RDG Details TA Sale-Leaseback, Repair Spinoff Proposal
Market fails to recognize value of real-estate assets, misperceives nature of company
NEW YORK -- RDG Capital Fund Management (RDG), a shareholder of TravelCenters of America (TA), is recommending a sale leaseback of the truckstop company's significant real-estate assets and the spinoff of its growing truck-repair services.
Following media reports yesterday, RDG has announced officially that it has delivered a letter to the board of directors of TA. The letter noted that despite continuing operational improvements and recent share price appreciation, RDG believes TA remains significantly undervalued. The sale-leaseback and spinoff would meaningfully enhance shareholder value, it said.
RDG said it believes these actions would help unlock the fair market value of the company, which it estimates at $24 to $27 per share or an approximately 90% upside.
RDG said that TA trades at only 4.8x estimated 2015E EBITDA, which represents a substantial discount to its industry peers. Although Westlake, Ohio-based TA operates the No. 3 travel center chain and the No. 1 truck repair services business nationwide, RDG said it believes TA is undervalued because the market fails to recognize the company's valuable real-estate assets and misperceives TA as a slow-growth, low-margin, commodity-oriented fuel company rather than the higher-margin, growing chain of 359 quick service restaurants, 218 full service restaurants, 34 convenience stores and 240 truck repair facilities that contribute the majority of TA's profits.
And RDG said it believes the value of TA's real-estate and truck-repair segment alone are worth more than the entire market cap of TA, implying virtually no value is ascribed to TA's other business segments, which generate $7 billion in revenue.
To address the undervaluation of the Company, RDG encourages the board to consider the following actions:
- Monetize real estate via sale leaseback. TA owns a substantial portfolio of premier real-estate assets, including 36 travel centers, 27 convenience stores and 348 acres along the U.S. interstate highway system that RDG said it believes the company should monetize via a sale-leaseback transaction worth approximately $400 million net of estimated taxes. Adjusting for incremental capitalized rent, such a sale-leaseback transaction could increase shareholder value by $5.70 to $6.40 per share or approximately 45% upside, it said.
- Spinoff truck repair services segment. The company has built the nation's leading truck-repair services business with 240 locations and $750 million in 2015E revenue. RDG said it believes the truck-repair services segment is an underappreciated "hidden asset" worth in excess of $300 million that if spun off would trade at a valuation multiple significantly higher than the valuation multiple ascribed to the company on a consolidated basis. A spinoff could increase shareholder value by $2.70 to $3.35 per share or approximately 20% upside, it said.
Based on a reasonable discount to the valuation multiples of industry peers, the company's remaining fuel, convenience-store and restaurant business segments would collectively be worth in excess of $650 million. This improved valuation could increase shareholder value by $3.45 to $5.45 per share or approximately 25% upside.
Click here to view the full letter, charts and graphs.
RDG, New York, is a private investment firm founded by Russell Glass, the former president of Icahn Associates. It manages investment funds which primarily focus on undervalued companies with identifiable catalyst opportunities to enhance shareholder value.