Here's why I think the Seeking Alpha article is a pump n dump (and why I sold my shares).
1) He states that "TA's market is an oligopoly and all the best highway locations are taken" as a positive for the stock. Let's think about this....when TA's leases are up, who will have the negotiating power? HPT, which owns all the locations, or TA, which would be unable to find other locations (because they are all gone)? What would happen if HPT demanded a 50% rent increase? Would TA walk away, or would TA be forced to pay it? If you don't think HPT would demand a huge rent increase (assuming TA is earning a lot of money), then you are definitely naive.
2) He mistates facts and omits materially important facts. He does not mention that HPT received 9.6% of TA's shares in return for deferring the rent. That seems to be an important tidbit, no?
He states that TA operates 243 locations, "a significant addition to the 185 centers it leases from HPT". This seemingly implies that TA owns 58 locations, which is false. The 243 locations includes about 35 franchises, which TA neither owns nor operates. Why would he mischaracterize something as black & white as the # of locations owned?
3) Anybody that claims the all of the related party transactions are a positive for TA is either an idiot or has an agenda. I'm not sure which one applies in this case.
4) Nowhere does he mention TA's cash flow. How much has TA invested in new locations and capex in its existing locations? What return is TA is making on those investments? Is the return higher than the 8.5% borrowing cost? I guess the author of the article doesn't know or doesn't care.
5) He refuses to acknowledge that there is anything negative related to TA. If you can't find something negative about ANY company, then you aren't looking hard enough. He responds to all the comments on his article...always including a positive spin.
6) The guy started a newsletter last week.
All this leads me to conclude that the guy is only interested in pumping the shares, in which case he'll dump his shares. Once the momo crowd goes away, TA will drift back down. If it drifts down enough, I'll buy it again for another swing trade.
Art, Continuing with your issues and concerns first.
3) "Anybody that claims the all of the related party transactions are a positive for TA is either an idiot or has an agenda. I'm not sure which one applies in this case."
As we've mentioned before that is exactly what TA thinks and says, "We believe that our agreements with HPT, RMR and AIC are on commercially reasonable terms. We also believe that our relationships with HPT, RMR, AIC and their affiliated and related persons and entities benefit us, and, in fact, provide us with competitive advantages in operating and growing our business."
I pointed out in an earlier post that I feel there are some property acquisition and disposition aspects that I do not like but there are "some" related party transactions that benefit both parties.
"Under the TA Lease, we received funding from HPT for certain tenant improvements we made to properties owned by HPT with no increase in our rent payable to HPT. As of September 30, 2010, we had received from HPT all of the $125 million tenant improvements allowance available under the TA Lease without an increase in rent payments."
"In addition to the $125 million, under the HPT Leases, we may request that HPT purchase approved renovations, improvements and equipment additions we make at the leased travel centers, in return for minimum annual rent increases according to a formula: the base annual rent will be increased by an amount equal to the amount paid by HPT times the greater of (i) 8.5% or (ii) a benchmark U.S. Treasury interest rate plus 3.5%. HPT is not required to purchase any such improvements and we are not required to sell any such improvements to HPT."
4) Cash Flow is king ... I've already posted on that subject and EBITDA and EBITDAR ... TA has been spending a lot of capital for growth ... they have a coverage ratio of 1.7x at HPT leased travel centers
got to go again
Sentiment: Strong Buy
Regarding your first point. Who do you think will run HPT's travel centers if TA won't? HPT is not allowed by law to operate them. What other large organization is there that is able to take over? Petro and Loves run centers that they own, they are not set up to operate leases. Furthermore, they seem to operate much more cheaply which means they are unlikely to pay similar rents.
From what I have read about the industry TA is considered by far the best big truck stop operator by truckers and just taking the TA and Petro signs off will result in significant loss of value and rent.
So regarding these renegotiations which are supposed to take place about 10 years from now I think TA will have quite a bit of bargaining power as well. It will be one of those situations where both sides need each other.
Your point number 3 is absolutely correct though. This related party situation is simply unacceptable, and we should not sugar coat it.
A couple points:
(1) blueskydriving = Joe Springer. They use certain language identically, apply the same arguments, and really, who else would offer a point by point defense of somebody else's article as bluesky did?
(2) Anyone who thinks TA is shareholder-friendly (or, put another way, that TA management is truly acting in an arm's-length mannger from HPT) needs to provide an adequate answer to the following question: Why, in May of 2011, did TA sell 10 million shares in a massively dilutive secondary at $5.69 a stub, when book value was north of $12 a share and the stock had been trading as high as $8 that same month? (I'll spare the suspense and tell you why: it's because Portnoy was upset about being on the losing end of that shareholder lawsuit, and decided to exact some revenge on TA holders).
TA is managed not to maximize shareholder returns, but rather to ensure HPT receives their rent checks every month. That is why it trades at such a big discount to book.
What do the 25 centers that they currently own have to do with HPT ?
