5 Ways TravelCenters of America Is Refocusing on Its Core Business

WESTLAKE, Ohio —Fourth-quarter 2018 was a “momentous time” for TravelCenters of America, “capping off a year of significant change and setting the stage for greater success in the years ahead,” CEO Andy Rebholz said on the company’s fourth-quarter and full-year earnings call in late February. TravelCenters of America (TA) is continuing that momentum into 2019.

• TravelCenters of America is No. 28 in the Top 40 update to CSP’s 2018 Top 202 ranking of c-store and travel-center chains by number of retail outlets.

Last year, the company’s board approved a strategic plan to concentrate on its travel center business.

“There are multiple elements to the strategy, but pursuant to this plan, we commenced a marketing of our convenience-stores business; embarked on creating a smaller-format travel center concept and brand; began proactively pursuing travel center franchisee prospects; began actively engaging potential travel center acquisition targets; and invested capital and human resources to grow our industry-leading truck service business, especially with respect to our off-site services like our roadside assistance, mobile maintenance and commercial tire dealer programs,” Rebholz said. “I'm happy to report that the actions we took have borne the expected fruit.”

Here’s how TA is achieving that goal …

TravelCenters of America, which for the past several years was on track to build a large convenience-store empire on top of its travel center network through a series of acquisitions, has changed course.

With the goal to focus on its core business in mind, in September 2018, TA entered into an agreement to sell its 225-unit, stand-alone Minit Mart convenience network. It completed the transaction with Blackburn, U.K.-based EG Group in December for an aggregate sale price of $330.6 million, resulting in net proceeds of $319.9 million after transaction-related costs of $9.7 million.

“This strategic divestment is a significant step in support of TA’s strategy to be a more focused leader in the travel-center industry,” Rebholz said at the time. “The sale of the convenience-store business will allow us to address the company’s leverage, focus more on our core travel centers business and thoughtfully pursue our growth programs.”

In September 2018, TravelCenters of America opened its first four travel centers under its new TA Express smaller-format brand. The new-concept stores are in Alexander, N.D.; Walsenburg, Colo.; Brush, Colo.; and Grand Junction, Colo.

Designed to address changing trucking and distribution patterns, TA Express has a smaller format than the chain’s traditional travel centers. While still offering most of the fuel, merchandise, food and other services that professional drivers familiar with the existing TA and Petro brands expect, TA Express offers “smaller, more nimble facilities, allowing drivers to fuel faster, fulfill basic travel needs and return to the road,” the company said.

Although TravelCenters of America has not actively pursued expansion of its franchised sites in the past several years, during 2018 it began actively promoting its brands to existing travel center operators, the company said in its just released annual report for 2018. “We expect that we will add a number of sites to our network through franchising beginning in 2019,” it said.

In February, TA signed an agreement with Heinz Inc., operator of the Coffee Cup Fuel Stops, to convert four of its Coffee Cup locations to the new TA Express brand.

The first of four existing Coffee Cup sites that will become TA Express locations is in Steele, N.D. This site was the first Coffee Cup Fuel Stop and will be the first of the four to join TA’s network of 257 travel centers in 43 states and in Canada.

North Sioux City, S.D.-based Heinz Inc., dba Coffee Cup Travel Plazas, also plans to build two new TA Express travel centers, in Rapid City and Sioux Falls, S.D., one within five years and one within 10 years, the company said.

In January 2019, TravelCenters of America acquired 20 travel centers it previously leased from Hospitality Properties Trust (HPT), its principal landlord, for $308.2 million.

HPT is a Newton, Mass.-based lodging and travel center real estate investment trust (REIT),

The company will continue to lease 179 properties under five leases with HPT.

The transaction removed the 20 travel centers from the applicable leases and reduced TravelCenters of America’s annual minimum rent by $43.1 million; extended the term of each of the leases by three years; reduced the amount of deferred rent obligation to HPT from $150 million to $70.5 million, with an agreement to pay that amount in 16 equal quarterly installments beginning April 1, 2019; and commencing with the year ended Dec. 31, 2020, TravelCenters of America will be obligated to pay HPT an additional amount of percentage rent equal to 0.5% of the excess of the annual nonfuel revenues at leased sites over the nonfuel revenues for each respective site for the year ending Dec. 31, 2019.

TravelCenters of America has 244 truck repair and maintenance facilities, as well as other truck-service programs.

“We also intend to expand our scope of products and services and our customer segments through investments of capital and human resources in our truck service business, particularly our RoadSquad, RoadSquad OnSite and Commercial Tire Dealer Network programs,” the company said in its annual report.

RoadSquad is a call-center and roadside truck-service program that includes a fleet of approximately 575 heavy-duty emergency vehicles and third-party roadside service providers in 50 U.S. states and 10 Canadian provinces with a total of nearly 1,650 locations. RoadSquad OnSite offers truck and trailer mobile maintenance and repair services performed by certified technicians at customer facilities, with a fleet of approximately 200 trucks in service. TA Commercial Tire Network is a commercial tire program that sells branded tires.

“By ramping existing customers and adding new ones to our RoadSquad, RoadSquad, OnSite and TA Commercial Tire Network programs, we can satisfy the increasing demand for services provided off-site,” the company said. “Each of these programs … can service our traditional long-haul trucking customers as well as other truck owner customers we historically have not served.”

During 2018, TravelCenters of America also acquired a tire retread facility that is part of the Goodyear Authorized Retread Network for $4.1 million.

In fourth-quarter 2018, TravelCenters of America reported a loss from continuing operations of $7 million, vs. a loss of $13.9 in fourth-quarter 2017. For the year ended Dec. 31, 2018, TA reported a loss from continuing operations of $2.8 million, vs. income of $19.9 million for full-year 2017.

Fuel sales volume for fourth-quarter 2018 increased by 3.9 million gallons, or 0.8%, compared to fourth-quarter 2107 because of a net increase of 4.4 million gallons at sites opened or closed since the beginning of fourth-quarter 2017 and a same-site fuel sales volume decline of 500,000 gallons, or 0.1%, compared to fourth-quarter 2017, that resulted from continuing fuel efficiency gains and increased competition.

Fuel revenues increased by $116 million, or 11.9%, in fourth-quarter 2018 compared to fourth-quarter 2017, because of higher market prices for fuel during fourth-quarter 2018 and an increase of 3.9 million gallons in fuel sales volume.

Fuel gross margin for the fourth-quarter 2018 increased by $17.6 million, or 25.8%, compared to fourth-quarter 2017 because of the 3.9-million-gallon increase in fuel sales volume and a more favorable purchasing environment.

Nonfuel revenues increased by $16.5 million, or 3.9%, in fourth-quarter 2018 compared to fourth-quarter 2017, because of a $11.6 million same-site increase from the positive effect of TA's marketing initiatives and growth in TA's truck service program, as well as a $4.9 million net increase attributable to sites opened or closed since the beginning of fourth-quarter 2107.

Nonfuel gross margin increased by $10.8 million, or 4.2%, in fourth-quarter 2018 compared to fourth-quarter 2017, because of an $8.7 million same-site increase due to the $11.6 million increase in nonfuel revenues; a $2.1 million net increase attributable to sites opened or closed since the beginning of fourth-quarter 2017; and a slight increase in the nonfuel gross margin percentage to 61% for fourth-quarter 2018 from 60.8% for fourth-quarter 2017.

Westlake, Ohio-based TravelCenters of America has 258 travel centers in 43 states in the United States, and one location in Ontario, operated primarily under the TravelCenters of America, TA, TA Express, Petro Stopping Centers and Petro brands.