Item 1. Financial Statements
TravelCenters of America Inc.
Consolidated Balance Sheets (Unaudited)
(in thousands)
|
|
|
|
|
|
|
|
|
|
June 30,
2019
|
|
December 31,
2018
|
Assets:
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
25,785
|
|
|
$
|
314,387
|
|
Accounts receivable (net of allowance for doubtful accounts of $756 and $959 as of
June 30, 2019 and December 31, 2018, respectively)
|
147,620
|
|
|
97,449
|
|
Inventory
|
199,715
|
|
|
196,721
|
|
Other current assets
|
27,437
|
|
|
35,119
|
|
Total current assets
|
400,557
|
|
|
643,676
|
|
|
|
|
|
Property and equipment, net
|
880,142
|
|
|
628,537
|
|
Operating lease assets
|
1,817,701
|
|
|
—
|
|
Goodwill
|
25,259
|
|
|
25,259
|
|
Intangible assets, net
|
21,683
|
|
|
22,887
|
|
Other noncurrent assets
|
99,988
|
|
|
121,749
|
|
Total assets
|
$
|
3,245,330
|
|
|
$
|
1,442,108
|
|
|
|
|
|
Liabilities and Shareholders' Equity:
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
Accounts payable
|
$
|
194,895
|
|
|
$
|
120,914
|
|
Current operating lease liabilities
|
97,298
|
|
|
—
|
|
Current HPT Leases liabilities
|
—
|
|
|
42,109
|
|
Other current liabilities
|
153,717
|
|
|
125,668
|
|
Total current liabilities
|
445,910
|
|
|
288,691
|
|
|
|
|
|
Long term debt, net
|
320,971
|
|
|
320,528
|
|
Noncurrent operating lease liabilities
|
1,898,832
|
|
|
—
|
|
Noncurrent HPT Leases liabilities
|
—
|
|
|
353,756
|
|
Other noncurrent liabilities
|
52,853
|
|
|
28,741
|
|
Total liabilities
|
2,718,566
|
|
|
991,716
|
|
|
|
|
|
Shareholders' equity:
|
|
|
|
|
|
Common shares, no par value, 8,674 shares authorized as of June 30, 2019 and
December 31, 2018, and 8,087 and 8,080 shares issued and outstanding as of June
30, 2019 and December 31, 2018, respectively
|
696,886
|
|
|
695,315
|
|
Accumulated other comprehensive income
|
538
|
|
|
355
|
|
Accumulated deficit
|
(172,099
|
)
|
|
(246,773
|
)
|
Total TA shareholders' equity
|
525,325
|
|
|
448,897
|
|
Noncontrolling interest
|
1,439
|
|
|
1,495
|
|
Total shareholders' equity
|
526,764
|
|
|
450,392
|
|
Total liabilities and shareholders' equity
|
$
|
3,245,330
|
|
|
$
|
1,442,108
|
|
The accompanying notes are an integral part of these consolidated financial statements.
TravelCenters of America Inc.
Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited)
(in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Revenues:
|
|
|
|
|
|
|
|
|
|
Fuel
|
$
|
1,117,671
|
|
|
$
|
1,149,486
|
|
|
$
|
2,100,812
|
|
|
$
|
2,135,831
|
|
Nonfuel
|
476,082
|
|
|
471,442
|
|
|
916,956
|
|
|
895,317
|
|
Rent and royalties from franchisees
|
3,611
|
|
|
4,049
|
|
|
6,888
|
|
|
8,159
|
|
Total revenues
|
1,597,364
|
|
|
1,624,977
|
|
|
3,024,656
|
|
|
3,039,307
|
|
|
|
|
|
|
|
|
|
Cost of goods sold (excluding depreciation):
|
|
|
|
|
|
|
|
|
|
Fuel
|
1,040,849
|
|
|
1,075,108
|
|
|
1,949,243
|
|
|
1,978,556
|
|
Nonfuel
|
187,498
|
|
|
184,244
|
|
|
355,766
|
|
|
345,655
|
|
Total cost of goods sold
|
1,228,347
|
|
|
1,259,352
|
|
|
2,305,009
|
|
|
2,324,211
|
|
|
|
|
|
|
|
|
|
Site level operating expense
|
234,645
|
|
|
228,861
|
|
|
467,365
|
|
|
451,873
|
|
Selling, general and administrative expense
|
39,562
|
|
|
27,480
|
|
|
76,672
|
|
|
63,974
|
|
Real estate rent expense
|
63,770
|
|
|
70,684
|
|
|
130,183
|
|
|
140,920
|
|
Depreciation and amortization expense
|
23,213
|
|
|
21,123
|
|
|
47,972
|
|
|
41,669
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
7,827
|
|
|
17,477
|
|
|
(2,545
|
)
|
|
16,660
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
7,164
|
|
|
6,865
|
|
|
14,214
|
|
|
14,445
|
|
Other (income) expense, net
|
(144
|
)
|
|
903
|
|
|
430
|
|
|
2,196
|
|
Income (loss) before income taxes and
discontinued operations
|
807
|
|
|
9,709
|
|
|
(17,189
|
)
|
|
19
|
|
Benefit (provision) for income taxes
|
402
|
|
|
(1,071
|
)
|
|
5,669
|
|
|
2,592
|
|
Income (loss) from continuing operations
|
1,209
|
|
|
8,638
|
|
|
(11,520
|
)
|
|
2,611
|
|
Loss from discontinued operations,
net of taxes
|
—
|
|
|
(42,562
|
)
|
|
—
|
|
|
(46,613
|
)
|
Net income (loss)
|
1,209
|
|
|
(33,924
|
)
|
|
(11,520
|
)
|
|
(44,002
|
)
|
Less: net income for noncontrolling interest
|
31
|
|
|
54
|
|
|
49
|
|
|
88
|
|
Net income (loss) attributable to
common shareholders
|
$
|
1,178
|
|
|
$
|
(33,978
|
)
|
|
$
|
(11,569
|
)
|
|
$
|
(44,090
|
)
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss),
net of taxes:
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency gain (loss), net of taxes of
$26, $(28), $51 and $(64), respectively
|
$
|
15
|
|
|
$
|
(41
|
)
|
|
$
|
46
|
|
|
$
|
(103
|
)
|
Equity interest in investee's unrealized gains
(losses) on investments
|
71
|
|
|
10
|
|
|
137
|
|
|
(83
|
)
|
Other comprehensive income (loss)
attributable to common shareholders
|
86
|
|
|
(31
|
)
|
|
183
|
|
|
(186
|
)
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) attributable to
common shareholders
|
$
|
1,264
|
|
|
$
|
(34,009
|
)
|
|
$
|
(11,386
|
)
|
|
$
|
(44,276
|
)
|
|
|
|
|
|
|
|
|
Net income (loss) per common share
attributable to common shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted from continuing operations
|
$
|
0.15
|
|
|
$
|
1.07
|
|
|
$
|
(1.43
|
)
|
|
$
|
0.32
|
|
Basic and diluted from discontinued
operations
|
—
|
|
|
(5.32
|
)
|
|
—
|
|
|
(5.83
|
)
|
Basic and diluted
|
0.15
|
|
|
(4.25
|
)
|
|
(1.43
|
)
|
|
(5.51
|
)
|
The accompanying notes are an integral part of these consolidated financial statements.
TravelCenters of America Inc.
Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
2019
|
|
2018
|
Cash flows from operating activities:
|
|
|
|
|
|
Net loss
|
$
|
(11,520
|
)
|
|
$
|
(44,002
|
)
|
Less: loss from discontinued operations, net of taxes
|
—
|
|
|
(46,613
|
)
|
(Loss) income from continuing operations
|
(11,520
|
)
|
|
2,611
|
|
Adjustments to reconcile (loss) income from continuing operations to net cash
provided by operating activities of continuing operations:
|
|
|
|
|
|
Noncash rent adjustments
|
(8,487
|
)
|
|
(7,232
|
)
|
Depreciation and amortization expense
|
47,972
|
|
|
41,669
|
|
Deferred income tax benefit
|
(5,134
|
)
|
|
(2,977
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
Accounts receivable
|
(49,968
|
)
|
|
(37,266
|
)
|
Inventory
|
(2,975
|
)
|
|
(5,029
|
)
|
Other assets
|
7,468
|
|
|
767
|
|
Accounts payable and other liabilities
|
80,282
|
|
|
73,117
|
|
Other, net
|
1,275
|
|
|
10,656
|
|
Net cash provided by operating activities of continuing operations
|
58,913
|
|
|
76,316
|
|
Net cash provided by operating activities of discontinued operations
|
—
|
|
|
5,717
|
|
Net cash provided by operating activities
|
58,913
|
|
|
82,033
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
Acquisitions of travel centers from HPT
|
(309,637
|
)
|
|
—
|
|
Capital expenditures
|
(37,189
|
)
|
|
(62,423
|
)
|
Proceeds from asset sales to HPT
|
—
|
|
|
28,345
|
|
Proceeds from asset sales
|
890
|
|
|
—
|
|
Other
|
(1,500
|
)
|
|
141
|
|
Net cash used in investing activities of continuing operations
|
(347,436
|
)
|
|
(33,937
|
)
|
Net cash used in investing activities of discontinued operations
|
—
|
|
|
(5,725
|
)
|
Net cash used in investing activities
|
(347,436
|
)
|
|
(39,662
|
)
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
Proceeds from sale leaseback transactions with HPT
|
—
|
|
|
491
|
|
Distributions to noncontrolling interest
|
(105
|
)
|
|
(101
|
)
|
Sale leaseback financing obligation payments
|
—
|
|
|
(479
|
)
|
Other
|
(55
|
)
|
|
(52
|
)
|
Net cash used in financing activities
|
(160
|
)
|
|
(141
|
)
|
|
|
|
|
Effect of exchange rate changes on cash
|
81
|
|
|
(123
|
)
|
Net (decrease) increase in cash and cash equivalents
|
(288,602
|
)
|
|
42,107
|
|
Cash and cash equivalents at the beginning of the period
|
314,387
|
|
|
36,082
|
|
Cash and cash equivalents at the end of the period
|
25,785
|
|
|
78,189
|
|
Less: cash of discontinued operations at the end of the period
|
—
|
|
|
548
|
|
Cash and cash equivalents of continuing operations at the end of the period
|
$
|
25,785
|
|
|
$
|
77,641
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
Interest paid (including rent classified as interest and net of capitalized interest)
|
$
|
13,783
|
|
|
$
|
14,617
|
|
Income taxes paid, net of refunds
|
106
|
|
|
91
|
|
The accompanying notes are an integral part of these consolidated financial statements.
TravelCenters of America Inc.
