CrossAmerica Partners LP: Form 10-Q for the period ended Mar 31, 2024

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This report includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties. Forward-looking statements include the information concerning our possible or assumed future results of operations, business strategies, financing plans, competitive position, credit ratings, distribution growth, potential growth opportunities, potential operating performance improvements, potential improvements in return on capital employed, the effects of competition and the effects of future legislation or regulations. You can identify our forward-looking statements by the words “anticipate,” “estimate,” “believe,” “continue,” “could,” “intend,” “may,” “plan,” “potential,” “predict,” “seek,” “should,” “will,” “would,” “expect,” “objective,” “projection,” “forecast,” “guidance,” “outlook,” “effort,” “target” and similar expressions. Such statements are based on our current plans and expectations and involve risks and uncertainties that could potentially affect actual results. These forward-looking statements include, among other things, statements regarding:

• future retail and wholesale gross profits, including gasoline, diesel and convenience store merchandise gross profits;
• our anticipated level of capital investments, including through acquisitions, and the effect of these capital investments on our results of operations;
• anticipated trends in the demand for, and volumes sold of, gasoline and diesel in the regions where we operate;
• volatility in the equity and credit markets limiting access to capital markets;
• our ability to integrate acquired businesses;
• expectations regarding environmental, tax and other regulatory initiatives; and
• the effect of general economic and other conditions on our business.

In general, we based the forward-looking statements included in this report on our current expectations, estimates and projections about our company and the industry in which we operate. We caution you that these statements are not guarantees of future performance and involve risks and uncertainties we cannot predict. We anticipate that subsequent events and market developments will cause our estimates to change. In addition, we based many of these forward-looking statements on assumptions about future events that may prove to be inaccurate. Accordingly, our actual outcomes and results may differ materially from what we have expressed or forecasted in the forward-looking statements. Any differences could result from a variety of factors, including the following:

• the Topper Group’s business strategy and operations and the Topper Group’s conflicts of interest with us;
• availability of cash flow to pay the current quarterly distributions on our common units;
• the availability and cost of competing motor fuel resources;
• motor fuel price volatility, including as a result of the conflict in Ukraine or the war between Israel and Hamas;
• a reduction in demand for motor fuels;
• competition in the industries and geographical areas in which we operate;
• the consummation of financing, acquisition or disposition transactions and the effect thereof on our business;
• environmental compliance and remediation costs;
• our existing or future indebtedness and the related interest expense and our ability to comply with debt covenants;
• our liquidity, results of operations and financial condition;
• failure to comply with applicable tax and other regulations or governmental policies;
• future legislation and changes in regulations, governmental policies, immigration laws and restrictions or changes in enforcement or interpretations thereof;
• future regulations and actions that could expand the non-exempt status of employees under the Fair Labor Standards Act;
• future income tax legislation;
• changes in energy policy;
• technological advances;
• the impact of worldwide economic and political conditions;
• the impact of wars and acts of terrorism;
• weather conditions or catastrophic weather-related damage;
• earthquakes and other natural disasters;
• hazards and risks associated with transporting and storing motor fuel;
• unexpected environmental liabilities;
• the outcome of pending or future litigation; and
• our ability to comply with federal and state laws and regulations, including those related to environmental matters, the sale of alcohol, cigarettes and fresh foods, employment and health benefits and immigration.

You should consider the risks and uncertainties described above and elsewhere in this report as well as those set forth in the section entitled “Risk Factors” in our Form 10-K in connection with considering any forward-looking statements that may be made by us and our businesses generally. We cannot assure you that anticipated results or events reflected in the forward-looking statements will be achieved or will occur. The forward-looking statements included in this report are made as of the date of this report. We undertake no obligation to publicly release any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events after the date of this report, except as required by law.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following MD&A is intended to help the reader understand our results of operations and financial condition. This section is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and the accompanying notes to these financial statements contained elsewhere in this report, and the MD&A section and the consolidated financial statements and accompanying notes to those financial statements in our Form 10-K. Our Form 10-K contains a discussion of other matters not included herein, such as disclosures regarding critical accounting policies and estimates and contractual obligations.

