TravelCenters’ Big Deal

This big sale-leaseback deal was a year in the making.

TravelCenters of America has entered agreements with Hospitality Properties Trust for sale-leaseback transactions for 30 travel centers totaling approximately $397 million.

As a result of the agreement, TA will also purchase from HPT five travel centers now leased by TA and subleased to TA franchisees for approximately $45 million. TA expects to receive net cash proceeds (before transaction costs) of approximately $352 million, with proceeds expected to be utilized to fund its on-going expansion program.

“The agreements announced today represent the results of a lot of hard work that TA and HPT began to conceptualize almost one year ago,” Thomas M. O’Brien, TA’s president, CEO & managing director, said in a company statement. “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.”

Some of the expected benefits of the deal were outlined in a company release and include:

A significant part of the gains to be realized from these transactions are expected to result from sales of travel centers, which TA developed or acquired and redeveloped. TA believes that the gains realized upon completion of these sales evidence the successes of TA’s expansion program.

Five of the travel centers being acquired by HPT and leased back to TA are currently being developed by TA at an estimated cost of up to approximately $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.

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, resulting in what the company hopes will be most or all of the gains it realizes upon these sales will qualify for “like kind exchange” tax deferred treatment.

The restructuring of TA’s current leases in connection with these transactions has several additional benefits for TA. 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.

Last week, Zacks Investment Research reported that TravelCenters of America was a hot stock, with a consensus broker rating of 1.67. According to the report, one investment analyst has rated the stock with a hold recommendation while two assigned a strong buy recommendation to the company. TravelCenters of America’s rating score has improved by 16.5 percent in the last 90 days as a result of a number of analysts’ ratings changes.

TA was formerly a 100 percent owned subsidiary of HPT and now HPT is currently TA’s largest shareholder holding approximately 8.9 percent of TA’s outstanding shares

“HPT is pleased to expand its relationship with TA,” John Murray, HPT’s president, said in a company statement. “For the past several years, TA has proven itself to be a dependable source of rental income for HPT and HPT looks forward to a long and mutually beneficial relationship with TA.”