Consolidated Statements of Shareholders' Equity (Unaudited)
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of
Common
Shares
|
|
Common
Shares
|
|
Accumulated
Other
Comprehensive
Income
|
|
Accumulated
Deficit
|
|
Treasury
Shares
|
|
Total TA
Shareholders'
Equity
|
|
Noncontrolling
Interest
|
|
Total
Shareholders'
Equity
|
March 31, 2019
|
8,080
|
|
|
$
|
696,017
|
|
|
$
|
452
|
|
|
$
|
(173,277
|
)
|
|
$
|
—
|
|
|
$
|
523,192
|
|
|
$
|
1,484
|
|
|
$
|
524,676
|
|
Grants under share
award plan and
share based
compensation, net
|
7
|
|
|
869
|
|
|
—
|
|
|
—
|
|
|
(2
|
)
|
|
867
|
|
|
—
|
|
|
867
|
|
Retirement of
treasury shares
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
2
|
|
|
—
|
|
|
2
|
|
Distributions to
noncontrolling
interest
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(76
|
)
|
|
(76
|
)
|
Other comprehensive
income, net of
taxes
|
—
|
|
|
—
|
|
|
86
|
|
|
—
|
|
|
—
|
|
|
86
|
|
|
—
|
|
|
86
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
1,178
|
|
|
—
|
|
|
1,178
|
|
|
31
|
|
|
1,209
|
|
June 30, 2019
|
8,087
|
|
|
$
|
696,886
|
|
|
$
|
538
|
|
|
$
|
(172,099
|
)
|
|
$
|
—
|
|
|
$
|
525,325
|
|
|
$
|
1,439
|
|
|
$
|
526,764
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
8,000
|
|
|
$
|
692,706
|
|
|
$
|
425
|
|
|
$
|
(136,332
|
)
|
|
$
|
—
|
|
|
$
|
556,799
|
|
|
$
|
1,481
|
|
|
$
|
558,280
|
|
Grants under share
award plan and
share based
compensation, net
|
(46
|
)
|
|
2,143
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,143
|
|
|
—
|
|
|
2,143
|
|
Distributions to
noncontrolling
interest
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(101
|
)
|
|
(101
|
)
|
Other comprehensive
loss, net of taxes
|
—
|
|
|
—
|
|
|
(31
|
)
|
|
—
|
|
|
—
|
|
|
(31
|
)
|
|
—
|
|
|
(31
|
)
|
Net (loss) income
|
—
|
|
|
—
|
|
|
—
|
|
|
(33,978
|
)
|
|
—
|
|
|
(33,978
|
)
|
|
54
|
|
|
(33,924
|
)
|
June 30, 2018
|
7,954
|
|
|
$
|
694,849
|
|
|
$
|
394
|
|
|
$
|
(170,310
|
)
|
|
$
|
—
|
|
|
$
|
524,933
|
|
|
$
|
1,434
|
|
|
$
|
526,367
|
|
The accompanying notes are an integral part of these consolidated financial statements.
TravelCenters of America Inc.
Consolidated Statements of Shareholders' Equity (Unaudited)
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Common
Shares
|
|
Common
Shares
|
|
Accumulated
Other
Comprehensive
Income
|
|
Accumulated
Deficit
|
|
Treasury
Shares
|
|
Total TA
Shareholders'
Equity
|
|
Noncontrolling
Interest
|
|
Total
Shareholders'
Equity
|
December 31, 2018
|
8,080
|
|
|
$
|
695,315
|
|
|
$
|
355
|
|
|
$
|
(246,773
|
)
|
|
$
|
—
|
|
|
$
|
448,897
|
|
|
$
|
1,495
|
|
|
$
|
450,392
|
|
Grants under share
award plan and
share based
compensation, net
|
7
|
|
|
1,571
|
|
|
—
|
|
|
—
|
|
|
(2
|
)
|
|
1,569
|
|
|
—
|
|
|
1,569
|
|
Retirement of
treasury shares
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
2
|
|
|
—
|
|
|
2
|
|
Distributions to
noncontrolling
interest
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(105
|
)
|
|
(105
|
)
|
Other comprehensive
income, net of
taxes
|
—
|
|
|
—
|
|
|
183
|
|
|
—
|
|
|
—
|
|
|
183
|
|
|
—
|
|
|
183
|
|
Cumulative effect
of adoption of
ASC 842, net of
taxes
|
—
|
|
|
—
|
|
|
—
|
|
|
86,243
|
|
|
—
|
|
|
86,243
|
|
|
—
|
|
|
86,243
|
|
Net (loss) income
|
—
|
|
|
—
|
|
|
—
|
|
|
(11,569
|
)
|
|
—
|
|
|
(11,569
|
)
|
|
49
|
|
|
(11,520
|
)
|
June 30, 2019
|
8,087
|
|
|
$
|
696,886
|
|
|
$
|
538
|
|
|
$
|
(172,099
|
)
|
|
$
|
—
|
|
|
$
|
525,325
|
|
|
$
|
1,439
|
|
|
$
|
526,764
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
7,997
|
|
|
$
|
690,688
|
|
|
$
|
580
|
|
|
$
|
(126,220
|
)
|
|
$
|
—
|
|
|
$
|
565,048
|
|
|
$
|
1,447
|
|
|
$
|
566,495
|
|
Grants under share
award plan and
share based
compensation, net
|
(43
|
)
|
|
4,161
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,161
|
|
|
—
|
|
|
4,161
|
|
Distributions to
noncontrolling
interest
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(101
|
)
|
|
(101
|
)
|
Other comprehensive
loss, net of taxes
|
—
|
|
|
—
|
|
|
(186
|
)
|
|
—
|
|
|
—
|
|
|
(186
|
)
|
|
—
|
|
|
(186
|
)
|
Net (loss) income
|
—
|
|
|
—
|
|
|
—
|
|
|
(44,090
|
)
|
|
—
|
|
|
(44,090
|
)
|
|
88
|
|
|
(44,002
|
)
|
June 30, 2018
|
7,954
|
|
|
$
|
694,849
|
|
|
$
|
394
|
|
|
$
|
(170,310
|
)
|
|
$
|
—
|
|
|
$
|
524,933
|
|
|
$
|
1,434
|
|
|
$
|
526,367
|
|
The accompanying notes are an integral part of these consolidated financial statements.
TravelCenters of America Inc.
Notes to Consolidated Financial Statements (Unaudited)
(dollars and shares in thousands, except per share amounts)
|
|
1.
|
Business Description and Basis of Presentation
|
TravelCenters of America Inc. is a Maryland corporation. Prior to August 1, 2019, we were organized as a Delaware limited liability company. As of
June 30, 2019
, we operated or franchised
301
travel centers, standalone truck service facilities and standalone restaurants. Our customers include trucking fleets and their drivers, independent truck drivers, highway and local motorists and casual diners. We also collect rents, royalties and other fees from our tenants and franchisees.
On
August 1, 2019
, in conjunction with our conversion from a Delaware limited liability company to a Maryland corporation, we completed a reverse stock split of our outstanding common shares pursuant to which five shares were exchanged for one share of our common shares. The common share information included within this Quarterly Report on Form 10-Q, or this Quarterly Report, has been retrospectively adjusted to reflect this reverse stock split for all periods and at all dates presented. See Note 5 for more information about our reverse stock split.
As of
June 30, 2019
, our business included
258
travel centers in
43
states in the United States, primarily along the U.S. interstate highway system, and the province of Ontario, Canada, operated primarily under the "TravelCenters of America," "TA," "TA Express," "Petro Stopping Centers" and "Petro" brand names. Of our
258
travel centers at
June 30, 2019
, we owned
51
, we leased
181
, we operated
two
for a joint venture in which we own a noncontrolling interest and
24
were owned or leased from others by our franchisees. We operated
232
of our travel centers and franchisees operated
26
travel centers, including
two
we leased to franchisees. Our travel centers offer a broad range of products and services, including diesel fuel and gasoline, as well as nonfuel products and services such as truck repair and maintenance services, full service restaurants, quick service restaurants and various customer amenities.
As of
June 30, 2019
, our business included
two
standalone truck service facilities operated under the "TA Truck Service" brand name. Of our
two
standalone truck service facilities, we leased
one
and owned
one
. Our standalone truck service facilities offer extensive maintenance and emergency repair and roadside services to large trucks.
As of
June 30, 2019
, our business included
41
standalone restaurants in
13
states in the United States operated primarily under the "Quaker Steak & Lube," or QSL, brand name. Of our
41
standalone restaurants at
June 30, 2019
, we operated
15
restaurants (
six
we owned,
eight
we leased and
one
we operated for a joint venture in which we own a noncontrolling interest) and
26
were owned or leased from others and operated by our franchisees.
We manage our business as
one
segment. We make specific disclosures concerning fuel and nonfuel products and services because it facilitates our discussion of trends and operational initiatives within our business and industry. We have a single travel center located in a foreign country, Canada, that we do not consider material to our operations.
On December 5, 2018, we sold
225
convenience stores,
one
standalone restaurant and certain related assets, or our convenience stores business, pursuant to an agreement we entered into on September 1, 2018. As a result, the results of our convenience stores business are reported as discontinued operations for the three and six months ended
June 30, 2018
, in our consolidated statements of operations and comprehensive income (loss)
.
See Note 4 for more information about our discontinued operations.
The accompanying consolidated financial statements are unaudited. These unaudited interim financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP, applicable for interim financial statements. The disclosures presented do not include all the information necessary for complete financial statements in accordance with GAAP. These unaudited interim financial statements should be read in conjunction with the consolidated financial statements and notes contained in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2018
, or our Annual Report. In the opinion of our management, the accompanying consolidated financial statements include all adjustments, including normal recurring adjustments, considered necessary for a fair presentation. All intercompany transactions and balances have been eliminated. While our revenues are modestly seasonal, the quarterly variations in our operating results may reflect greater seasonal differences because our rent expense and certain other costs do not vary seasonally. For this and other reasons, our operating results for interim periods are not necessarily indicative of the results that may be expected for a full year.
Reclassifications.
Certain prior year amounts have been reclassified to be consistent with the current year presentation within our consolidated financial statements.
TravelCenters of America Inc.
Notes to Consolidated Financial Statements (Unaudited)
(dollars and shares in thousands, except per share amounts)
Fair Value Measurement
Senior Notes
We collectively refer to our
$110,000
of
8.25%
Senior Notes due 2028, our
$120,000
of
8.00%
Senior Notes due 2029 and our
$100,000
of
8.00%
Senior Notes due 2030 as our Senior Notes, which are our senior unsecured obligations. We estimate that, based on their trading prices (a Level 1 input), the aggregate fair value of our Senior Notes on
June 30, 2019
, was
$333,296
.