MD&A is organized as follows:

• **Recent Developments—**This section describes significant recent developments.
• **Significant Factors Affecting Our Profitability—**This section describes the most significant factors impacting our results of operations.
• **Results of Operations—**This section provides an analysis of our results of operations on a consolidated basis and for each of our segments as well as a discussion of non-GAAP financial measures.
• **Liquidity and Capital Resources—**This section provides a discussion of our financial condition and cash flows. It also includes a discussion of our debt, capital requirements, other matters impacting our liquidity and capital resources and an outlook for our business.
• **New Accounting Policies—**This section describes new accounting pronouncements that we have already adopted, those that we are required to adopt in the future and those that became applicable in the current year as a result of new circumstances.
• **Critical Accounting Policies and Estimates—**This section describes the accounting policies and estimates that we consider most important for our business and that require significant judgment.

Recent Developments

Applegreen Acquisition and Lease Termination

On January 26, 2024, we entered into an agreement (the “Applegreen Purchase Agreement”) to acquire certain assets from Applegreen Midwest, LLC and Applegreen Florida, LLC (collectively, the “Sellers”) (the “Applegreen Acquisition”). The assets were acquired via the termination of the Partnership’s existing lease agreements with the Sellers at 59 locations, for total consideration of $16.9 million. The transaction closed on a rolling basis by site beginning in the first quarter of 2024 and ending in April 2024. The Partnership also acquired for cash the inventory at the locations. The terms of the Partnership’s leases with Applegreen Midwest, LLC and Applegreen Florida, LLC could have been extended to 2049 and 2048, respectively, including all renewal options. The Applegreen Purchase Agreement contains customary representations and warranties of the parties as well as indemnification obligations by the Sellers and the Partnership, respectively, to each other.

Of the 59 locations, 31 locations converted during the first quarter of 2024 and the remaining locations converted in April 2024. This transaction resulted in the transition of these lessee dealer sites to company operated sites.

During the first quarter of 2024, we paid $19.9 million of cash and accrued an additional $1.2 million of cash paid in April 2024. In addition, we recorded a non-cash write-off of deferred rent income of $1.4 million during the first quarter of 2024. See Note 2 to the financial statements for additional information.

Amendment of CAPL Credit Facility

On February 20, 2024, in connection with our Applegreen Acquisition, we entered into an amendment (the “Amendment”) to the CAPL Credit Facility. The Amendment, among other things, modified the definition of Consolidated EBITDA contained in the Credit Agreement to permit the full addback of certain lease termination expenses incurred in connection with the Applegreen Acquisition and the addback of other lease termination expenses incurred in connection with future transactions, subject to certain terms and conditions.

Significant Factors Affecting our Profitability

The Significance of Crude Oil and Wholesale Motor Fuel Prices on Our Revenues, Cost of Sales and Gross Profit

The prices paid to our motor fuel suppliers for wholesale motor fuel (which affects our cost of sales) are highly correlated to the price of crude oil. The crude oil commodity markets are highly volatile, and the market prices of crude oil, and, correspondingly, the market prices of wholesale motor fuel, experience significant and rapid fluctuations. For approximately 58% of gallons sold, we receive a per gallon rate equal to the posted rack price, less any applicable discounts, plus transportation costs, taxes and a fixed rate per gallon of motor fuel. The remaining gallons are either retail sales or wholesale DTW contracts that provide for variable, market-based pricing.

Regarding our supplier relationships, a material amount of our total gallons purchased are subject to prompt payment discounts. The dollar value of these discounts varies with changes in motor fuel prices. Therefore, in periods of lower wholesale motor fuel prices, our gross profit is negatively affected, and, in periods of higher wholesale motor fuel prices, our gross profit is positively affected (as it relates to these discounts).

