TravelCenters of America LLC announced it entered agreements with its principal landlord, Hospitality Properties Trust 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.
- TA’s 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 TA’s acquisition of the 20 travel centers, the aggregate minimum annual rent due under TA’s 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 TA’s rental expense and improve TA’s operating and financial leverage; TA’s 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 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.
“With the sale of the standalone convenience stores business concluded last month and the proceeds from that sale now committed to reduce TA’s 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 TA’s 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, 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.