Changes in Accounting Principles
In February 2016, the Financial Accounting Standards Board, or the FASB, issued Accounting Standards Update 2016-02,
Leases,
and in August 2018, the FASB issued Accounting Standards Update 2018-11,
Targeted Improvements to ASC 842,
collectively referred to as ASC 842
,
which established a comprehensive lease standard under GAAP for virtually all industries. We adopted ASC 842 on January 1, 2019, using the modified retrospective transition method, and elected to not restate prior year comparative periods. We elected to adopt the package of practical expedients; accordingly, we retained the lease classification and initial direct costs for any leases that existed prior to adoption and we did not revisit whether any existing or expired contracts contain leases. See Note 6 for more information about the impact of ASC 842.
In June 2018, the FASB issued Accounting Standards Update 2018-07,
Compensation - Stock Compensation
, or ASU 2018-07, which aligns the accounting for share based payments to nonemployees with the accounting for share based payments to employees. We adopted ASU 2018-07 on January 1, 2019, using the modified retrospective transition method, which had no impact on our prior year comparative period. Historically, compensation expense related to share awards granted to nonemployees was determined based on the vesting date fair value. Under ASU 2018-07, compensation expense relating to all share awards is now measured at the grant date fair value and amortized to expense over the related vesting period. Upon adoption of ASU 2018-07, share awards to nonemployees were remeasured using the adoption date fair value, or the market value of our shares as of January 1, 2019. We include share based compensation expense in selling, general and administrative expense in our consolidated statements of operations and comprehensive income (loss).
We recognize revenues based on the consideration specified in the contract with the customer, excluding any sales incentives (such as customer loyalty programs and customer rebates) and amounts collected on behalf of third parties (such as sales and excise taxes). The majority of our revenues are generated at the point of sale in our retail locations. Revenues consist of fuel revenues, nonfuel revenues and rents and royalties from franchisees.
Disaggregation of Revenues
We disaggregate our revenues based on the type of good or service provided to the customer, or by fuel revenues and nonfuel revenues, in our consolidated statements of operations and comprehensive income (loss). Nonfuel revenues disaggregated by type of good or service for the
three and six
months ended
June 30, 2019
and
2018
, were as follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Nonfuel revenues:
|
|
|
|
|
|
|
|
Store and retail services
|
$
|
193,895
|
|
|
$
|
187,935
|
|
|
$
|
374,320
|
|
|
$
|
358,325
|
|
Truck service
|
173,431
|
|
|
176,115
|
|
|
334,626
|
|
|
332,635
|
|
Restaurant
|
108,756
|
|
|
107,392
|
|
|
208,010
|
|
|
204,357
|
|
Total nonfuel revenues
|
$
|
476,082
|
|
|
$
|
471,442
|
|
|
$
|
916,956
|
|
|
$
|
895,317
|
|
TravelCenters of America Inc.
Notes to Consolidated Financial Statements (Unaudited)
(dollars and shares in thousands, except per share amounts)
Contract Liabilities
Our contract liabilities, which are presented in our consolidated balance sheets in other current and other noncurrent liabilities, primarily include deferred revenues related to our customer loyalty programs, gift cards, rebates payable to customers and other deferred revenues. The following table shows the changes in our contract liabilities between periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer
Loyalty
Programs
|
|
Other
|
|
Total
|
December 31, 2017
|
$
|
15,165
|
|
|
$
|
4,681
|
|
|
$
|
19,846
|
|
Increases due to unsatisfied performance obligations
arising during the period
|
81,517
|
|
|
10,083
|
|
|
91,600
|
|
Revenues recognized from satisfying performance
obligations during the period
|
(74,548
|
)
|
|
(10,064
|
)
|
|
(84,612
|
)
|
Other
|
(6,644
|
)
|
|
(1,230
|
)
|
|
(7,874
|
)
|
December 31, 2018
|
15,490
|
|
|
3,470
|
|
|
18,960
|
|
Increases due to unsatisfied performance obligations
arising during the period
|
48,904
|
|
|
6,479
|
|
|
55,383
|
|
Revenues recognized from satisfying performance
obligations during the period
|
(42,840
|
)
|
|
(5,311
|
)
|
|
(48,151
|
)
|
Other
|
(4,718
|
)
|
|
(621
|
)
|
|
(5,339
|
)
|
June 30, 2019
|
$
|
16,836
|
|
|
$
|
4,017
|
|
|
$
|
20,853
|
|
As of
June 30, 2019
, we expect the unsatisfied performance obligations relating to our customer loyalty programs will be satisfied within
12 months
.
In January 2019, we entered into agreements with Hospitality Properties Trust, or HPT, or the Transaction Agreements, pursuant to which, among other things, we purchased
20
travel centers for
$309,637
, which amount includes
$1,437
of transaction related costs. These acquisitions were accounted for as asset acquisitions that resulted in the derecognition of certain operating lease assets and liabilities for a net recognized aggregate cost basis of the acquired assets of
$284,902
. See Note 6 for more information about the Transaction Agreements and our leases with HPT and Note 9 for more information about our relationship with HPT.
As of
June 30, 2019
, we had entered into agreements to acquire
one
travel center property and certain assets for
$11,600
, which we expect to account for as a business acquisition, and
two
parcels of land for a total purchase price of
$2,428
, which we expect to account for as asset acquisitions. We expect to complete these acquisitions in the fourth quarter of 2019, but these purchases are subject to conditions and may not occur, may be delayed or the terms may change.
|
|
4.
|
Discontinued Operations
|
On December 5, 2018, we completed the sale of our convenience stores business for an aggregate sales price of
$330,609
, pursuant to an agreement we entered into on September 1, 2018. We received net proceeds from this sale of
$319,853
after transaction related costs of
$9,650
and cash sold of
$1,106
. For more information about our discontinued operations, refer to Note 4 to the Consolidated Financial Statements in our Annual Report.
TravelCenters of America Inc.
Notes to Consolidated Financial Statements (Unaudited)
(dollars and shares in thousands, except per share amounts)
The following table presents the results of operations for our discontinued operations for the
three and six
months ended
June 30, 2018
.
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
June 30, 2018
|
|
Six Months
Ended
June 30, 2018
|
Revenues
|
$
|
216,101
|
|
|
$
|
386,844
|
|
Cost of goods sold (excluding depreciation)
|
177,611
|
|
|
317,315
|
|
Site level operating expense
|
27,423
|
|
|
53,971
|
|
Selling, general and administrative expense
|
2,872
|
|
|
4,799
|
|
Real estate rent expense
|
573
|
|
|
1,149
|
|
Depreciation and amortization expense
|
8,795
|
|
|
15,797
|
|
Impairment of goodwill
|
51,500
|
|
|
51,500
|
|
Loss from discontinued operations before income taxes
|
(52,673
|
)
|
|
(57,687
|
)
|
Benefit for income taxes
|
10,111
|
|
|
11,074
|
|
Loss from discontinued operations, net of taxes
|
$
|
(42,562
|
)
|
|
$
|
(46,613
|
)
|
|
|
5.
|
Earnings Per Share from Continuing Operations
|
On
August 1, 2019
, in conjunction with our conversion from a Delaware limited liability company to a Maryland corporation, we completed a reverse stock split of our outstanding common shares pursuant to which five shares were exchanged for one share of our common shares. No fractional common shares were issued in the reverse stock split. Instead, fractional shares that otherwise would have resulted from the reverse stock split were purchased by us at the closing price of our common shares on
July 31, 2019
. The common share information included within this Quarterly Report has been retrospectively adjusted to reflect this reverse stock split.
The following table presents a reconciliation of income (loss) from continuing operations to income (loss) from continuing operations available to common shareholders and the related earnings per share.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Income (loss) from continuing operations
|
$
|
1,209
|
|
|
$
|
8,638
|
|
|
$
|
(11,520
|
)
|
|
$
|
2,611
|
|
Less: net income for noncontrolling interest
|
31
|
|
|
54
|
|
|
49
|
|
|
88
|
|
Income (loss) from continuing operations
attributable to common shareholders
|
1,178
|
|
|
8,584
|
|
|
(11,569
|
)
|
|
2,523
|
|
Less: income (loss) from continuing
operations attributable to
participating securities
|
46
|
|
|
427
|
|
|
(450
|
)
|
|
126
|
|
Income (loss) from continuing operations
available to common shareholders
|
$
|
1,132
|
|
|
$
|
8,157
|
|
|
$
|
(11,119
|
)
|
|
$
|
2,397
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
(1)
|
7,770
|
|
|
7,605
|
|
|
7,767
|
|
|
7,601
|
|
|
|
|
|
|
|
|
|
Basic and diluted income (loss) per common
share from continuing operations attributable
to common shareholders
|
$
|
0.15
|
|
|
$
|
1.07
|
|
|
$
|
(1.43
|
)
|
|
$
|
0.32
|
|
|
|
(1)
|
Reflects the retrospective adjustment related to the reverse stock split completed on August 1, 2019, and excludes unvested shares awarded under our share award plans, which shares are considered participating securities because they participate equally in earnings and losses with all of our other common shares. The weighted average number of unvested shares outstanding for the
three months ended
June 30, 2019
and
2018
, was
313
and
398
, respectively. The weighted average number of unvested shares outstanding for the
six months ended
June 30, 2019
and
2018
, was
314
and
400
, respectively.
|
TravelCenters of America Inc.
Notes to Consolidated Financial Statements (Unaudited)
(dollars and shares in thousands, except per share amounts)
On January 1, 2019, we adopted ASC 842 using the modified retrospective transition method and elected to not restate prior year comparative periods. We elected to adopt the package of practical expedients; accordingly, we retained the lease classification and initial direct costs for any leases that existed prior to adoption and we did not revisit whether any existing or expired contracts contain leases.
As a result of adopting ASC 842 on January 1, 2019, we recognized operating lease assets of
$1,785,866
and operating lease liabilities of
$1,996,957
. We also recognized an adjustment to our beginning accumulated deficit, net of taxes, of
$86,243
consisting of (i) the previously recognized deferred gain on sale leaseback transactions of
$113,712
, (ii) the previously recognized liability for certain failed sale leaseback transactions recognized as financings of
$1,591
and (iii) the related tax effect of
$29,060
.
As a Lessee
We have lease agreements covering many of our properties, as well as various equipment, with the most significant leases being our
five
leases with HPT, which are further described below. Certain of our leases include renewal options and purchase options. Renewal periods are included in calculating our operating lease assets and liabilities when they are reasonably certain. Leases with an initial term of 12 months or less are not recognized in our consolidated balance sheets. As of
June 30, 2019
, all of our leases were classified as operating leases.
Certain of our operating leases provide for variable lease costs, which primarily include percentage rent and our obligation for the estimated cost of removing underground storage tanks under the HPT Leases (as defined below).