In our retail business, we attempt to pass along wholesale motor fuel price changes to our retail customers through “at the pump” retail price changes; however, market conditions do not always allow us to do so immediately. The timing of any related increase or decrease in “at the pump” retail prices is affected by competitive conditions in each geographic market in which we operate. As such, the prices we charge our customers for motor fuel and the gross profit we receive on our motor fuel sales can increase or decrease significantly over short periods of time.

Changes in our average motor fuel selling price per gallon and gross margin are directly related to the changes in crude oil and wholesale motor fuel prices. Variations in our reported revenues and cost of sales are, therefore, primarily related to the price of crude oil and wholesale motor fuel prices and generally not as a result of changes in motor fuel sales volumes, unless otherwise indicated and discussed below.

Seasonality Effects on Volumes

Our business is subject to seasonality due to our wholesale and retail sites being located in certain geographic areas that are affected by seasonal weather and temperature trends and associated changes in retail customer activity during different seasons. Historically, sales volumes have been highest in the second and third quarters (during the summer months) and lowest during the winter months in the first and fourth quarters.

Impact of Inflation

Inflation affects our financial performance by increasing certain components of cost of goods sold, such as fuel, merchandise, and credit card fees. Inflation also affects certain operating expenses, such as labor costs, certain leases, and general and administrative expenses. While our wholesale segment benefits from higher terms discounts as a result of higher fuel costs, inflation could and recently has negatively impacted our cost of goods sold and operating expenses. Although we have historically been able to pass on increased costs through price increases, there can be no assurance that we will be able to do so in the future.

Impact of Interest Rates

Given our interest rate swap contracts, our effective interest rate did not change significantly between the first quarter of 2023 and the first quarter of 2024. However, three of our most favorable interest rate swap contracts matured April 1, 2024. See Item 3 for additional information regarding the impact of the maturity of those interest rate swap contracts on our future interest expense.

Acquisition and Financing Activity

Our results of operations and financial condition are also impacted by our acquisition and financing activities as summarized below.

• On March 31, 2023, we amended and restated the CAPL Credit Facility and terminated the JKM Credit Facility.
• Through March 31, 2024, we have converted 31 of the 59 sites included in the Applegreen Acquisition and transitioned these sites from lessee dealer sites in the wholesale segment to company operated sites in the retail segment. See Note 2 to the financial statements for additional information.

Results of Operations

Consolidated Income Statement Analysis

Below is an analysis of our consolidated statements of operations and provides the primary reasons for significant increases and decreases in the various income statement line items from period to period. Our consolidated statements of operations are as follows (in thousands):

19

Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023

Operating revenues decreased $75 million (7%) and operating income decreased $22 million. Significant items impacting these results were:

Operating revenues

• A $74 million (14%) decrease in our wholesale segment revenues primarily attributable to a 9% decrease in volume driven by the conversion of certain lessee dealer sites to company operated and commission agent sites as well as the net loss of independent dealer contracts. In addition, our average wholesale selling price decreased 5% due primarily to changes in crude oil prices during the course of the quarter compared to last year.
• Our retail segment revenues remained relatively flat for the first quarter of 2024 as compared to the first quarter of 2023. Our average retail selling price of fuel decreased 5% from the first quarter of 2023 to the first quarter of 2024, partially offset by a 2% increase in volume due to the conversion of certain lessee dealer sites to company operated sites, partially offset by a decrease in volume in our base business. Lastly, merchandise revenues increased $11.2 million (17%) driven by an increase in our average company operated site count due to the conversion of certain lessee dealer and commission agent sites to company operated sites.

Cost of sales

Cost of sales decreased $74 million (8%), due primarily to lower wholesale volume and lower cost per gallon, partially offset by the increase in merchandise cost of sales driven by the same drivers as discussed above.

