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TravelCenters of America LLC Message Board

  • blueskydriving blueskydriving Dec 11, 2012 10:51 AM Flag

    Shareholder Lawsuit (settled) ... for newer value shoppers like me

    TravelCenters of America LLC Announces Amendments to Lease Agreements with Hospitality Properties Trust and Settlement of Litigation

    WESTLAKE, Ohio--(BUSINESS WIRE)-- TravelCenters of America LLC (NYSE Amex: TA) today announced that it has entered amendments to its lease agreements with Hospitality Properties Trust (NYSE: HPT) as follows:

    Historical Agreements:

    TA has two historical leases with HPT:
    • One lease for 145 travel centers located in 39 states operated under the "TA" or "Travel Centers" brands extends to 2022 and requires annual rent of $165.1 million/year, increasing to $170.1 million/ year on February 1, 2011, increasing to $175.1 million/year on February 1, 2012, plus increases based upon percentages of increases in gross revenues starting in 2012 (the "TravelCenters Lease").
    • One lease for 40 travel centers located in 25 states operated under the "Petro" brand extends to 2024 and requires annual rent of $66.2 million/year plus increases starting in 2013 based upon percentages of increases in gross revenues (the "Petro Lease").
    • The total contractual rent payable by TA to HPT under these two leases currently is approximately $231.3 million/year (i.e., $165.1 million plus $66.2 million). Effective July 1, 2008, in consideration of the impact of market conditions upon TA's business, TA and HPT entered into a rent deferral arrangement whereby TA was permitted to defer up to $5.0 million /month of its combined rents due to HPT through December 31, 2010, and that required the amount of any such deferred rent, plus any unpaid interest, would be due from TA to HPT on or before July 1, 2011. Pursuant to that agreement TA has deferred a total of $150.0 million of rent, and all interest due with respect to such deferrals has been paid through December 31, 2010.

    New Agreements:

    The amended terms which have been agreed between TA and HPT are as follows:
    • The TravelCenters Lease is modified effective January 1, 2011 so that the current rent is reduced from $165.1 million/year to $135.1 million/year. The rent will increase to $140.1 million/year effective February 1, 2012, plus increases thereafter based upon percentages of increases in gross revenues.
    • The Petro Lease is modified effective January 1, 2011 so that the current rent is reduced from $66.2 million/year to $54.2 million/ year plus increases starting in 2013 based upon percentages of increases in gross revenues which exceed a threshold amount; and the first $2.5 million of percentage rent which becomes due under the Petro Lease shall be waived provided the settlement of certain litigation pending against TA, HPT and others is approved (see below).
    • The $150.0 million of previously deferred rent due from TA to HPT is further deferred, without interest, so that $107.1 million will be due in 2022 and $42.9 million shall be due in 2024. These deferred amounts will become due and interest may begin to accrue in certain circumstances set forth in the amended leases, including a change of control of TA.

    Litigation Settlement:

    In February 2008, a shareholder derivative litigation was begun against TA and its directors which, among other matters, disputes the rent payable by TA under one of its leases with HPT. Counsel for the plaintiff in that case participated in aspects of the negotiations between TA and HPT that resulted in certain of the lease modifications announced today. Specifically, in exchange for settling the litigation, HPT agreed to waive payment of the first $2.5 million of percentage rent that becomes due under the Petro Lease. This settlement is subject to approval by the Delaware Court of Chancery where this case is pending. Further details of this proposed settlement will be provided to TA shareholders in accordance with the Court of Chancery rules.

    TA's travel centers are operated under the "TravelCenters of America", "TA", and "Petro Stopping Centers" brand names and offer diesel and gasoline fueling services, restaurants, heavy truck repair facilities, stores and other services. TA's nationwide business includes travel centers located in 41 U.S. states and in Canada.

    Sentiment: Strong Buy

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    • This is a response to Mkt_long82. For some reason, his post doesn't have a "reply" button.

      TA and HPT have obviously signed long-term leases. So from that perspective, there's nothing HPT can do to "bleed TA dry". The % rent and the $5 million increase were both part of the leases.

      I guess I'm more cynical than you, so I'm looking for other ways that HPT can get its hands on TA's cash. One of those is the leasehold improvements. HPT earns an 8.5% cap rate on all of the leasehold improvements that it buys from TA. That's a pretty good return in this low interest rate environment. I don't invest in REITS, but I'd be curious what the current cap rates are for hotels/commercial properties. If I had to guess, I'd bet they'd be a lot lower than 8.5%.