Our lease costs are included in various balances in our consolidated statements of operations and comprehensive income (loss), as shown in the following table. For the
three and six
months ended
June 30, 2019
, our lease costs consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
Classification in our Consolidated
Statements of Operations
and Comprehensive Income (Loss)
|
|
Three Months
Ended
June 30, 2019
|
|
Six Months
Ended
June 30, 2019
|
Operating lease costs: HPT Leases
|
Real estate rent expense
|
|
$
|
59,424
|
|
|
$
|
121,544
|
|
Operating lease costs: other
|
Real estate rent expense
|
|
2,752
|
|
|
5,476
|
|
Variable lease costs: HPT Leases
|
Real estate rent expense
|
|
1,465
|
|
|
2,886
|
|
Variable lease costs: other
|
Real estate rent expense
|
|
129
|
|
|
277
|
|
Total real estate rent expense
|
|
|
63,770
|
|
|
130,183
|
|
Operating lease costs: equipment
and other
|
Site level operating expense and selling, general
and administrative expense
|
|
647
|
|
|
1,217
|
|
Short-term lease costs
|
Site level operating expense and selling, general
and administrative expense
|
|
732
|
|
|
1,545
|
|
Sublease income
|
Nonfuel revenues
|
|
(591
|
)
|
|
(1,155
|
)
|
Net lease costs
|
|
|
$
|
64,558
|
|
|
$
|
131,790
|
|
TravelCenters of America Inc.
Notes to Consolidated Financial Statements (Unaudited)
(dollars and shares in thousands, except per share amounts)
Maturities of our operating lease liabilities that had remaining noncancelable lease terms in excess of one year and the amount of those liabilities as of
June 30, 2019
, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HPT Leases
(1)
|
|
Other
|
|
Total
|
Years ended December 31:
|
|
|
|
|
|
2019
|
$
|
135,712
|
|
|
$
|
3,493
|
|
|
$
|
139,205
|
|
2020
|
271,331
|
|
|
6,073
|
|
|
277,404
|
|
2021
|
270,794
|
|
|
4,952
|
|
|
275,746
|
|
2022
|
268,931
|
|
|
3,922
|
|
|
272,853
|
|
2023
|
255,338
|
|
|
2,697
|
|
|
258,035
|
|
Thereafter
|
2,289,605
|
|
|
7,890
|
|
|
2,297,495
|
|
Total operating lease payments
|
3,491,711
|
|
|
29,027
|
|
|
3,520,738
|
|
Less: present value discount
(2)
|
(1,519,135
|
)
|
|
(5,473
|
)
|
|
(1,524,608
|
)
|
Present value of operating lease liabilities
|
$
|
1,972,576
|
|
|
$
|
23,554
|
|
|
$
|
1,996,130
|
|
|
|
(1)
|
Includes rent for properties we sublease from HPT and pay directly to HPT's landlords.
|
|
|
(2)
|
The discount rate used to derive the present value of unpaid lease payments is based on the rates implicit in the leases, if available, or our incremental borrowing rate.
|
The weighted average remaining lease term as of
June 30, 2019
, was
14
years. Our weighted average discount rate as of
June 30, 2019
, was
9.4%
.
During the
six months ended June 30, 2019
, we paid
$138,670
for amounts that had been included in the measurement of our operating lease liabilities.
As of
June 30, 2019
, our operating lease assets and liabilities consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HPT Leases
|
|
Other
|
|
Total
|
Operating lease assets
|
$
|
1,795,375
|
|
|
$
|
22,326
|
|
|
$
|
1,817,701
|
|
Current operating lease liabilities
|
91,638
|
|
|
5,660
|
|
|
97,298
|
|
Noncurrent operating lease liabilities
|
1,880,938
|
|
|
17,894
|
|
|
1,898,832
|
|
As previously disclosed in our Annual Report and under the previous lease accounting standard, future minimum lease payments required under leases that had remaining noncancelable lease terms in excess of one year as of
December 31, 2018
, were as follows (included herein are the full payments then due under the HPT Leases, including the amount attributed to the lease of those sites that were accounted for as a financing as of December 31, 2018, in our consolidated balance sheet as reflected in the sale leaseback financing obligations):
|
|
|
|
|
|
Total
|
Years ended December 31:
|
|
2019
|
$
|
302,855
|
|
2020
|
301,220
|
|
2021
|
299,393
|
|
2022
|
296,551
|
|
2023
|
295,534
|
|
Thereafter
|
1,980,078
|
|
Total
|
$
|
3,475,631
|
|
The amounts in the table above are as of December 31, 2018, and do not reflect the
$43,148
annual minimum rent reduction resulting from the Transaction Agreements entered into in January 2019, as further described below.
TravelCenters of America Inc.
Notes to Consolidated Financial Statements (Unaudited)
(dollars and shares in thousands, except per share amounts)
Leasing Agreements with HPT
As of
June 30, 2019
, we leased from HPT a total of
179
properties under
five
leases,
four
of which we refer to as the TA Leases and
one
of which we refer to as the Petro Lease, and which we refer to collectively as the HPT Leases. In January 2019, we entered into the Transaction Agreements, pursuant to which:
|
|
•
|
In January 2019, we purchased from HPT
20
travel center properties, which we previously leased from HPT, for a total purchase price of
$309,637
, including
$1,437
of transaction related costs.
|
|
|
•
|
As a result of our purchases of the
20
travel center properties, our annual minimum rent due to HPT was reduced by
$43,148
.
|
|
|
•
|
The term of each HPT Lease was extended by
three
years.
|
|
|
•
|
Commencing on
April 1, 2019
, we paid to HPT the first of
16
quarterly installments of approximately
$4,404
each (an aggregate of
$70,458
) to fully satisfy and discharge our
$150,000
deferred rent obligation to HPT that otherwise would have become due in
five
installments between 2024 and 2030.
|
|
|
•
|
Commencing with the year ending
December 31, 2020
, we will be obligated to pay to HPT an additional amount of percentage rent equal to one-half percent (
0.5%
) of the excess of our annual nonfuel revenues at leased sites over the nonfuel revenues for each respective site for the year ending
December 31, 2019
.
|
|
|
•
|
Certain of the
179
travel center properties that we continue to lease from HPT were reallocated among the HPT Leases.
|
As a result of the Transaction Agreements, our operating lease assets and liabilities each increased by
$23,673
. In addition, the purchase of the
20
travel center properties resulted in the derecognition of certain lease assets and liabilities. See Note 3 for more information about these acquisitions.
In addition to the payment of annual minimum rent, the TA Leases provide for payment to HPT of percentage rent, based on increases in total nonfuel revenues at a property over base year levels (
3.0%
of nonfuel revenues above 2015 nonfuel revenues) and the Petro Lease provides for payment to HPT of percentage rent based on increases in total nonfuel revenues at a property over base year levels at such property (
3.0%
of nonfuel revenues above 2012 nonfuel revenues). The percentage rent amounts due were
$958
and
$862
for the
three months ended June 30, 2019
and
2018
, respectively, and
$2,027
and
$1,672
for the
six months ended
June 30, 2019
and
2018
, respectively.
We recognized total rent expense under the HPT Leases of
$60,889
and
$68,068
for the
three months ended June 30, 2019
and
2018
, respectively, and
$124,430
and
$135,706
for the
six months ended
June 30, 2019
and
2018
, respectively.
During the
six months ended
June 30, 2018
, we sold to HPT
$28,836
of improvements we made to properties leased from HPT; as a result, pursuant to the terms of the HPT Leases, our annual minimum rent payable to HPT increased by
$2,451
. During the six months ended June 30, 2019, we did not sell to HPT any improvements we made to properties leased from HPT. At
June 30, 2019
, our property and equipment balance included
$26,095
of improvements of the type that we typically request that HPT purchase for an increase in annual minimum rent; however, we may elect not to sell some of those improvements and HPT is not obligated to purchase these improvements.
Pursuant to a rent deferral agreement with HPT, deferred rent shall be accelerated and interest shall begin to accrue thereon at
1.0%
per month on the deferred rent amounts if certain events occur, including: our default under the HPT Leases; a change of control of us, as defined in the deferral agreement; or our declaration or payment of a dividend or other distribution in respect of our common shares.
The HPT Leases allow us to sublease a portion of the leased properties to a third party. We sublease a portion of certain travel centers to third parties to operate other retail operations, which are classified as operating leases. We recognized sublease rental income of
$591
and
$598
for the
three months ended June 30, 2019
and
2018
, respectively, and
$1,155
and
$1,178
for the
six months ended
June 30, 2019
and
2018
, respectively.
TravelCenters of America Inc.
Notes to Consolidated Financial Statements (Unaudited)
(dollars and shares in thousands, except per share amounts)
The following table summarizes the various amounts related to the HPT Leases that were included in our consolidated balance sheet as of December 31, 2018.
|
|
|
|
|
|
December 31,
2018
|
Current HPT Leases liabilities:
|
|
|
Accrued rent
|
$
|
24,721
|
|
Sale leaseback financing obligations
(1)
|
1,032
|
|
Straight line rent accrual
(2)
|
2,458
|
|
Deferred gain
(3)
|
10,128
|
|
Deferred tenant improvements allowance
(4)
|
3,770
|
|
Total current HPT Leases liabilities
|
$
|
42,109
|
|
|
|
Noncurrent HPT Leases liabilities:
|
|
|
Deferred rent obligation
(5)
|
$
|
150,000
|
|
Sale leaseback financing obligations
(1)
|
22,365
|
|
Straight line rent accrual
(2)
|
46,431
|
|
Deferred gain
(3)
|
100,913
|
|
Deferred tenant improvements allowance
(4)
|
34,047
|
|
Total noncurrent HPT Leases liabilities
|
$
|
353,756
|
|
|
|
(1)
|
Sale Leaseback Financing Obligations.
As of December 31, 2018, the assets related to
two
travel centers we leased from HPT were reflected in our consolidated balance sheet, as were the related financing obligations. This accounting was required primarily because, at the time of the inception of the prior leases with HPT, more than a minor portion of these
two
travel centers was subleased to third parties. Upon adoption of ASC 842 on January 1, 2019, these failed sale leasebacks were reclassified as operating leases, which resulted in a gain that was recognized in our beginning accumulated deficit. See above for more information about the impact of adopting ASC 842.
|
|
|
(2)
|
Straight Line Rent Accrual.
As of December 31, 2018, the straight line rent accrual included the accrued rent expense from 2007 to 2012 for stated increases in our annual minimum rent due under our then existing TA Lease. The TA Leases we entered into in connection with a transaction agreement we entered into with HPT in 2015 contain no stated rent payment increases. Prior to the adoption of ASC 842, we amortized this accrual on a straight line basis over the current terms of the TA Leases as a reduction of real estate rent expense. The straight line rent accrual also included our obligation for the estimated cost of removing underground storage tanks at properties leased from HPT at the end of the related lease; we recognized these obligations on a straight line basis over the term of the related leases as additional real estate rent expense. As of January 1, 2019, the straight line rent accrual was reclassified as a reduction to our operating lease assets and the obligation for the estimated cost of removal of underground storage tanks was reclassified to other noncurrent liabilities.
|
|
|
(3)
|
Deferred Gain.