Gross profit

Gross profit decreased $0.7 million (1%), which was primarily driven by a decrease in motor fuel and rent gross profit within our wholesale segment, partially offset by an increase in merchandise gross profit driven by the conversion of certain lessee dealer and commission agent sites to company operated sites. See “Results of Operations—Segment Results” for additional gross profit analyses.

Operating expenses

See “Results of Operations—Segment Results” for analyses.

General and administrative expenses

General and administrative expenses increased $1.1 million (19%) primarily driven by higher legal fees and acquisition-related costs.

Depreciation, amortization and accretion expense

Depreciation, amortization and accretion expense decreased $1.1 million (6%) primarily due to assets becoming fully depreciated.

Loss on dispositions and lease terminations, net

During the three months ended March 31, 2024, we recorded a $15.9 million loss on lease termination with Applegreen, including a $1.4 million non-cash write-off of deferred rent income. See Note 2 to the financial statements for additional information. In addition, we recorded $0.9 million of other losses on lease terminations and asset disposals, including non-cash write-offs of deferred rent income.

During the three months ended March 31, 2023, we recorded a $2.0 million loss on lease terminations and asset disposals, partially offset by a $0.2 million gain in connection with our ongoing real estate rationalization effort.

Interest expense

Interest expense decreased $1.5 million (12%) due to the $1.1 million write-off of deferred financing costs in the first quarter of 2023 as a result of the amendment and restatement of the CAPL Credit Facility and termination of the JKM Credit Facility.

Income tax benefit

We recorded an income tax benefit of $5.8 million and $1.7 million for the three months ended March 31, 2024 and 2023, respectively, driven by income (losses) generated by our taxable subsidiaries.

Segment Results

We present the results of operations of our segments consistent with how our management views the business.

Wholesale

The following table highlights the results of operations and certain operating metrics of our wholesale segment. The narrative following these tables provides an analysis of the results of operations of that segment (in thousands of dollars, except for the number of distribution sites and per gallon amounts):

(a) In addition, we distributed motor fuel to sub-wholesalers who distributed to additional sites.

(b) The decrease in the independent dealer site count was primarily attributable to the net loss of contracts, partially offset by divestitures of certain lessee dealer sites but with continued fuel supply.

(c) The decrease in the lessee dealer site count was primarily attributable to the conversion of certain lessee dealer sites to company operated sites, including through the Applegreen Acquisition, and our real estate rationalization effort.

Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023

Gross profit decreased $4.2 million (14%) and operating income decreased $3.6 million (17%). These results were impacted by:

Motor fuel gross profit

The $2.1 million decrease (13%) in motor fuel gross profit was primarily due to a 9% decrease in volume driven by the conversion of certain lessee dealer sites to company operated and commission agent sites and the net loss of independent dealer contracts. In addition, our average fuel margin per gallon decreased 4% as compared to the same period of 2023, driven by the movements of crude oil prices within the two periods.

The average spot price of WTI crude oil increased 2% from $75.93 per barrel for the first quarter of 2023 to $77.50 per barrel for the first quarter of 2024. See “Significant Factors Affecting our Profitability—The Significance of Crude Oil and Wholesale Motor Fuel Prices on Our Revenues, Cost of Sales and Gross Profit.”

Rent gross profit

Rent gross profit decreased $1.8 million (14%) for the first quarter of 2024 compared to the same period of 2023, primarily due to the conversion of certain lessee dealer sites to company operated and commission agent sites.

Operating expenses

Operating expenses decreased $0.6 million (7%), primarily due to the conversion of certain lessee dealer sites to company operated and commission agent sites.

Retail

The following table highlights the results of operations and certain operating metrics of our retail segment. The narrative following these tables provides an analysis of the results of operations of that segment (in thousands, except for the number of retail sites and per gallon amounts):

(a) The increase in the company operated site count was primarily attributable to the conversion of certain lessee dealer and commission agent sites to company operated sites.

(b) The increase in the commission agent site count was primarily attributable to the conversion of certain lessee dealer sites to commission agent sites, partially offset by the conversion of certain commission agent sites to company operated sites.

Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023

Gross profit increased $3.5 million (7%) and operating income decreased $3.5 million (24%). These results were impacted by:

Gross profit

• Our motor fuel gross profit decreased $0.7 million (3%) attributable to a 3% decrease in margin per gallon for the three months ended March 31, 2024 as compared to the same period in 2023, driven by the movements in crude oil prices within the two periods. Volume increased 2% due primarily to an increase in the average retail site count due to the conversion of certain lessee dealer sites to company operated and commission agent sites, partially offset by a decrease in volume in our base business.
• Our merchandise gross profit and other revenues increased $3.3 million (18%) and $1.1 million (33%), respectively, driven by an increase in the average company operated site count due to the conversion of certain lessee dealer and commission agent sites to company operated sites.

Operating expenses

Operating expenses increased $7.0 million (20%) driven by a 22% increase in the average company operated site count due to the conversion of certain lessee dealer and commission agent sites to company operated sites.

Non-GAAP Financial Measures

We use the non-GAAP financial measures EBITDA, Adjusted EBITDA, Distributable Cash Flow and Distribution Coverage Ratio. EBITDA represents net income before deducting interest expense, income taxes and depreciation, amortization and accretion (which includes certain impairment charges). Adjusted EBITDA represents EBITDA as further adjusted to exclude equity-based compensation expense, gains or losses on dispositions and lease terminations, net and certain discrete acquisition related costs, such as legal and other professional fees, separation benefit costs and certain other discrete non-cash items arising from purchase accounting. Distributable Cash Flow represents Adjusted EBITDA less cash interest expense, sustaining capital expenditures and current income tax expense. The Distribution Coverage Ratio is computed by dividing Distributable Cash Flow by distributions paid on common units.

EBITDA, Adjusted EBITDA, Distributable Cash Flow and Distribution Coverage Ratio are used as supplemental financial measures by management and by external users of our financial statements, such as investors and lenders. EBITDA and Adjusted EBITDA are used to assess our financial performance without regard to financing methods, capital structure or income taxes and the ability to incur and service debt and to fund capital expenditures. In addition, Adjusted EBITDA is used to assess the operating performance of our business on a consistent basis by excluding the impact of items which do not result directly from the wholesale distribution of motor fuel, the leasing of real property, or the day to day operations of our retail site activities. EBITDA, Adjusted EBITDA, Distributable Cash Flow and Distribution Coverage Ratio are also used to assess the ability to generate cash sufficient to make distributions to our unitholders.

We believe the presentation of EBITDA, Adjusted EBITDA, Distributable Cash Flow and Distribution Coverage Ratio provides useful information to investors in assessing the financial condition and results of operations. EBITDA, Adjusted EBITDA, Distributable Cash Flow and Distribution Coverage Ratio should not be considered alternatives to net income or any other measure of financial performance or liquidity presented in accordance with U.S. GAAP. EBITDA, Adjusted EBITDA, Distributable Cash Flow and Distribution Coverage Ratio have important limitations as analytical tools because they exclude some but not all items that affect net income. Additionally, because EBITDA, Adjusted EBITDA, Distributable Cash Flow and Distribution Coverage Ratio may be defined differently by other companies in our industry, our definitions may not be comparable to similarly titled measures of other companies, thereby diminishing their utility.

The following table presents reconciliations of EBITDA, Adjusted EBITDA, and Distributable Cash Flow to net income, the most directly comparable U.S. GAAP financial measure, for each of the periods indicated (in thousands, except for Distribution Coverage Ratio):

(a) See "Results of Operations–Loss on Dispositions and Lease Terminations, net."

(b) Relates to certain acquisition-related costs, such as legal and other professional fees, separation benefit costs and purchase accounting adjustments associated with recent acquisitions.

