution yield (11.6%).

Relative security in the sustainability of cash distributions.
Limited downside risks in the drivers of each model.
 Appendix 6 Dividend Discount Model
Base Case Worst Case
Dividend Term Investor Dividend Term Investor
Inputs Year Dividend growth Value CF Inputs Year Dividend growth value CF
k_equity 9.70% 2016 1.85 1.85 k_equity 9.70% 2016 1.85 1.85
term_gwth 1.32% 2017 1.85 0.0% 1.85 term_gwt
2018 1.85 0.0% 1.85 h 1.32% 2017 1.79 -3.0% 1.79
2019 1.85 0.0% 1.85 2018 1.74 -3.0% 1.74
2020 1.85 0.0% 1.85 2019 1.69 -3.0% 1.69
2021 1.85 0.0% 1.85 2020 1.64 -3.0% 1.64
2022 1.85 0.0% 1.85
2021 1.59 -3.0% 1.59
2023 1.85 0.0% 22.07 23.92
2022 1.54 -3.0% 1.54
PV of Cash Flows Discounted at 2023 1.49 -3.0% 17.30 18.79
k_equity 20.50
PV of Cash Flows Discounted at
k_equity 17.37
Yield 9.02% Yield 8.61%
Dividend
Inputs Year Dividend growth Term value Investor CF
k_equity 9.70% 2016 1.85 1.85
term_gwth 1.32% 2017 1.87 1.0% 1.87
2018 1.89 1.0% 1.89
Best Case k_equity 9.70% 2019 1.91 1.0% 1.91
term_gwth 1.32% 2020 1.93 1.0% 1.93
2021 1.94 1.0% 1.94
2022 1.96 1.0% 1.96
2023 1.98 1.0% 23.90 25.88

PV of Cash Flows Discounted at k_equity 21.68

Yield 9.15%
Appendix 7 Basic Economics of GDSO

Gross margin
per gallon of gas Profit margin
per gallon of gas

5.7% 1-2%

Source: NACS Fuel Report 2015

Appendix 8 Terminal Locations & GDSO Expansion
Strategic terminal locations
Expansion of GDSO driving profits
Growth into Mid-Atlantic fueling profits
Appendix 9 Reduction in Oil Inventories
Appendix 10 The General Partners
Global Partners was founded by Abraham Slifka in 1933. Alfreds estate represe ts 13.9% of outsta di g co o u its
He had two sons: Alfred and Richard. and is still in probate.

When Alfred passed away on March 9, 2014, Richard

Slifka become chair of the board.

Slifka Family Common Units % of Total

Richard Slifka 5,579,582 16.4%

Estate of Alfred A. Slifka 4,734,095 13.9%

Eric Slifka 1,161,741 3.4%

Andrew Slifka 496,372 1.5%

11,971,790
Total 35%