WESTLAKE, Ohio -- TravelCenters of America LLC, which has been gobbling up convenience stores to expand its own Minit Mart stand-alone c-store network, is taking a break from acquisitions to focus on internal growth, said Thomas O'Brien, TA's CEO, during the company’s second-quarter 2016 earnings call.
“Many of our acquisitions are not yet performing to their full stabilized potential,” O'Brien said. “Second-quarter 2016 is a return to our march toward achieving our ramp-up goals, and I've been pleased by how things came together in these three months.
“I continue to expect the contribution from these sites to grow as planned improvements--both in terms of capital investments and operating and marketing programs--are completed and take hold, and these locations further stabilize,” he continued. “I remain confident that our continued ramp-up efforts at recently acquired locations, including our second-quarter acquisition of Quaker Steak and Lube, will ultimately show our investments have been at attractive multiples of operating results and that our nonfuel revenue enhancements continue to be positive.”
Citing the differential between the increase in profitability from new convenience stores and the increased expenses relating to those sites, TravelCenters of America LLC reported second-quarter net income of $3.52 million, compared to net income of $3.77 million in second-quarter 2015.
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“This slight decline in net income generally was because the increase in site-level profitability from our recently acquired sites at this relatively early phase of their ramp-up has not yet exceeded the increased cost we incurred in connection with financing and managing these new businesses, such as rent, interest and SG&A [selling, general and administrative] expenses,” CFO Andy Rebholz said on the call.
Regarding the acquisition market, he said, “While seller expectations on price remain high, we continue to review acquisition prospects. If pricing again becomes attractive, we will likely become more active. But in the meantime, I expect our ramp-up efforts and internal growth initiatives will continue to pay off.”
From the beginning of 2011, when TA began its acquisition program, to June 30, 2016, it has invested $784.5 million to purchase and improve travel centers, stand-alone convenience stores and stand-alone restaurants. For the 12 months ended June 30, 2016, these investments have produced gross margin in excess of site-level operating expenses of $79.3 million, 14.1%, greater than gross margin in excess of site-level operating expenses for the 12 months ended March 31, 2016.
TA's second-quarter 2016 investment activities included the acquisition of five stand-alone convenience stores for $10 million and 50 stand-alone restaurants, 39 of which are operated by franchisees of TA, for an aggregate purchase price of $26.8 million, as well as $12.9 million of improvements made to these and other recently acquired locations.
As of June 30, 2016, TA has completed development of one travel center it expects to sell to and lease back from owner Hospitality Properties Trust during third-quarter 2016, and one other travel center under construction that it expects to complete during first-quarter 2017. As of June 30, 2016, TA had invested $27 million, including land costs, for these two development properties and estimates a remaining development cost of $18.1 million.
Westlake, Ohio-based TravelCenters of America operates 253 full-service travel centers in 43 states and Canada, principally under the TA and Petro Stopping Centers travel-center brands. The company also operates more than 200 convenience stores, principally under the Minit Mart brand, in 11 states.