WESTLAKE, Ohio (June 10, 2015) — Truck stop chain operator TravelCenters of America L.L.C. (TA) has struck deals with Hospitality Properties Trust (HPT) — its former owner and still largest single shareholder — for sale leaseback transactions covering 30 travel centers and totaling approximately $397 million.
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, according to the company.
Under the agreements, TA said it also will purchase, for approximately $45 million, from HPT five travel centers now leased by TA and subleased to TA franchisees.
TA outlined the expected benefits of these agreements as follows:
- First, TA expects to receive net cash proceeds (before transaction costs) of approximately $352 million, with proceeds expected to be used to fund TA's ongoing expansion program.
- Second, a significant part of the gains to be realized from these transactions will result from sales of travel centers that were developed, or acquired and redeveloped, by TA. The company said it believes the gains it expects to realize upon completion of these sales “evidence the successes of TA's expansion program.” Under generally accepted accounting principles, these gains will be amortized as a reduction of rent expense during the lease terms for the leased sites.
- Third, 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 $118 million. “By obtaining a forward commitment for TA's cost of development, the risk sometimes associated with so called ‘greenfield development' is partially mitigated,” according to the Westlake-based company. 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, it said, rather than the possibly higher values of these five sites after they are built and their financial results are stabilized.
- Fourth, 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 said it expects that most or all of the gains which it realizes from these sales will qualify for “like kind exchange” tax deferred treatment.
- Fifth, the restructuring of TA's current leases in connection with these transactions has several additional benefits, according to the company. 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 said its obligation to pay HPT approximately $107 million of previously deferred rent which was 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” sites — a brand operated by TA — which expires in 2024 with 30 years of contractual extension options remain materially unchanged.
Commenting on the announcement, Thomas M. O'Brien, TA president, CEO and a managing director, said the agreements “represent the results of a lot of hard work that TA and HPT began to conceptualize almost one year ago.
“I believe they represent clear wins for both companies. I also believe these agreements are strong evidence of TA's success in creating value by buying and redeveloping travel centers.”
TA formerly was a subsidiary of HPT, which is TA's largest shareholder with approximately 8.9 percent of TA's outstanding shares. One of TA's directors also is a trustee of HPT.
TA said because of these and other relationships between it and HPT, the terms of these 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.
TravelCenters of America operates about 254 full-service locations under the TA, TravelCenters of America, Petro and Petro Stopping Centers brand names in 43 states, primarily at exits along the U.S. Interstate Highway System and in Canada.
Separately, the company held a customer appreciation event June 4 at its TA site in London, Ohio, located at I-70, Exit 79, to mark the reopening of the newly remodeled location.