The MC is so cheap currently that you could look at this as two separate businesses and still justify a higher valuation just on the wholly owned part.
The structure of the new lease agreements makes it very difficult for HPT to bleed TA dry in any way.
The new notes they floated show that future dilution is not forthcoming - not to mention if you listened to any of the quarterly calls the CEO has basically flat out said no need for dilution.
You can live in the past all you'd like, but that won't help you make money in the future.
The corporate governance sucks, but this company doesn't need to have Berkshire Hathaway levels of governance in order to re-rate.
Everything is a question of Value - this company at a 600 mil MC i'm likely not interested. At 175 it's a very compelling play.
Thanks for today's inputs (and your inputs in the past as well). You are clearly an expert here and we're listening. However, you're not taking a bold stand to predict a pullback since TA has gone straight up 40% since you and I last talked only a month ago ... I understand your thoughts and opinions regarding Joe's recent article but I do disagree with many or your points ... I don't have a lot of time right now but let me cover a couple now and I'll continue later:
1) "If you don't think HPT would demand a huge rent increase (assuming TA is earning a lot of money), then you are definitely naive." Art, in today's stock market 70% of all trades on any given day are for stock positons held less than three minutes ... If you hold stock for a day, then you are a long ... If you hold a stock for a week, then you are a fund manager ... with that being said,
"As amended in January 2011, the TA Lease requires us to pay specified minimum rent to HPT in an amount of $135.1 million per year for the period from January 1, 2011 through January 31, 2012, and an amount of $140.1 million per year for the period commencing February 1, 2012 and continuing through December 31, 2022, and the Petro Lease requires us to pay specified minimum rent to HPT of $54.2 million through June 30, 2024."
So, you want us to worry about the rent going up in 2022 ... Really? So, for a man my age with my attention span, TA is a oligopoly.
2) "HPT received 9.6% of TA's shares in return for deferring the rent" ... Valid, and Good point ... As a result of the deferred rent agreement, TA issued 1.54 million shares of common stock (9.6% of current outstanding shares as of July 1st, 2008) to HPT. Still, that is very old news ... TA is a different company beginning to shows signs of independence from HPT and that is what I think Joe was trying to highlight. In terms of the number of travel centers leased, owned, or franchised ... there was a lot of information in the article and he pointed out number leased and number owned ... the remaining number (franchised) was simple math and likely an oversight.
Got to go for now ... I'll continue later.
Sentiment: Strong Buy
How can you think the Shell agreement will help TA's stock price (it'll take a few years before TA sees any meaningful impact from it) and not think the rent overhang won't hurt it? Based on what you're saying (I think), we should expect TA to go to $15 in the next couple of years and then drop back down to $4 in 2020 because then everyone will worry about the lease negotiations. I don't think people are that stupid (well, maybe the clowns following Joe Springer are).
As far as Joe's failure to mention the stock grant and misrepresent the # of locations, I'm not naive enough to think that was an innocent mistake or an oversight. Give me a few days and I could write a glowing article on any company you wanted (Enron, Blockbuster, etc). That doesn't mean the article's analysis would be correct though.
I've been following TA since around 2008. I think my first purchase was around $3.25 (long since sold). That whole time people have been claiming that TA should trade at book value, that TA is undervalued, blah, blah, blah. 5 years and a new rent agreement, newly owned travelcenters, millions of losses, and millions of newly issued shares later, TA is still just trading at $5.
Forgive me if I don't think an article by Joe Blow is going to lead to a massive upheaval in the way that the market values and looks at TA. If the new rent agreement didn't lead to a sustained price increase, then why should an article by some newsletter promoter?
I hope you make a lot of money on your TA trades (although that will be hard to do if you just hold them for 3 minutes). :)
The fact that HPT is one of the largest shareholders of TA is a positive point not a negative. Their interest is aligned with shareholders. Why would they shoot themselves in the foot by going against their $120M investment in TA as of now??? It is to their benefit to ensure TA's future potential by 1) Getting a fair market rent that helps both HPT and TA to succeed and 2) As a byproduct of TA's success their investment in TA will also rise and they will make money that way. Lets say TA continues its growth and finally the street realizes the valuation and assigns similar valuation as SUSS. That will put us above $30 and HPTs shares will grow to $900M!!! Why would they hurt that type of growth! Art the fart wants to bash the stock so he can trade the range. Its ok! we all do! lol
Sentiment: Strong Buy
If you read the author's responses to the comments, you will also see that he is now promoting a potential buyout of TA. Give me a break. What's next...is the guy going to say that his aunt's next dooe neighbor's brother's cousin works for Goldman Sachs and is actively putting together a deal?
There will be no buyout.
No stock controlled by RMR will ever have a buyout. It might hurt RMR profits.
Total profits for RMR, is the main concern of RMR, not shareholder value.
In one CC for CWH, Portnoy said, he did not care about the stock price of CWH.
Same is true for this.
This stock cannot tripple due to very poor management of RMR.