TravelCenters of America LLC (Nasdaq: TA), or TA, today announced it entered agreements with its principal landlord, Hospitality Properties Trust (Nasdaq: HPT), or HPT, under which TA has agreed to acquire certain travel center properties it currently leases from HPT, and to amend its existing leases with HPT. The transaction highlights are:
- TA has agreed to purchase 20 travel centers from HPT for $308.2 million. TA expects to purchase nine of the travel centers for $140.5 million on January 17, 2019, and expects to complete the remaining purchases in two closings by the end of January 2019. These sites are currently operated by TA and are located in 15 states. TA will continue to lease 179 properties under its five leases with HPT.
- TAs aggregate minimum annual rent due to HPT is to be reduced by $43.1 million and the term of each lease is to be extended. Upon completion of TAs acquisition of the 20 travel centers, the aggregate minimum annual rent due under TAs five leases with HPT will be reduced to $243.9 million. The term of each lease is to be extended by three years.
- TA agrees to repay its $150 million deferred rent obligation to HPT at a discounted amount of $70.5 million. The $70.5 million of deferred rent will be paid to HPT in 16 equal quarterly installments beginning on April 1, 2019. This obligation previously had been payable in five installments at staggered due dates between June 2024 and December 2030.
Andrew J. Rebholz, TA’s Chief Executive Officer, made the following statement: The agreements announced today are expected to benefit TA in a number of ways. First, they will significantly reduce TAs rental expense and improve TAs operating and financial leverage; TAs leverage ratio of 6.8x for the twelve months ended September 30, 2018 improves to 3.5x on a pro forma basis for this transaction. Second, they will significantly increase TAs potential net operating cash flows and annual free cash flow. Third, they will provide TA with greater financial flexibility. Fourth, they will increase the number of unencumbered travel centers TA owns from 32 to 52. Finally, they will address uncertainty surrounding the deferred rent obligation while providing for a reduced amount to be paid.
With the sale of the standalone convenience stores business concluded last month and the proceeds from that sale now committed to reduce TAs 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 TAs industry leading truck service programs, while continuing to manage capital expenditures.
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 3.0% 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. For the twelve months ended September 30, 2018, TAs total percentage rent payable to HPT for the 179 sites TA will continue to lease from HPT was $3.3 million.
The terms of the agreements between TA and HPT were negotiated and approved by special committees of TAs Independent Directors and HPTs Independent Trustees who were represented by separate counsel.
On Thursday, January 17, 2019, at 10:00 a.m. Eastern time, TA will host a conference call to discuss these agreements. Following management’s remarks, there will be a question and answer period. TA will also provide on Wednesday, January 16, 2019, at approximately 5:30 p.m. Eastern time, a presentation regarding the transaction that will be available at www.TA-Petro.com, under the Events & Presentations section of the Investors section of the website, and as an exhibit to a Current Report on Exhibit 8-K filed with the SEC.
The conference call telephone number is 877-329-4614. Participants calling from outside the United States and Canada should dial 412-317-5437. No pass code is necessary to access the call from either number. Participants should dial in about 15 minutes prior to the scheduled start of the call. A replay of the conference call will be available for about a week after the call. To hear the replay, dial 877-344-7529. The replay pass code is 10127808.
A live audio webcast of the conference call will also be available in a listen only mode on TA’s website at www.ta-petro.com. To access the webcast, participants should visit TA’s website about five minutes before the call. The archived webcast will be available for replay on TA’s website for about one week after the call. The transcription, recording and retransmission in any way of this call or webcast is strictly prohibited without the prior written consent of TA. The Company’s website is not incorporated as part of this press release.
About TravelCenters of America LLC:
TA’s nationwide business includes travel centers located in 43 U.S. states and in Canada and standalone 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/convenience stores and other services designed to provide attractive and efficient travel experiences to professional drivers and other motorists. TA’s standalone restaurants operate principally under the “Quaker Steak & Lube” brand name.