The deferred gain primarily includes
$145,462
of gains from the sales of travel centers and certain other assets to HPT during 2015 and 2016. Prior to the adoption of ASC 842, we amortized the deferred gains on a straight line basis over the terms of the related leases as a reduction of real estate rent expense. Upon adoption of ASC 842 on January 1, 2019, we recognized the unamortized deferred gain of
$85,053
, net of taxes, in our beginning accumulated deficit. See above for more information about the impact of adopting ASC 842.
|
|
|
(4)
|
Deferred Tenant Improvements Allowance.
HPT funded certain capital projects at the properties we lease under the HPT Leases without an increase in rent payable by us. In connection with HPT's initial capital commitment, we recognized a liability for rent deemed to be related to this capital commitment as a deferred tenant improvements allowance. Prior to the adoption of ASC 842, we amortized the deferred tenant improvements allowance on a straight line basis over the terms of the HPT Leases as a reduction of real estate rent expense. Upon the adoption of ASC 842 on January 1, 2019, the unamortized balance of the deferred tenant improvements allowance was reclassified as a reduction to our operating lease assets.
|
TravelCenters of America Inc.
Notes to Consolidated Financial Statements (Unaudited)
(dollars and shares in thousands, except per share amounts)
|
|
(5)
|
Deferred Rent Obligation
. Pursuant to a rent deferral agreement with HPT, we previously deferred as of December 31, 2010, a total of
$150,000
of rent payable to HPT, which remained outstanding as of December 31, 2018, and had been due in
five
installments between 2024 and 2030. Upon the adoption of ASC 842 on January 1, 2019, these future lease payments were included in our calculation of our operating lease assets and liabilities and the deferred rent obligation was reclassified as a reduction to our operating lease assets. In January 2019, as described above and pursuant to the terms of the Transaction Agreements, our deferred rent obligation was reduced to
$70,458
, payable in
16
equal quarterly installments commencing on April 1, 2019, and our operating lease assets and liabilities were remeasured using these revised payment amounts.
|
As a Lessor
As of
June 30, 2019
, we leased
two
travel centers to franchisees. These
two
lease agreements expire in June 2022. These leases include rent escalations that are contingent on future events, namely inflation or our investing in capital improvements at these travel centers. During the
six months ended
June 30, 2018
, we leased
four
travel centers to franchisees,
one
of which expired prior to
June 30, 2018
, and
one
expired in the 2018 third quarter. Rent revenue from these operating leases totaled
$599
and
$815
for the
three months ended June 30, 2019
and
2018
, respectively, and
$1,150
and
$1,812
for the
six months ended
June 30, 2019
and
2018
, respectively. Future minimum lease payments due to us for the
two
leased sites under these operating leases as of
June 30, 2019
, was
$1,125
for the remainder of
2019
,
$2,250
for each of the years
2020
and
2021
and
$1,125
for
2022
.
|
|
7.
|
Revolving Credit Facility
|
On
July 19, 2019
, we and certain of our subsidiaries, as borrowers or guarantors, entered into an amendment, or the Amendment, to our amended and restated loan and security agreement, or the Credit Facility, dated
October 25, 2011
, with Wells Fargo Capital Finance, LLC, as administrative agent for various lenders. The Amendment amended the Credit Facility to, among other things: (i) extend the maturity of the Credit Facility from
December 19, 2019
, to
July 19, 2024
; (ii) reduce the applicable margins on borrowings and standby letter of credit fees by
25
basis points and on commercial letter of credit fees by
12.5
basis points; (iii) make certain adjustments to the limitations on investments, dividends and stock repurchases under the Credit Facility in a manner favorable to us; (iv) reduce the sublimit for issuance of letters of credit under the Credit Facility from
$170,000
to
$125,000
; and (v) make certain adjustments to the borrowing base calculation in a manner we believe favorable to us.
Under the Credit Facility, a maximum of
$200,000
may be drawn, repaid and redrawn until maturity. The availability of the maximum amount is subject to limits based on qualified collateral. Subject to available collateral and lender participation, the maximum amount of this Credit Facility may be increased to
$300,000
. The Credit Facility may be used for general business purposes and allows for the issuance of letters of credit. Generally, no principal payments are due until maturity. Under the terms of the Credit Facility, interest is payable on outstanding borrowings at a rate based on, at our option, LIBOR or a base rate, plus a premium (which premium is subject to adjustment based upon facility availability, utilization and other matters).
As of
July 19, 2019
, the applicable margin was
1.25%
for LIBOR borrowings and standby letter of credit fees,
0.25%
for Base Rate borrowings and
0.625%
for commercial letter of credit fees, in each case subject to adjustment based on facility availability, utilization and other matters. As of
July 19, 2019
, the unused line fee was
0.25%
per annum, subject to adjustment according to the average daily principal amount of unused commitments under the Credit Facility.
TravelCenters of America Inc.
Notes to Consolidated Financial Statements (Unaudited)
(dollars and shares in thousands, except per share amounts)
The Credit Facility requires us to maintain certain levels of collateral, limits our ability to incur debt and liens, restricts us from making certain investments and paying dividends and other distributions, requires us to maintain a minimum fixed charge ratio under certain circumstances and contains other customary covenants and conditions. The Credit Facility provides for the acceleration of principal and interest payments upon an event of default including, but not limited to, failure to pay interest or other amounts due, a change in control of us, as defined in the Credit Facility, and our default under certain contracts, including our leases with HPT and our business management agreement with The RMR Group LLC, or RMR. Our Credit Facility is secured by substantially all of our cash, accounts receivable, inventory, equipment and intangible assets. The amount available to us is determined by reference to a borrowing base calculation based on eligible collateral. At
June 30, 2019
, based on our qualified collateral, a total of
$142,143
was available to us for loans and letters of credit under the Credit Facility. At
June 30, 2019
, there were
no
loans outstanding under the Credit Facility but we had outstanding
$14,813
of letters of credit issued under that facility, securing certain trade payables, insurance, fuel tax and other obligations. These letters of credit reduce the amount available for borrowing under the Credit Facility, leaving
$127,330
available for use as of that date.
|
|
8.
|
Business Management Agreement with RMR
|
RMR provides us certain services pursuant to a business management agreement that we require to operate our business, and which relate to various aspects of our business. We incurred aggregate fees payable to RMR of
$3,246
and
$3,650
for the
three months ended
June 30, 2019
and
2018
, respectively, and
$6,269
and
$6,960
for the
six months ended
June 30, 2019
and
2018
, respectively, for these services. In addition, we recognized internal audit costs of
$71
and
$55
for the
three months ended
June 30, 2019
and
2018
, respectively, and
$142
and
$124
for the
six months ended
June 30, 2019
and
2018
, respectively, for reimbursements to RMR pursuant to our business management agreement. These amounts are included in selling, general and administrative expense and loss from discontinued operations, net of taxes in our consolidated statements of operations and comprehensive income (loss). For more information about our relationship with RMR please refer to Note 9 of this Quarterly Report and Notes 13 and 14 to the Consolidated Financial Statements in our Annual Report.
|
|
9.
|
Related Party Transactions
|
We have relationships and historical and continuing transactions with HPT, RMR, Affiliates Insurance Company, or AIC, and others related to them, including other companies to which RMR or its subsidiaries provide management services and which have directors, trustees and officers who are also our Directors or officers.
Relationship with HPT
We are HPT's largest tenant and HPT is our principal landlord and largest shareholder. As of
June 30, 2019
, HPT owned
684
of our common shares, representing approximately
8.5%
of our outstanding common shares.
As of
June 30, 2019
, we leased from HPT a total of
179
properties under the HPT Leases. RMR provides management services to both us and HPT, and Adam D. Portnoy, the Chair of our Board of Directors and
one
of our Managing Directors, also serves as a managing trustee of HPT and is chair of HPT's board of trustees. See Note 6 for more information about our lease agreements and transactions with HPT.
Relationship with RMR
We have an agreement with RMR to provide management services to us. Adam D. Portnoy is the sole trustee, an officer and the controlling shareholder of ABP Trust, which is the controlling shareholder of The RMR Group Inc., and The RMR Group Inc. is the managing member of RMR. See Note 8 for more information regarding our management agreement with RMR. As of
June 30, 2019
, RMR owned
299
of our common shares, representing approximately
3.7%
of our outstanding common shares.
TravelCenters of America Inc.
Notes to Consolidated Financial Statements (Unaudited)
(dollars and shares in thousands, except per share amounts)
Relationship with AIC
We, HPT and
five
other companies to which RMR provides management services currently own AIC, an Indiana insurance company, in equal amounts. We and the other AIC shareholders historically participated in a combined property insurance program arranged and reinsured in part by AIC. The policies under that program expired on June 30, 2019, and we and the other AIC shareholders elected not to renew the AIC property insurance program; we have instead purchased standalone property insurance coverage with unrelated third party insurance providers.
As of
June 30, 2019
and
December 31, 2018
, our investment in AIC had a carrying value of
$9,303
and
$8,632
, respectively. These amounts are included in other noncurrent assets in our consolidated balance sheets. We recognized income of
$130
and
$12
related to our investment in AIC for the
three months ended
June 30, 2019
and
2018
, respectively, and
$534
and
$56
for the
six months ended
June 30, 2019
and
2018
, respectively, which amounts are included in other (income) expense, net in our consolidated statements of operations and comprehensive income (loss). Our other comprehensive income (loss) attributable to common shareholders includes our proportionate share of unrealized gains (losses) on fixed income securities held for sale, which are owned by AIC, related to our investment in AIC.
For more information about these and other such relationships and certain other related party transactions, refer to our Annual Report.
Environmental Contingencies
Extensive environmental laws regulate our operations and properties. These laws may require us to investigate and clean up hazardous substances, including petroleum or natural gas products, released at our owned and leased properties. Governmental entities or third parties may hold us liable for property damage and personal injuries, and for investigation, remediation and monitoring costs incurred in connection with any contamination and regulatory compliance at our locations. We use both underground storage tanks and above ground storage tanks to store petroleum products, natural gas and other hazardous substances at our locations. We must comply with environmental laws regarding tank construction, integrity testing, leak detection and monitoring, overfill and spill control, release reporting and financial assurance for corrective action in the event of a release. At some locations we must also comply with environmental laws relative to vapor recovery or discharges to water. Under the terms of the HPT Leases, we generally have agreed to indemnify HPT for any environmental liabilities related to properties that we lease from HPT and we are required to pay all environmental related expenses incurred in the operation of the leased properties. We have entered into certain other agreements in which we have agreed to indemnify third parties for environmental liabilities and expenses resulting from our operations.
