TravelCenters of America to Acquire 20 Sites From Hospitality Properties Trust for $308M
WESTLAKE, Ohio — TravelCenters of America LLC and its principal landlord, Hospitality Properties Trust (HPT) reached several agreements, including the sale of 20 travel centers and the amendment of TA's existing leases with HPT.
In an acquisition agreement, TA is buying 20 locations from HPT for $308.2 million. The transaction for nine travel centers for $140.5 million closed on Jan. 17. The remaining locations will close in two deals by the end of the month.
TA currently operates the 20 travel centers spread throughout 15 states.
With the deal, TA continues to lease 179 properties under its five leases with HPT, according to the company.
In another move, TA and HP agreed to reduce the aggregate minimum annual rent TA pays it principal landlord by $43.1 million and to extend the term of each lease. With the 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 $243.9 million. The term of each lease is will be extended by three years.
In addition, TA agreed to repay its $150-million deferred rent obligation to HPT at a discounted $70.5 million. The $70.5 million of deferred rent will be paid to HPT in 16 equal quarterly installments beginning on April 1.
This obligation previously had been payable in five installments at staggered due dates between June 2024 and December 2030, according to TA.
"The agreements announced today are expected to benefit TA in a number of ways. First, 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," explained TA's CEO Andrew J. Rebholz.
"Second, they will significantly increase TA's 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," he added.
With the HPT deals, coupled with the sale of its Minit Mart convenience store chain, "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," the chief executive said.
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 percent 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.percent 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 12 months ended Sept. 30, TA's 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 TA's independent directors and HPT's independent trustees, who were represented by separate counsel.
Westlake-based TravelCenters of America has travel centers in 43 U.S. states and in Canada, and standalone restaurants in 13 states. Its travel centers operate under the TravelCenters of America, TA, TA Express, Petro Stopping Centers and Petro banners. TA's standalone restaurants operate principally under the Quaker Steak & Lube brand name.