      I'm not going to give TA's management or RMR the benefit of the doubt. If HPT can earn 8.5% "investing" in TA and only 5% (just a wild guess) investing in other real estate, then I think they'd tell TA to keep making leasehold improvements...without any thought to TA's ROI. Just take a look at TA's capex in 2010, 2011, and 2012. It's gone from $59 in 2010 ($0 sold to HPT) to $125 in 2011 ($31 sold to HPT) to $111 in nine months of 2012 ($48 sold to HPT).

      Another way to increase RMR's fees is to increase TA's revenue. How are they doing that? By having TA buy all these new locations. Even if TA doesn't make a dime on the new locations (I'm not saying that's the case), RMR will get its management fee.

      I guess you could say that TA is investing in its business and is getting good deals on the new locations. Only time will tell.

      • 1 Reply to art_vandelay_7
      • The current cap rate for lenders in commercial real estate (hotels and travel centers) is 8.5% ... there are some lenders offering a 7.5% cap rate as a teaser but they are difficult to actually get once they start crunching the numbers ... there are many, many projects getting a 10% cap rate. So, HPT is offering these "leasehold improvement" funds at a very competitive rate ... especially considering their most recent issue of Senior Notes for $500 million was at 5%, I don't think 8.5% is taking anyone to the cleaners ... in fact, it is very generous

        Here is a novel idea on this board. HPT is actually trying to do things to ensure that they can continue to pay a stable dividend to their investors It was first suggested during the conversation that we were having about the acquisition and disposition of property part of the the "relationship" between TA and HPT but, I believe it goes beyond that. It's all about "coverage". Coverage (for anyone not familiar) is basically (Property Revenues - Property Costs) / Property Rent. Or, simply does the property make enough money to pay it's rent ... and, if so, by how much. The higher the number, the more secure the property.

        So, this is the scary part ... "during the twelve months ended September 30, 2012, eight of our nine hotel operating agreements generated coverage of less than 1.0x (0.40x to 0.94x)" ... so, you can see HPT has issues ... and these are aggrements with Marriott, Hyatt, InterContinental, Carlson, Wyndham, Sonesta, etc ... they are not "taking advantage" of these operators, it's the struggling economy ...

        Now consider TA's coverage ... "during the twelve months ended September 30, 2012, the operating results from our 185 properties in our two travel center leases generated coverage of 1.71x ... very solid!

        HPT's BOTTOMLINE: We (HPT) believe that our operating cash flow will be sufficient to meet our operating expenses, interest expense and distribution payments declared by our Board of Trustees for the next twelve months and the foreseeable future thereafter. However, because of the impact of the weak U.S. economy on the hotel and travel center industries, our managers and tenants may be unable to pay minimum returns and minimum rents to us when due, in which case our cash flow and net income will decline and we may need to reduce the amount of, or even eliminate, our distributions to common shareholders.

        It's all about securing their DIVIDEND ... and, to do that in the best way for the long term, it's all about ensuring their tenants are successful ... I'm beginning to use that as an optic in evaluating everything I read ... but, admittedly, I am the new class clown on the board ... I very much appreciate everyone's inputs here (yes, even the negative stuff) ... it's best to hear all sides ... glta

        Sentiment: Strong Buy

    • According to that PR, the rent to HPT went from $231.3 million to $194.3 million.

      Interestingly enough, last quarter TA paid $51.867 million in rent to HPT. For the first 3 months of 2012, TA has paid $155.39 million in rent to HPT.

      If you annualize either the Q3 2012 rent or the Q1-Q3 2012 rent, you get around $207.186 million in annual rent.

      So, rent was $231.3. It was reduced by $37 million via a lawsuit. A couple of years later, and it's already gone back up by about $13 million (or 33% of the lawsuit reduction).

      Like I've said, one way or another, HPT/RMR are going to get their money.

      • 1 Reply to art_vandelay_7
      • According to the latest 10q rent expense for the 9 months of 2012 ended Sept 30th was 148,030 (millions) ...for the same 9 months of 2011 the rent was 143,339.

        If you read the PR report in the previous post you will see that the terms of the revised TA lease included an increase of 5 million in annual rent starting Feb 1st 2012.

        All the numbers are in line with the terms of the agreement...there is no additional gimmickry.

        I hate this structure and management as much as anyone, but you should get your facts straight.

 
TA
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