From time to time we have received, and in the future likely will receive, notices of alleged violations of environmental laws or otherwise have become or will become aware of the need to undertake corrective actions to comply with environmental laws at our locations. Investigatory and remedial actions were, and regularly are, undertaken with respect to releases of hazardous substances at our locations. In some cases we have received, and may receive in the future, contributions to partially offset our environmental costs from insurers, from state funds established for environmental clean up associated with the sale of petroleum products or from indemnitors who agreed to fund certain environmental related costs at locations purchased from those indemnitors. To the extent we incur material amounts for environmental matters for which we do not receive or expect to receive insurance or other third party reimbursement and for which we have not previously recorded a liability, our operating results may be materially adversely affected. In addition, to the extent we fail to comply with environmental laws and regulations, or we become subject to costs and requirements not similarly experienced by our competitors, our competitive position may be harmed.
At
June 30, 2019
, we had an accrued liability of
$3,658
for environmental matters as well as a receivable for expected recoveries of certain of these estimated future expenditures of
$1,659
, resulting in an estimated net amount of
$1,999
that we expect to fund in the future. We cannot precisely know the ultimate costs we may incur in connection with currently known environmental related violations, corrective actions, investigation and remediation; however, we do not expect the costs for such matters to be material, individually or in the aggregate, to our financial position or results of operations.
TravelCenters of America Inc.
Notes to Consolidated Financial Statements (Unaudited)
(dollars and shares in thousands, except per share amounts)
We currently have insurance of up to
$20,000
per incident and up to
$20,000
in the aggregate for certain environmental liabilities, subject, in each case, to certain limitations and deductibles, which expires in June 2021. However, we can provide no assurance that we will be able to maintain similar environmental insurance coverage in the future on acceptable terms.
We cannot predict the ultimate effect changing circumstances and changing environmental laws may have on us in the future or the ultimate outcome of matters currently pending. We cannot be certain that contamination presently unknown to us does not exist at our sites, or that a material liability will not be imposed on us in the future. If we discover additional environmental issues, or if government agencies impose additional environmental requirements, increased environmental compliance or remediation expenditures may be required, which could have a material adverse effect on us.
Legal Proceedings
We are routinely involved in various legal and administrative proceedings, including tax audits, incidental to the ordinary course of our business. We do not expect that any litigation or administrative proceedings in which we are presently involved, or of which we are aware, will have a material adverse effect on our business, financial condition, results of operations or cash flows.
On April 5, 2019,
two
plaintiffs filed a class action complaint against us in Ohio state court alleging that certain credit and debit card receipts printed by us included more information than permitted by the Fair and Accurate Credit Transactions Act. The complaint does not seek any actual damages, but plaintiffs seek statutory damages for the individual plaintiffs and members of the class, as well as declaratory relief, punitive damages, attorneys' fees and costs. In June 2019, we filed a motion to dismiss. On July 5, 2019, plaintiffs filed an amended complaint, which added a request for injunctive relief and on August 2, 2019, we filed a renewed motion to dismiss. We intend to vigorously defend against these claims. However, the outcome of litigation is inherently uncertain and we are not able to assess our exposure at this time.
Inventory at
June 30, 2019
and
December 31, 2018
, consisted of the following:
|
|
|
|
|
|
|
|
|
|
June 30,
2019
|
|
December 31,
2018
|
Nonfuel products
|
$
|
166,719
|
|
|
$
|
163,302
|
|
Fuel products
|
32,996
|
|
|
33,419
|
|
Total inventory
|
$
|
199,715
|
|
|
$
|
196,721
|
|
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q, or this Quarterly Report, and with our Annual Report on Form 10-K for the fiscal year ended
December 31, 2018
, or our Annual Report. Amounts are in thousands of dollars or gallons unless indicated otherwise. Unless the context indicates otherwise, references to our truck service facilities and restaurants refer to our standalone truck service facilities and restaurants and not the truck service facilities and restaurants located at our travel centers.
On
August 1, 2019
, in conjunction with our conversion from a Delaware limited liability company to a Maryland corporation, we completed a reverse stock split of our outstanding common shares pursuant to which five shares were exchanged for one share of our common shares. The common share information included within this Quarterly Report has been retrospectively adjusted to reflect this reverse stock split. See Note 5 to the Consolidated Financial Statements included in Item 1 of this Quarterly Report for more information about our reverse stock split.
Company Overview
As of
June 30, 2019
, we operated or franchised
258
travel centers,
two
standalone truck service facilities and
41
standalone restaurants. Our customers include trucking fleets and their drivers, independent truck drivers, highway and local motorists and casual diners. We also collect rents, royalties and other fees from our tenants and franchisees.
We manage our business as
one
segment. We make specific disclosures concerning fuel and nonfuel products and services because it facilitates our discussion of trends and operational initiatives within our business and industry. We have a single travel center located in a foreign country, Canada, that we do not consider material to our operations.
Executive Summary of Financial Results
During the three months ended
June 30, 2019
and
2018
, we had income before income taxes and discontinued operations of
$807
and
$9,709
, respectively. The
$8,902
decrease
in our income before income taxes and discontinued operations was primarily due to the following factors:
|
|
•
|
selling, general and administrative expense
increase
d
$12,082
, which was primarily due to
$10,082
of reimbursed litigation costs collected from Comdata Inc., or Comdata, during April 2018;
|
|
|
•
|
site level gross margin in excess of site level operating expense declined
$2,392
, which primarily resulted from higher maintenance costs and the hiring and training of additional truck service personnel to support the planned increase in sales in that department; and
|
|
|
•
|
depreciation and amortization expense
increase
d
$2,090
, primarily as a result of the
20
travel centers acquired from Hospitality Properties Trust, or HPT, in January 2019.
|
The factors noted above for the decrease in our income before income taxes and discontinued operations were partially offset by a
decrease
in real estate rent expense of
$6,914
, which was primarily due to the decrease in annual minimum rent as a result of the agreements entered into with HPT in January 2019, or the Transaction Agreements.
During the
six months ended June 30, 2019
and
2018
, we had a loss before income taxes and discontinued operations of
$17,189
and income before income taxes and discontinued operations of
$19
, respectively. The
$17,208
change in our (loss) income before income taxes and discontinued operations was primarily due to the following factors:
|
|
•
|
selling, general and administrative expense
increase
d
$12,698
, which was primarily due to
$10,082
of reimbursed litigation costs collected from Comdata during April 2018;
|
|
|
•
|
site level gross margin in excess of site level operating expense declined
$10,941
, which primarily resulted from the
$23,251
benefit from the federal biodiesel blenders' tax credit that was retroactively reinstated for 2017 and recognized in February 2018 that has not yet been reinstated for 2018; and
|
|
|
•
|
depreciation and amortization expense
increase
d
$6,303
, primarily as a result of the
20
travel centers acquired from HPT in January 2019.
|
The factors noted above for the change in our income before income taxes and discontinued operations were partially offset by a
decrease
in real estate rent expense of
$10,737
, which was primarily due to the decrease in annual minimum rent as a result of the Transaction Agreements.
Excluding the benefit of the federal biodiesel blenders' tax credit recognized in the 2018 first quarter of
$23,251
, loss before income taxes and discontinued operations would have improved by
$6,043
for the
six months ended June 30, 2019
, as compared to the
six months ended June 30, 2018
. The improvement was primarily due to a higher fuel gross margin as a result of an increase in fuel sales volume and a more favorable fuel purchasing environment in the
six months ended June 30, 2019
, than the
six months ended June 30, 2018
.
Although, as of the date of this Quarterly Report, the U.S. government has not yet retroactively reinstated the federal biodiesel blenders' tax credit for 2018 or 2019, we believe the U.S. government may do so before the end of 2019. If the federal biodiesel blenders' tax credit is reinstated for 2018 and 2019, we expect the reinstatement may reduce our fuel cost of goods sold by approximately
$35,000
relating to 2018 and
$17,000
relating to the first six months of 2019 in the period the U.S. government enacts the tax credit reinstatement. Although we believe reinstatement of this credit is possible, we cannot be certain that the U.S. government will choose to do so. We have not recognized any amount of the expected federal biodiesel blenders' tax credit for 2018 or 2019.
Effects of Fuel Prices and Supply and Demand Factors
Our revenues and income are subject to material changes as a result of market prices and the availability of diesel fuel and gasoline. These factors are subject to the worldwide petroleum products supply chain, which historically has experienced price and supply volatility as a result of, among other things, severe weather, terrorism, political crises, military actions and variations in demand that are often the result of changes in the macroeconomic environment. Also, concerted efforts by major oil producing countries and cartels to influence oil supply may impact prices. In addition, other actions by governments regarding trade policies may impact fuel prices, such as the U.S. presidential administration's recent statements indicating that it may not extend the duration of previously granted waivers to certain countries from the U.S. presidential administration's sanctions on purchases of oil from Iran.
Over the past few years there have been significant changes in the cost of fuel. During the first three months of
2019
, fuel prices trended upward, ending at a
15.6%
higher price than at the beginning of the period. During the
three months ended
June 30, 2019
, fuel prices trended downward, ending at a
3.8%
lower price than at the beginning of the period. During the
three and six
months ended
June 30, 2018
, fuel prices trended upward ending at an
11.7%
and
9.3%
higher price, respectively, than at the beginning of those periods. The average fuel price during the
three and six
months ended
June 30, 2019
, was
7.3%
and
4.2%
, respectively, lower than the average fuel price during the
three and six
months ended
June 30, 2018
. We generally are able to pass changes in our cost for fuel products to our customers, but typically with a delay, such that during periods of rising fuel commodity prices, fuel gross margin per gallon tends to be lower than it otherwise may have been and during periods of falling fuel commodity prices, fuel gross margin per gallon tends to be higher than it otherwise may have been. Increases in the prices we pay for fuel can have negative effects on our sales and profitability and increase our working capital requirements.
Due to the volatility of our fuel costs and our methods of pricing fuel to our customers, we believe that fuel revenues are not a reliable metric for analyzing our results of operations from period to period. As a result solely of changes in fuel prices, our fuel revenues may materially increase or decrease, in both absolute amounts and on a percentage basis, without a comparable change in fuel sales volume or in fuel gross margin. We therefore consider fuel sales volume, fuel gross margin, nonfuel revenues and nonfuel gross margin to be better measures of our performance.
We believe that demand for fuel by trucking companies and motorists for a constant level of miles driven will continue to decline over time because of technological innovations that improve fuel efficiency of motor vehicle engines, other fuel conservation practices and alternative fuels and technologies. Although we believe these factors, combined with competitive pressures, impact the level of fuel sales volume we realized on a same site basis, fuel sales volume increased both on a consolidated and same site basis during the
three and six
months ended
June 30, 2019
, as compared to the
three and six
months ended
June 30, 2018
. We believe these increases resulted from improved market conditions and the success of our marketing initiatives.
