TravelCenters Discusses Acquisition ROI
WESTLAKE, Ohio — Financial results for the 112 locations — 36 travel centers and 76 gasoline stations/convenience stores — that TravelCenters of America (TA) has acquired from 2011 through the second quarter of this year continue to improve as the capital improvements at these locations are completed and their operations stabilize, the company reported this week.
Capital improvements to recently purchased travel centers are often substantial and require a long period of time to plan, design, permit and complete. Once the improvements are finished, these travel centers require a period of time to produce stabilized financial results, according to TA.
The company estimates that the travel centers it acquires generally will reach stabilization in approximately the third year post-acquisition, while the gasoline stations/convenience stores it acquires generally will reach stabilization in approximately one year post-acquisition.
TA’s net income for the second quarter of 2015 was $3.8 million, a $9.9-million decrease from its net income in 2014’s second quarter. According to the company, net income for the latest quarter was affected by a $10.5-million loss on extinguishment of debt recognized as part of TA's accounting for the lease amendment and related transactions completed in June, as well as a decline in fuel margin.
Net income for the quarter was also impacted by acquisition costs, site staff training and other integration costs primarily associated with the 47 sites TA acquired during the first half of this year.
The company’s second-quarter financial results reflect the operations of 252 travel centers and 79 gasoline stations/convenience stores in 43 U.S. states and Canada, operated primarily under the TravelCenters of America, TA, Petro and Minit Mart brand names.
TA’s fuel volume for the second quarter increased by 17.6 million gallons, or 3.4 percent, compared to the 2014 second quarter. This gain was partially due to the sites acquired since the beginning of the quarter, and partially due to increased same-site fuel volume.
Fuel revenue for the second quarter, however, declined by $533.1 million, or 32.1 percent, primarily due to the significantly lower market prices for fuel this year vs. last year.
Fuel gross margin per gallon for the quarter decreased to 18 cents, compared to 19 cents a year ago. Total fuel gross margin for the second quarter declined by $2.8 million, or 2.9 percent, year over year.
Non-fuel revenue for the 2015 second quarter increased by $39.8 million, or 9.6 percent, compared to the 2014 second quarter, primarily due to a $25.6-million, or 6.2 percent, increase on a same-site basis.
Operational Highlights
While the decline in fuel gross margin, acquisition and integration costs, and accounting effects created noise in the second quarter, “operational highlights as well as internal and external growth-related items continue to be sources of excitement for our future," said TravelCenters of America CEO Tom O'Brien.
TA’s sale-leaseback transactions with Hospitality Properties Trust (HPT) during the quarter had "at least three positive messages," according to the chief executive:
1. The culmination of those transactions are a representation of the value created by TA's acquisition and operational programs over the past years. There were $212 million in sales to HPT completed during the second quarter and the related deferred gains totaled $113 million.
2. The transactions with HPT are expected to provide substantially all of the funding TA needs to not only close the transactions TA has announced, but also to provide funding for the development of five new travel centers in locations key to the company's network.
3. The transactions with HPT have extended TA's rights to operate the related travel centers to at least 2056, "a period extending far beyond the previous lease end date of 2022."
O'Brien also called out several operational highlights during the company’s second-quarter earnings call, held Thursday. For instance, TA achieved positive same-store fuel volume growth of 1.1 percent despite the fuel efficiency headwinds that pervade the industry, he noted.
The company's expectation for fuel margins for the second half of 2015 is more in line with the 2013 second half than with "the extraordinary results of the second half of last year," O'Brien added.
TA also achieved same-store non-fuel sales and margin growth of 6.2 percent and 8.4 percent, respectively. This same-store non-fuel gross margin growth, coupled with tight control of site-level operating expenses, more than offset the decline in same-store fuel gross margin, he explained.
"We achieved these non-fuel results by focusing on continued improvement, and from [a number] of other avenues including our continued commitment to regular maintenance and site improvements that included remodeling and refreshing 37 restaurants and 18 travel stores, and to expanding customer services and amenities at existing sites including the addition of five new quick-service restaurants and four new truck service facilities all during the first half," O'Brien reported.
Other highlighted areas included TA's RoadSquad Connect service and Reserve-It parking, both of which continue to be among its fastest-growing recent initiatives, he said.