WARNING CONCERNING FORWARD LOOKING STATEMENTS
THIS PRESS RELEASE CONTAINS STATEMENTS THAT CONSTITUTE FORWARD LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND OTHER SECURITIES LAWS. WHENEVER TA USES WORDS SUCH AS “BELIEVE,” “EXPECT,” “ANTICIPATE,” “INTEND,” “PLAN,” “ESTIMATE,” “WILL,” “MAY” AND NEGATIVES OR DERIVATIVES OF THESE OR SIMILAR EXPRESSIONS, TA IS MAKING FORWARD LOOKING STATEMENTS. THESE FORWARD LOOKING STATEMENTS ARE BASED UPON TA’S PRESENT INTENT, BELIEFS OR EXPECTATIONS, BUT FORWARD LOOKING STATEMENTS ARE NOT GUARANTEED TO OCCUR AND MAY NOT OCCUR. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE CONTAINED IN OR IMPLIED BY TA’S FORWARD LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS. AMONG OTHERS, THE FORWARD LOOKING STATEMENTS THAT APPEAR IN THIS PRESS RELEASE THAT MAY NOT OCCUR INCLUDE:
- STATEMENTS THAT TA HAS AGREED TO PURCHASE 20 TRAVEL CENTERS FROM HPT FOR APPROXIMATELY $308.2 MILLION. THE COMPANY HAS AGREED TO PURCHASE THESE TRAVEL CENTERS PURSUANT TO THREE AGREEMENTS, EACH OF WHICH IS SUBJECT TO VARIOUS TERMS AND CONDITIONS TYPICAL OF LARGE, COMPLEX REAL ESTATE TRANSACTIONS. SOME OF THESE TERMS AND CONDITIONS MAY NOT BE SATISFIED AND, AS A RESULT, SOME OF THESE PURCHASES MAY BE DELAYED OR MAY NOT OCCUR OR THE TERMS OF THESE PURCHASES MAY CHANGE.
- STATEMENTS THAT TA AND HPT HAVE AGREED TO AMEND EACH OF THEIR FIVE LEASES, AND PURSUANT TO THESE AMENDMENTS THE AGGREGATE MINIMUM ANNUAL RENT PAYABLE BY TA TO HPT UNDER THE LEASES WILL BE REDUCED BY APPROXIMATELY $43.1 MILLION TO $243.9 MILLION. TA WILL ONLY REALIZE THE FULL AMOUNT OF THIS REDUCTION IN RENT IF IT SUCCESSFULLY COMPLETES THE PURCHASE OF ALL 20 TRAVEL CENTER PROPERTIES PURSUANT TO THE TRANSACTION AGREEMENTS, EACH OF WHICH IS SUBJECT TO VARIOUS TERMS AND CONDITIONS TYPICAL OF LARGE, COMPLEX REAL ESTATE TRANSACTIONS. IF ANY OF THESE PURCHASES ARE NOT COMPLETED, THE REDUCTION IN ANNUAL RENT TA REALIZES MAY BE MATERIALLY LESS THAN $43.1 MILLION. IN ADDITION, ANY REDUCTION IN MINIMUM ANNUAL RENT TA REALIZES MAY BE TEMPORARY AND SUBSEQUENTLY OFFSET BY INCREASES TO THE MINIMUM ANNUAL RENT PAYABLE BY TA TO HPT AS A RESULT OF HPTS PURCHASE OF QUALIFYING IMPROVEMENTS OR OTHER TRANSACTIONS.
- STATEMENTS THAT THE AGREEMENTS WILL REDUCE TAS RENT EXPENSE. AN IMPLICATION OF THESE STATEMENTS MAY BE THAT TA WILL BE PROFITABLE IN THE FUTURE. HOWEVER, THERE ARE MANY FACTORS BESIDES RENT EXPENSE THAT CAN AFFECT TAS PROFITABILITY, MANY OF WHICH ARE BEYOND TAS CONTROL, AND TA MAY NOT BE PROFITABLE IN THE FUTURE.
- STATEMENTS THAT THE AGREEMENTS ANNOUNCED TODAY ARE EXPECTED TO SIGNIFICANTLY INCREASE TAS POTENTIAL NET OPERATING CASH FLOWS AND ANNUAL FREE CASH FLOW AND THAT TAS OPERATING AND FINANCIAL LEVERAGE WILL BE IMPROVED BY THE AGREEMENTS. HOWEVER, THERE ARE MANY FACTORS THAT CAN AFFECT TAS OPERATING CASH FLOWS AND ANNUAL FREE CASH FLOW, MANY OF WHICH ARE BEYOND TAS CONTROL. TAS OPERATING CASH FLOWS AND ANNUAL FREE CASH FLOWS MAY NOT INCREASE IN THE FUTURE AS MUCH AS EXPECTED OR AT ALL AND MAY DECLINE.