(c) Under the Partnership Agreement, sustaining capital expenditures are capital expenditures made to maintain our long-term operating income or operating capacity. Examples of sustaining capital expenditures are those made to maintain existing contract volumes, including payments to renew existing distribution contracts, or to maintain our sites in conditions suitable to lease, such as parking lot or roof replacement/renovation, or to replace equipment required to operate the existing business.

(d) Excludes income tax incurred on the sale of sites.

Liquidity and Capital Resources

Liquidity

Our principal liquidity requirements are to finance our operations, fund acquisitions, service our debt and pay distributions to our unitholders. We expect our ongoing sources of liquidity to include cash generated by operations, proceeds from sales of sites in connection with our real estate rationalization efforts, borrowings under the CAPL Credit Facility, and if available to us on acceptable terms, issuances of equity and debt securities. We regularly evaluate alternate sources of capital to support our liquidity requirements.

Our ability to meet our debt service obligations and other capital requirements, including capital expenditures, acquisitions, and partnership distributions, will depend on our future operating performance, which, in turn, will be subject to general economic, financial, business, competitive, legislative, regulatory and other conditions, many of which are beyond our control. As a normal part of our business, depending on market conditions, we will, from time to time, consider opportunities to repay, redeem, repurchase or refinance our indebtedness. Changes in our operating plans, lower than anticipated sales, increased expenses, acquisitions or other events may cause us to seek additional debt or equity financing in future periods.

We believe that we will have sufficient cash flow from operations, borrowing capacity under the CAPL Credit Facility, access to capital markets and alternate sources of funding to meet our financial commitments, debt service obligations, contingencies, anticipated capital expenditures and partnership distributions. However, we are subject to business and operational risks that could adversely affect our cash flow. A material decrease in our cash flows would likely produce an adverse effect on our borrowing capacity as well as our ability to issue additional equity and/or debt securities and/or maintain or increase distributions to unitholders.

Cash Flows

The following table summarizes cash flow activity (in thousands):

Operating Activities

Net cash provided by operating activities decreased $5.7 million for the three months ended March 31, 2024 compared to the same period in 2023, primarily attributable to lower fuel margins, partially offset by a $3.3 million net generation of cash flow from changes in working capital stemming from timing of settlement of fuel purchases during the first quarter of 2023.

As is typical in our industry, our current liabilities exceed our current assets as a result of the longer settlement of real estate and motor fuel taxes as compared to the shorter settlement of receivables for fuel, rent and merchandise.

Investing Activities

We incurred capital expenditures of $6 million for each of the three months ended March 31, 2024 and 2023. We paid $19.9 million to Applegreen related to lease terminations and inventory purchases during the three months ended March 31, 2024. We received $0.6 million in proceeds primarily from the sale of sites in connection with our real estate rationalization effort for the three months ended March 31, 2023.

Financing Activities

We paid $20 million in distributions for each of the three months ended March 31, 2024 and 2023. For the three months ended March 31, 2024 and 2023, we made total net borrowings on our credit facilities of $42 million and $13 million, respectively. We paid $7 million of deferred financing costs in connection with amending and restating the CAPL Credit Facility and terminating the JKM Credit Facility in the first quarter of 2023.

Distributions

Distribution activity for 2024 was as follows:

The amount of any distribution is subject to the discretion of the Board, which may modify or revoke our cash distribution policy at any time. Our Partnership Agreement does not require us to pay any distributions. As such, there can be no assurance we will continue to pay distributions in the future.

Debt

As of March 31, 2024, our debt and finance lease obligations consisted of the following (in thousands):

See Note 7 to the financial statements for information regarding the amendment of the CAPL Credit Facility.

Taking into account the interest rate swap contracts that were effective beyond April 1, 2024, the effective interest rate on our CAPL Credit Facility at March 31, 2024 was 6.7% (our applicable margin was 2.25% as of March 31, 2024). Letters of credit outstanding at March 31, 2024 totaled $5.3 million.

The amount of availability under our CAPL Credit Facility at May 3, 2024, after taking into consideration debt covenant restrictions, was $96 million.

