Mergers & Acquisitions

5 Benefits of TA's Sale-Leaseback Deal

HPT transactions to fund TravelCenters of America's expansion program, more

WESTLAKE, Ohio -- Several months after activist investors urged TravelCenters of America LLC (TA) to sell and lease back its real estate, TA has entered agreements with Hospitality Properties Trust (HPT) for sale-leaseback transactions for 30 travel centers totaling approximately $397 million. Under these agreements TA also will purchase from HPT five travel centers now leased by TA and subleased to TA franchisees for approximately $45 million.

TravelCenters of America TA Hospitality Properties Trust HPT (CSP Daily News / Convenience Stores / Gas Stations)

As reported in a 21st Century Smoke/CSP Daily News Flash, the net proceeds to be realized by TA of approximately $352 million (before transaction costs) are expected to produce gains on sales for financial reporting purposes of approximately $137 million.

The expected benefits of these agreements to TA include:

  1. Expansion. TA expects to receive net cash proceeds (before transaction costs) of approximately $352 million to be used for expansion.
  2. Rent. A significant part of the gains from these transactions will result from sales of travel centers developed or acquired and redeveloped by TA. These gains will be amortized as a reduction of rent expense during the lease terms for the leased sites.
  3. Risk Mitigation. Five of the travel centers to be sold to HPT and leased back by TA are being developed by TA at an estimated cost of up to approximately $118 million. By obtaining a forward commitment for TA’s cost of development, the risk sometimes associated with “greenfield development” is partially mitigated. Although TA will not realize gains from the sale of these new development sites, the rent for these sites will be set based upon the cost of development rather than the possibly higher values of these five sites after they are built and their financial results are stabilized.
  4. Taxes. TA was able to arrange a closing schedule for the sales of the existing 25 locations being sold to HPT to match expected property purchases by TA. As a result, TA expects that most or all of the gains which it realizes upon these sales will qualify for “like kind exchange” tax-deferred treatment.
  5. Leases. TA’s historical lease with HPT for 144 travel centers was scheduled to expire in 2022 with no contractual renewal options. This lease will be expanded and subdivided into four approximately equal-sized leases expiring in 2026, 2028, 2029 and 2030, respectively, and each of these four leases will include contractual renewal options for up to 30 additional years. TA’s obligation to pay HPT approximately $107 million of previously deferred rent due in 2022 has been subdivided and extended to the new lease maturity dates between 2026 and 2030. Also, the terms of TA’s lease with HPT for 40 Petro-branded sites that expires in 2024 with 30 years of contractual extension options remain materially unchanged.

TA was formerly a 100% owned subsidiary of Newton, Mass.-based HPT. HPT is currently TA’s largest shareholder holding approximately 8.9% of TA’s outstanding shares.

Westlake, Ohio-based TA’s travel centers operate under the TA, TravelCenters of America, Petro and Petro Stopping Centers brand names and offer gasoline and diesel fuel, restaurants, truck repair services, travel and convenience stores and other services at locations in 43 states primarily at U.S. interstate exits and in Canada. TA also operates convenience stores and gas stations under the Minit Mart name.

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