Factors Affecting Comparability
Lease Amendments and Travel Center Purchases
In
January 2019
, we acquired from HPT
20
travel centers we previously leased from HPT for
$309,637
, which amount includes
$1,437
of transaction related costs, and amended our
five
existing leases with HPT such that: (i) the
20
purchased travel centers were removed from the applicable leases and our annual minimum rent was reduced by
$43,148
; (ii) the term of each of the leases was extended by
three
years; (iii) the amount of the deferred rent obligation to be paid to HPT was reduced from
$150,000
to
$70,458
and we began to pay that amount in
16
equal quarterly installments commencing on
April 1, 2019
; and (iv) commencing with the year ended
December 31, 2020
, we will be obligated to pay to HPT an additional amount of percentage rent equal to one-half percent (
0.5%
) of the excess of the annual nonfuel revenues at leased sites over the nonfuel revenues for each respective site for the year ending
December 31, 2019
. These lease amendments are further described in Note 6 to the Consolidated Financial Statements included in Item 1 of this Quarterly Report.
Sale of Convenience Stores Business
On December 5, 2018, we sold
225
convenience stores,
one
standalone restaurant and certain related assets, or the convenience stores business, for an aggregate sale price of
$330,609
, resulting in net proceeds of
$319,853
after transaction related costs and cash sold. As a result of the completion of this sale, the results of the convenience stores business are presented as discontinued operations for the three and six months ended June 30, 2018, in our consolidated statements of operations and comprehensive income (loss)
.
See Note 4 to the Consolidated Financial Statements included in Item 1 of this Quarterly Report for more information about our discontinued operations.
Recently Acquired Sites
We believe that travel centers we acquire or develop generally require a three year period after they open under our operation, and any related renovations are completed, to reach our expected stabilized financial results.
During the 12 months ended
June 30, 2019
, we acquired operation of
two
travel centers,
one
from a franchisee that owned the site and
one
from a franchisee that previously leased the site from us, for a total investment (including the planned costs of initial improvements) of
$14,126
as of
June 30, 2019
. These
two
sites generated site level gross margin in excess of site level operating expense of
$1,182
for the 12 months ended
June 30, 2019
. Prior to acquiring these travel centers, we collected rent and royalties from these franchisees totaling
$1,083
and
$1,253
during the 12 months ended
June 30, 2019
and
2018
, respectively.
During the 12 months ended
June 30, 2018
, we acquired operation of
two
travel centers,
one
from a franchisee that owned the site and
one
from a franchisee that previously leased the site from us, for a total investment (including the costs of initial improvements) of
$18,992
as of
June 30, 2019
. These
two
sites generated site level gross margin in excess of site level operating expense of
$3,673
and
$2,192
during the 12 months ended
June 30, 2019
and
2018
, respectively. Prior to acquiring these travel centers, we collected rent and royalties from these franchisees totaling
$1,239
during the 12 months ended
June 30, 2018
.
Growth Strategies
Thus far in
2019
, we have entered into
seven
franchise agreements with
four
franchisees under our travel center brand names;
one
of these franchised travel centers opened during the 2019 second quarter and we anticipate the remaining
six
travel centers will be added to our network by the end of the 2020 first quarter. In addition, we have entered into an agreement with
one
of these franchisees pursuant to which we expect to add
two
additional franchised travel centers to our network,
one
within five years and the other within 10 years.
Adoption of New Lease Accounting Standard
On January 1, 2019, we adopted Accounting Standards Update 2016-02,
Leases
, and Accounting Standards Update 2018-11,
Targeted Improvements to ASC 842,
collectively referred to as ASC 842
,
which established a comprehensive lease standard under U.S. generally accepted accounting principles for virtually all industries. We adopted ASC 842 using the modified retrospective transition method and elected not to restate prior year comparative periods. Upon adoption, we recognized an adjustment to our beginning accumulated deficit, net of taxes, of
$86,243
, which had previously been recognized on a straight line basis over the terms of the HPT Leases as a reduction of real estate rent expense. We also recognized operating lease assets of
$1,785,866
and total operating lease liabilities of
$1,996,957
as of January 1, 2019. See Note 6 to the Consolidated Financial Statements included in Item 1 of this Quarterly Report for more information about the impact of ASC 842.
Seasonality
Our sales volumes are generally lower in the first and fourth quarters than the second and third quarters of each year. In the first quarter, the movement of freight by professional truck drivers as well as motorist travel are usually at their lowest levels of the calendar year. In the fourth quarter, freight movement is typically lower due to the holiday season. While our revenues are modestly seasonal, quarterly variations in our operating results may reflect greater seasonal differences as our rent expense and certain other costs do not vary seasonally.
Results of Operations
As part of this discussion and analysis of our operating results, we refer to increases and decreases in results on a same site basis. We include a location in the same site comparisons only if we continuously operated it since the beginning of the earliest comparative period presented, except we do not include locations we operate that are owned by an unconsolidated joint venture in which we own a noncontrolling interest. Same site data also excludes revenues and expenses at locations not operated by us, such as rents and royalties from franchisees, and corporate level selling, general, and administrative expense, as well as the revenues and expenses associated with our discontinued operations. We do not exclude locations from the same site comparisons as a result of capital improvements to the site or changes in the services offered.
Consolidated Financial Results
The following table presents changes in our operating results for the
three and six
months ended
June 30, 2019
, as compared to the
three and six
months ended
June 30, 2018
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
2019
|
|
2018
|
|
Change
|
|
2019
|
|
2018
|
|
Change
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fuel
|
$
|
1,117,671
|
|
|
$
|
1,149,486
|
|
|
(2.8
|
)%
|
|
$
|
2,100,812
|
|
|
$
|
2,135,831
|
|
|
(1.6
|
)%
|
Nonfuel
|
476,082
|
|
|
471,442
|
|
|
1.0
|
%
|
|
916,956
|
|
|
895,317
|
|
|
2.4
|
%
|
Rent and royalties from franchisees
|
3,611
|
|
|
4,049
|
|
|
(10.8
|
)%
|
|
6,888
|
|
|
8,159
|
|
|
(15.6
|
)%
|
Total revenues
|
1,597,364
|
|
|
1,624,977
|
|
|
(1.7
|
)%
|
|
3,024,656
|
|
|
3,039,307
|
|
|
(0.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin:
|
|
|
|
|
|
|
|
|
|
|
|
Fuel
(1)
|
76,822
|
|
|
74,378
|
|
|
3.3
|
%
|
|
151,569
|
|
|
157,275
|
|
|
(3.6
|
)%
|
Nonfuel
|
288,584
|
|
|
287,198
|
|
|
0.5
|
%
|
|
561,190
|
|
|
549,662
|
|
|
2.1
|
%
|
Rent and royalties from franchisees
|
3,611
|
|
|
4,049
|
|
|
(10.8
|
)%
|
|
6,888
|
|
|
8,159
|
|
|
(15.6
|
)%
|
Total gross margin
(1)
|
369,017
|
|
|
365,625
|
|
|
0.9
|
%
|
|
719,647
|
|
|
715,096
|
|
|
0.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Site level operating expense
|
234,645
|
|
|
228,861
|
|
|
2.5
|
%
|
|
467,365
|
|
|
451,873
|
|
|
3.4
|
%
|
Selling, general and administrative expense
|
39,562
|
|
|
27,480
|
|
|
44.0
|
%
|
|
76,672
|
|
|
63,974
|
|
|
19.8
|
%
|
Real estate rent expense
|
63,770
|
|
|
70,684
|
|
|
(9.8
|
)%
|
|
130,183
|
|
|
140,920
|
|
|
(7.6
|
)%
|
Depreciation and amortization expense
|
23,213
|
|
|
21,123
|
|
|
9.9
|
%
|
|
47,972
|
|
|
41,669
|
|
|
15.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
7,827
|
|
|
17,477
|
|
|
(55.2
|
)%
|
|
(2,545
|
)
|
|
16,660
|
|
|
(115.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
7,164
|
|
|
6,865
|
|
|
4.4
|
%
|
|
14,214
|
|
|
14,445
|
|
|
(1.6
|
)%
|
Other (income) expense, net
|
(144
|
)
|
|
903
|
|
|
(115.9
|
)%
|
|
430
|
|
|
2,196
|
|
|
(80.4
|
)%
|
Income (loss) before income taxes
and discontinued operations
|
807
|
|
|
9,709
|
|
|
(91.7
|
)%
|
|
(17,189
|
)
|
|
19
|
|
|
NM
|
|
Benefit (provision) for income taxes
|
402
|
|
|
(1,071
|
)
|
|
137.5
|
%
|
|
5,669
|
|
|
2,592
|
|
|
118.7
|
%
|
Income (loss) from continuing operations
|
1,209
|
|
|
8,638
|
|
|
(86.0
|
)%
|
|
(11,520
|
)
|
|
2,611
|
|
|
(541.2
|
)%
|
Loss from discontinued operations,
net of taxes
|
—
|
|
|
(42,562
|
)
|
|
NM
|
|
|
—
|
|
|
(46,613
|
)
|
|
NM
|
|
Net income (loss)
|
1,209
|
|
|
(33,924
|
)
|
|
103.6
|
%
|
|
(11,520
|
)
|
|
(44,002
|
)
|
|
73.8
|
%
|
Less: net income for
noncontrolling interests
|
31
|
|
|
54
|
|
|
(42.6
|
)%
|
|
49
|
|
|
88
|
|
|
(44.3
|
)%
|
Net income (loss) attributable to
common shareholders
|
$
|
1,178
|
|
|
$
|
(33,978
|
)
|
|
103.5
|
%
|
|
$
|
(11,569
|
)
|
|
$
|
(44,090
|
)
|
|
73.8
|
%
|
|
|
(1)
|
The amount for the
six months ended
June 30, 2019
, includes
$2,840
of a one time benefit due to the reversal of loyalty award accruals recognized in connection with introducing a revised customer loyalty program, and the amount for the
six months ended
June 30, 2018
, includes the
$23,251
benefit from the federal biodiesel blenders' tax credit that the U.S. government retroactively reinstated for 2017 in February 2018. The U.S. government has not yet reinstated the federal biodiesel blenders' tax credit for 2018 or 2019.
