WESTLAKE, Ohio -- TravelCenters of America LLC (TA) has entered agreements with its principal landlord, Hospitality Properties Trust (HPT), to acquire 20 travel-center properties it currently leases from HPT for $308.2 million. It has also agreed to amend other leases with HPT.
TA said it purchased nine of the 20 travel centers for $140.5 million on Jan. 17:
- Corning, Calif. (purchase price: $21.42 million)
- Gary, Ind. ($18.91 million)
- Lake Station, Ind. ($15.12 million)
- Bridgeport/Saginaw, Mich. ($8.82 million)
- Concordia, Mo. ($10.98 million)
- Paulsboro, N.J. ($17.87 million)
- Fultonville, N.Y. ($13.5 million)
- San Antonio, Texas ($20.55 million)
- Hudson, Wis. ($13.34 million)
The company said it purchased eight of the 20 for $137.8 million on Jan. 23:
- Porter, Ind. ($27.34 million)
- Egan, La. ($10.27 million)
- North Baltimore, Ohio ($19.92 million)
- Oklahoma City ($21.69 million)
- Phoenix, Ore. ($14.11 million)
- Franklin, Tenn. ($14.34 million)
- Beaumont, Texas ($18.18 million) [vacant land]
- Ganado, Texas ($11.96 million)
And TA said it purchased three of the 20 for $29.9 million on Jan. 29:
- Rogers, Minn. ($9.59 million)
- Knoxville, Tenn. ($8.87 million)
- Hurricane, W.Va. ($11.42 million)
The company will continue to lease 179 properties under five leases with HPT.
- TravelCenters of America is No. 17 in CSP’s2018 Top 202 ranking of c-store chains by number of company-owned retail outlets.
“With the sale of the stand-alone convenience-store business concluded last month and the proceeds from that sale now committed to reduce TA’s leverage with the transaction announced today, TA can begin 2019 focused on our core travel-center business and thoughtfully pursuing growth opportunities that include network expansion and TA’s industry-leading truck service programs, while continuing to manage capital expenditures,” said Andrew Rebholz, TA's CEO.
In December 2018, TA completed the sale of 225 Minit Mart c-stores to Blackburn, U.K.-based EG Group. In April 2018, EG Group acquired the 762-site U.S. c-store business from The Kroger Co., Cincinnati.
TA’s aggregate minimum annual rent due to HPT will be reduced by $43.1 million, and the term of each lease will be extended. Upon completion of TA’s acquisition of the 20 travel centers, the aggregate minimum annual rent due under TA’s five leases with HPT will be reduced to $243.9 million. The term of each lease will be extended by three years.
TA said it has agreed to repay its $150 million deferred rent obligation to HPT at a discounted amount of $70.5 million, which will be paid to HPT in 16 equal quarterly installments beginning April 1, 2019. This obligation previously had been payable in five installments at staggered due dates between June 2024 and December 2030.
Rebholz said he expects the agreements to benefit TA in several ways. They will:
- Significantly reduce TA’s rental expense and improve TA’s operating and financial leverage; TA’s leverage ratio of 6.8x for the 12 months ended Sept. 30, 2018, improves to 3.5x on a pro forma basis for this transaction.
- Significantly increase TA’s potential net operating cash flows and annual free cash flow.
- Provide TA with greater financial flexibility.
- Increase the number of unencumbered travel centers TA owns from 32 to 52.
- Address uncertainty surrounding the deferred rent obligation while providing for a reduced amount to be paid.
HPT said it expects to use the proceeds from these sales to repay borrowings under its revolving credit facility and for general business purposes. It also expects the agreements to result in stronger property-level rent coverage for its travel-center portfolio.
The lease amendments also will increase the potential percentage rent payable by TA to HPT beginning in 2020 by an amount equal to 0.5% of the excess of nonfuel revenues at each leased site over the nonfuel revenues for 2019. Currently, percentage rent payable to HPT is determined as 3% of any increases in nonfuel revenues at each leased site over the applicable base year, which is 2015 for four of the leases (144 sites) and 2012 for one of the leases (35 sites) and the agreements do not change this calculation, the company said. For the 12 months ended Sept. 30, 2018, TA’s total percentage rent payable to HPT for the 179 sites TA will continue to lease from HPT was $3.3 million, it said.
"The sales unlock value in our existing asset base and provide liquidity for additional hotel investments," said John Murray, president and CEO of HPT. "These agreements enable HPT to improve the quality of its travel-center portfolio by materially improving the aggregate coverage of minimum rents for the portfolio. As we move into the 10th year of this economic recovery, materially improving rent coverage for a tenant that accounts for approximately one-third of HPT’s returns helps HPT maintain secure, steady cash flows and provides our largest tenant financial flexibility to help weather any potential economic downturns in the future."
Newton, Mass.-based HPT is a lodging and travel center real-estate investment trust.
Westlake, Ohio-based TA's nationwide business includes more than 250 travel centers in 43 U.S. states and in Canada and stand-alone restaurants in 13 states. TA's travel centers operate under the TravelCenters of America, TA, TA Express, Petro Stopping Centers and Petro brand names and offer diesel and gasoline fueling, restaurants, truck repair services, travel centers and convenience stores and other services. Its stand-alone restaurants operate principally under the Quaker Steak & Lube brand name.