- A STATEMENT OF MR. REBHOLZ THAT TA BELIEVES TA WILL FOCUS ON ITS CORE TRAVEL CENTER BUSINESS. AN IMPLICATION OF THIS STATEMENT IS THAT THIS FOCUS WILL REMAIN IN 2019. THE TRAVEL CENTER BUSINESS IS A HIGHLY COMPETITIVE BUSINESS AND COMPETITIVE CIRCUMSTANCES CHANGE AND ARE IN MANY RESPECTS OUT OF TAS CONTROL. ANY BUSINESS STRATEGY MAY CHANGE DUE TO MARKET FACTORS OR OTHER REASONS.
- A STATEMENT OF MR. REBHOLZ THAT TA CAN PURSUE GROWTH OPPORTUNITIES THAT INCLUDE NETWORK EXPANSION AND TAS TRUCK SERVICE PROGRAMS WHILE CONTINUING TO MANAGE CAPITAL EXPENDITURES. THIS MAY IMPLY THAT TA WILL SUCCESSFULLY EXECUTE THESE INITIATIVES AND THAT TAS OPERATING RESULTS AND PROFITABILITY WILL IMPROVE AS A RESULT. HOWEVER, TA MAY FAIL TO EXECUTE SUCCESSFULLY ON GROWTH INITIATIVES AND TAS OPERATING RESULTS AND PROFITABILITY MAY NOT IMPROVE AND COULD DECLINE AS A RESULT OF TAS PURSUIT OF THESE INITIATIVES. FURTHERMORE, TA MAY CHANGE ITS STRATEGY.
- THIS PRESS RELEASE STATES THAT THE TERMS OF THE AGREEMENTS DESCRIBED IN THIS PRESS RELEASE WERE NEGOTIATED AND APPROVED BY SPECIAL COMMITTEES OF TAS INDEPENDENT DIRECTORS AND HPTS INDEPENDENT TRUSTEES WHO WERE REPRESENTED BY SEPARATE COUNSEL. AN IMPLICATION OF THESE STATEMENTS MAY BE THAT THESE AGREEMENTS ARE EQUIVALENT TO ARMS LENGTH AGREEMENTS BETWEEN UNRELATED PARTIES. TA AND HPT ARE RELATED PARTIES AS A RESULT OF SEVERAL FACTORS, INCLUDING BECAUSE THEY HAVE A COMMON BOARD MEMBER AND MANAGEMENT CONTRACTS WITH THE SAME MANAGEMENT COMPANY. ACCORDINGLY, TA CAN PROVIDE NO ASSURANCE THAT THE TERMS OF THE AGREEMENTS ANNOUNCED TODAY ARE EQUIVALENT TO ARMS LENGTH AGREEMENTS.
THE INFORMATION CONTAINED IN TA’S PERIODIC REPORTS, INCLUDING TA’S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2017, WHICH HAS BEEN FILED WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION, OR SEC, AND TA’S QUARTERLY REPORTS ON FORM 10-Q FOR THE PERIODS ENDED MARCH 31, 2018, JUNE 30, 2018 AND SEPTEMBER 30, 2018, WHICH HAVE BEEN FILED WITH THE SEC, UNDER THE CAPTION “RISK FACTORS,” OR ELSEWHERE IN THOSE REPORTS, OR INCORPORATED THEREIN, IDENTIFIES OTHER IMPORTANT FACTORS THAT COULD CAUSE DIFFERENCES FROM TA’S FORWARD LOOKING STATEMENTS. TA’S FILINGS WITH THE SEC ARE AVAILABLE ON THE SEC’S WEBSITE AT WWW.SEC.GOV.
YOU SHOULD NOT PLACE UNDUE RELIANCE UPON FORWARD LOOKING STATEMENTS. EXCEPT AS REQUIRED BY LAW, TA DOES NOT INTEND TO UPDATE OR CHANGE ANY FORWARD LOOKING STATEMENT AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE.
Katie Strohacker, Senior Director of Investor Relations