Capital Expenditures

We make investments to expand, upgrade and enhance existing assets. We categorize our capital requirements as either sustaining capital expenditures, growth capital expenditures or acquisition capital expenditures. Sustaining capital expenditures are those capital expenditures required to maintain our long-term operating income or operating capacity. Growth capital expenditures, which include individual site purchases, and acquisition capital expenditures are those capital expenditures that we expect will increase our operating income or operating capacity over the long term. We have the ability to fund our capital expenditures by additional borrowings under our CAPL Credit Facility, or, if available to us on acceptable terms, accessing the capital markets and issuing additional equity, debt securities or other options, such as the sale of assets. Our ability to access the capital markets may have an impact on our ability to fund acquisitions. We may not be able to complete any offering of securities or other options on terms acceptable to us, if at all.

The following table outlines our capital expenditures (in thousands):

A significant portion of our growth capital expenditures are discretionary and we regularly review our capital plans in light of anticipated proceeds from sales of sites.

Concentration Risks

See Note 1 for information on our concentration risks related to our customers, fuel suppliers, fuel carriers and merchandise suppliers.

Outlook

As noted previously, the prices paid to our motor fuel suppliers for wholesale motor fuel (which affects our cost of sales) are highly correlated to the price of crude oil. The crude oil commodity markets are highly volatile, and the market prices of crude oil, and, correspondingly, the market prices of wholesale motor fuel, experience significant and rapid fluctuations, which affect our motor fuel gross profit.

Our results for 2024 are anticipated to be impacted by the following:

• We continue to consider the highest and best use class of trade for each of our properties, which may result in the conversion of sites from one class of trade to another and ultimately increases or decreases in the gross profit for the wholesale and retail segments. The Applegreen Acquisition is anticipated to increase gross profit and operating expenses in the retail segment and reduce gross profit in the wholesale segment.
• Given the April 1, 2024 maturity of certain favorable interest rate swap contracts, we anticipate higher interest expense in 2024 relative to 2023.

We will continue to evaluate acquisitions on an opportunistic basis. Additionally, we will pursue acquisition targets that fit into our strategy. Whether we will be able to execute acquisitions will depend on market conditions, availability of suitable acquisition targets at attractive terms, acquisition-related compliance with customary regulatory requirements, and our ability to finance such acquisitions on favorable terms and in compliance with our debt covenant restrictions.

New Accounting Policies

There is no new accounting guidance effective or pending adoption that has had or is anticipated to have a material impact on our financial statements. See Note 1 to the financial statements for information on new accounting guidance that will impact segment reporting and income tax disclosures.

Critical Accounting Policies and Estimates

There have been no material changes to the critical accounting policies described in our Form 10-K.

Other than interest rate risk, no significant changes to our market risk have occurred since December 31, 2023. For a discussion of market risks affecting us, refer to Part II, Item 7A—"Quantitative and Qualitative Disclosures About Market Risk” included in our Form 10-K.

Interest Rate Risk

As of March 31, 2024, we had $798.3 million outstanding on our CAPL Credit Facility. Our outstanding borrowings bear interest at SOFR plus an applicable margin.

Taking the interest rate swap contracts into account, the effective interest rate on our CAPL Credit Facility at March 31, 2024 was 5.1%.

Taking into account the interest rate swap contracts that were effective beyond April 1, 2024, the effective interest rate on our CAPL Credit Facility at March 31, 2024 would have been 6.7%. A one percentage point change in SOFR would impact annual interest expense by approximately $4.0 million.

See Note 8 to the financial statements for information regarding our interest rate swap contracts.

(a) Evaluation of Disclosure Controls and Procedures

Our management has evaluated, with the participation of our principal executive officer and principal financial officer, the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2024.

(b) Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as that term is defined in Rule 13a-15(f) under the Exchange Act) that occurred during the three months ended March 31, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

There were no material changes in the risk factors disclosed in the section entitled "Risk Factors" in our Form 10-K during the period covered by this report.