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Why Did TA Slow Its Pace of Acquisitions?

Same-site results show improvement, but competition revving up

WESTLAKE, Ohio -- While the past few years saw a flurry of convenience-store acquisition activity from TravelCenters of America LLC, that momentum slowed in the first half of 2017, with the company integrating purchases and encountering competitive “challenges,” officials said in its latest quarterly investor call.

During the Aug. 8 call, Thomas O’Brien, managing director, president and CEO of the Westlake, Ohio-based chain of Minit Mart and TravelCenters c-stores and travel centers, said that while same-store results grew 8.5%, “high-quality operators” are constructing new or upgrading existing stores, increasing competition.

As a result, “certain acquired convenience-store sites have not yet returned to the pace of growth seen prior to the first quarter of 2017,” O’Brien said. “I still believe we will generate contributions from these stores in the expected magnitude.”

For its c-store segment, both fuel and nonfuel revenues increased, resulting in an increase in total revenues of $5.3 million, or 2.8%, in the 2017 second quarter compared to the 2016 second quarter. The increase in total revenues was primarily due to the impact of the five locations acquired since the beginning of the 2016 second quarter and increases in market prices for fuel, the company said.

During second-quarter 2017, TA invested $38.3 million in capital expenditures, as compared to $86.9 million in the second quarter of 2016.

O’Brien described the c-store market as “hot” in terms of mergers and acquisitions. When asked if TA would consider selling its roughly 200-unit chain of c-stores, CFO Andrew Rebholz said, “If it were the case that I could get someone to pay for the growth that is yet to come, we’d consider that. But at this time, I think there is a case to be made for continuing the ramp-up and then seeing what market we’re in when that’s completed.”

Overall, Rebholz said TA performed well. Though net income declined to a net loss of $3 million in the second quarter on a year-over-year basis, earnings before interest, taxes, depreciation and amortization (EBITDA) rose 8.4% vs. the second quarter of 2016. O’Brien said the increase was due to strong performances in both fuel and nonfuel gross margin, and in controlling site-level operating and administrative expenses.

More important, O’Brien said, declines in fuel volumes slowed from a more dramatic fall in the first quarter of 2017. In the second quarter, fuel volume showed a 1.6% decline, much improved against the 5% decline during the first quarter. More specifically, he said same-site diesel-fuel volume declined only 1.7%, vs. a 7.5% decline for first-quarter 2017. Compared to 2016, O’Brien said competitive forces he called “uncharacteristically difficult factors” pulled down volumes in the early part of this year.

Also weighing on the company’s second quarter were expenses from a legal dispute with Norcross, Ga.-based Fleetcor and its Comdata subsidiary. Those expenses hit $5.3 million in the second quarter of 2017, with the total being $13.5 million for the first half of the year. O’Brien said the court case was completed in June, and the company, while confident it will prevail, is still waiting for a ruling.

TA's nationwide business includes travel centers located in 43 U.S. states and in Canada, stand-alone convenience stores in 11 states and stand-alone restaurants in 14 states. The company ranked No. 19 in CSP's 2017 Top 202 list of the largest chains in the United States.

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