|
The following table presents our same site operating results for the
three and six
months ended
June 30, 2019
, as compared to the
three and six
months ended
June 30, 2018
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
2019
|
|
2018
|
|
Change
|
|
2019
|
|
2018
|
|
Change
|
Number of same site company
operated locations
|
241
|
|
|
241
|
|
|
—
|
|
|
241
|
|
|
241
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diesel sales volume (gallons)
|
417,930
|
|
|
402,612
|
|
|
3.8
|
%
|
|
818,178
|
|
|
790,506
|
|
|
3.5
|
%
|
Gasoline sales volume (gallons)
|
71,221
|
|
|
74,653
|
|
|
(4.6)
|
%
|
|
131,059
|
|
|
137,840
|
|
|
(4.9)
|
%
|
Total fuel sales volume (gallons)
|
489,151
|
|
|
477,265
|
|
|
2.5
|
%
|
|
949,237
|
|
|
928,346
|
|
|
2.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Fuel revenues
|
$
|
1,082,594
|
|
|
$
|
1,127,213
|
|
|
(4.0)
|
%
|
|
$
|
2,035,211
|
|
|
$
|
2,097,030
|
|
|
(2.9)
|
%
|
Fuel gross margin
(1)
|
76,289
|
|
|
73,598
|
|
|
3.7
|
%
|
|
150,442
|
|
|
155,754
|
|
|
(3.4)
|
%
|
Fuel gross margin per gallon
|
$
|
0.156
|
|
|
$
|
0.154
|
|
|
1.3
|
%
|
|
$
|
0.158
|
|
|
$
|
0.168
|
|
|
(6.0)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonfuel revenues
|
$
|
470,663
|
|
|
$
|
469,367
|
|
|
0.3
|
%
|
|
$
|
904,890
|
|
|
$
|
892,085
|
|
|
1.4
|
%
|
Nonfuel gross margin
|
285,272
|
|
|
285,764
|
|
|
(0.2)
|
%
|
|
553,597
|
|
|
547,283
|
|
|
1.2
|
%
|
Nonfuel gross margin percentage
|
60.6
|
%
|
|
60.9
|
%
|
|
(30
|
)pts
|
|
61.2
|
%
|
|
61.3
|
%
|
|
(10
|
)pts
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross margin
(1)
|
$
|
361,561
|
|
|
$
|
359,362
|
|
|
0.6
|
%
|
|
$
|
704,039
|
|
|
$
|
703,037
|
|
|
0.1
|
%
|
Site level operating expense
|
230,520
|
|
|
226,961
|
|
|
1.6
|
%
|
|
459,141
|
|
|
448,871
|
|
|
2.3
|
%
|
Site level operating expense as a
percentage of nonfuel revenues
|
49.0
|
%
|
|
48.4
|
%
|
|
60
|
pts
|
|
50.7
|
%
|
|
50.3
|
%
|
|
40
|
pts
|
Site level gross margin in excess of
site level operating expense
(1)
|
$
|
131,041
|
|
|
$
|
132,401
|
|
|
(1.0)
|
%
|
|
$
|
244,898
|
|
|
$
|
254,166
|
|
|
(3.6)
|
%
|
|
|
(1)
|
The amount for the
six months ended
June 30, 2019
, includes
$2,812
of a one time benefit due to the reversal of loyalty award accruals recognized in connection with introducing a revised customer loyalty program, and the amount for the
six months ended
June 30, 2018
, includes the
$23,234
benefit from the federal biodiesel blenders' tax credit that the U.S. government retroactively reinstated for 2017 in February 2018. The U.S. government has not yet reinstated the federal biodiesel blenders' tax credit for 2018 or 2019.
|
Three months ended June 30, 2019
, as compared to the
three months ended June 30, 2018
Fuel Revenues.
Fuel revenues for the
three months ended
June 30, 2019
,
decrease
d as compared to the
three months ended
June 30, 2018
, by
$31,815
, or
2.8%
. The table below presents the factors causing the changes in total fuel sales volume and revenues between periods.
|
|
|
|
|
|
|
|
|
Gallons Sold
|
|
Fuel Revenues
|
Results for the three months ended June 30, 2018
|
486,447
|
|
|
$
|
1,149,486
|
|
Decrease due to petroleum products price changes
|
|
|
(65,536
|
)
|
Increase due to same site volume changes
|
11,886
|
|
|
25,624
|
|
Increase due to locations opened
|
4,301
|
|
|
8,764
|
|
Decrease due to locations closed
|
(32
|
)
|
|
(74
|
)
|
Decrease in wholesale fuel sales volume
|
(256
|
)
|
|
(593
|
)
|
Net change from prior year period
|
15,899
|
|
|
(31,815
|
)
|
Results for the three months ended June 30, 2019
|
502,346
|
|
|
$
|
1,117,671
|
|
The
decrease
in fuel revenues for the
three months ended
June 30, 2019
, as compared to the
three months ended
June 30, 2018
, was primarily due to a decrease in market prices for fuel. The decrease was partially offset by an increase in fuel sales volume at same sites and new sites.
Nonfuel Revenues.
Nonfuel revenues for the
three months ended
June 30, 2019
,
increase
d by
$4,640
, or
1.0%
, as compared to the
three months ended
June 30, 2018
, primarily as a result of sales at new sites and a
$1,296
increase on a same site basis. The increase on a same site basis was primarily due to the positive impact of certain of our marketing initiatives in store and retail services, partially offset by a
1.5%
decrease in truck service revenues primarily as a result of a decrease in demand due to the impact of wetter and cooler weather.
Rent and Royalties from Franchisees Revenues.
Rent and royalties from franchisees revenues for the
three months ended
June 30, 2019
,
decrease
d by
$438
, or
10.8%
, as compared to the
three months ended
June 30, 2018
, primarily as a result of the purchase of three travel centers from former franchisees and the closure of seven franchised standalone restaurants since the beginning of the
three months ended
June 30, 2018
.
Fuel Gross Margin.
Fuel gross margin for the
three months ended
June 30, 2019
,
increase
d by
$2,444
, or
3.3%
, as compared to the
three months ended
June 30, 2018
, primarily due to the increase in gasoline gross margin as a result of managing sales pricing to balance sales volume and profitability. Diesel fuel gross margin was essentially flat for the
three months ended
June 30, 2019
, as compared to the
three months ended
June 30, 2018
, primarily due to a slightly lower gross margin per gallon, which was largely offset by an increase in diesel fuel sales volume.
Nonfuel Gross Margin.
Nonfuel gross margin for the
three months ended
June 30, 2019
,
increase
d by
$1,386
, or
0.5%
, as compared to the
three months ended
June 30, 2018
, due to the increase in nonfuel revenues. Nonfuel gross margin percentage was
60.6%
and
60.9%
for the
three months ended
June 30, 2019
and
2018
, respectively. The decline in the nonfuel gross margin percentage was primarily due to a change in the mix of products and services sold.
Site Level Operating Expense.
Site level operating expense for the
three months ended
June 30, 2019
,
increase
d by
$5,784
, or
2.5%
, as compared to the
three months ended
June 30, 2018
, primarily due to increased labor costs in store and retail services and truck service to support our growth initiatives, as well as higher maintenance costs and property taxes. Site level operating expense as a percentage of nonfuel revenues was
49.3%
for the
three months ended
June 30, 2019
, as compared to
48.5%
for the
three months ended
June 30, 2018
. The
increase
in this percentage reflects, among other things, the hiring and training of additional truck service personnel to support the planned increase in sales in that department.
Selling, General and Administrative Expense.
Selling, general and administrative expense for the
three months ended
June 30, 2019
,
increase
d by
$12,082
, or
44.0%
, as compared to the
three months ended
June 30, 2018
. This
increase
was primarily due to
$10,082
of reimbursed litigation costs collected from Comdata during the three months ended June 30, 2018, and increased compensation expense as a result of annual salary increases and increased headcount, partially offset by
$1,792
of expenses related to an executive officer retirement agreement recognized in the
three months ended
June 30, 2018
.
Real Estate Rent Expense.
Real estate rent expense for the
three months ended
June 30, 2019
,
decrease
d by
$6,914
, or
9.8%
, as compared to the
three months ended
June 30, 2018
. The
decrease
in real estate rent expense was primarily the result of our purchase of
20
travel centers from HPT in January 2019, which reduced our annual minimum rent due to HPT by
$43,148
, partially offset by increases that resulted from our sales to, and lease back from, HPT of improvements at leased sites during 2018.
Depreciation and Amortization Expense.
Depreciation and amortization expense for the
three months ended
June 30, 2019
,
increase
d by
$2,090
, or
9.9%
, as compared to the
three months ended
June 30, 2018
. This
increase
primarily resulted from an increase, since
June 30, 2018
, in our amount of depreciable assets as a result of the locations we acquired (primarily the
20
travel centers acquired from HPT in January 2019) and other capital investments we completed (and did not subsequently sell to HPT).
Benefit (Provision) for Income Taxes
. We had a benefit for income taxes of
$402
for the
three months ended
June 30, 2019
, due to certain income tax credits that more than offset the provision calculated at our effective tax rate. We had a provision for income taxes of
$1,071
for the
three months ended
June 30, 2018
. The change in the benefit (provision) for income taxes is primarily due to lower pretax income recognized in the
three months ended
June 30, 2019
, as compared to the
three months ended
June 30, 2018
.
Six months ended
June 30, 2019
, as compared to the
six months ended
June 30, 2018
Fuel Revenues.
Fuel revenues for the
six months ended
June 30, 2019
,
decrease
d as compared to the
six months ended
June 30, 2018
, by
$35,019
, or
1.6%
. The table below presents the factors causing the changes in total fuel sales volume and revenues between periods.
|
|
|
|
|
|
|
|
|
Gallons Sold
|
|
Fuel Revenues
|
Results for the six months ended June 30, 2018
|
944,693
|
|
|
$
|
2,135,831
|
|
Decrease due to petroleum products price changes
|
|
|
(97,305
|
)
|
Increase due to same site volume changes
|
20,891
|
|
|
44,855
|
|
Increase due to locations opened
|
9,392
|
|
|
19,029
|
|
Decrease due to locations closed
|
(373
|
)
|
|
(778
|
)
|
Decrease in wholesale fuel sales volume
|
(355
|
)
|
|
(820
|
)
|
Net change from prior year period
|
29,555
|
|
|
(35,019
|
)
|
Results for the six months ended June 30, 2019
|
974,248
|
|
|
$
|
2,100,812
|
|
The
decrease
in fuel revenues for the
six months ended
June 30, 2019
, as compared to the
six months ended
June 30, 2018
, was primarily due to a decrease in market prices for fuel. The decrease was partially offset by an increase in fuel sales volume at same sites and new sites.
Nonfuel Revenues.
Nonfuel revenues for the
six months ended
June 30, 2019
,
increase
d by
$21,639
, or
2.4%
, as compared to the
six months ended
June 30, 2018
, primarily as a result of a
$12,805
increase
on a same site basis and sales at new sites. The
increase
on a same site basis was primarily due to the positive impact of certain of our marketing initiatives in store and retail services.
Rent and Royalties from Franchisees Revenues.
Rent and royalties from franchisees revenues for the
six months ended
June 30, 2019
,
decrease
d by
$1,271
, or
15.6%
, as compared to the
six months ended
June 30, 2018
, primarily as a result of the purchase of three travel centers from former franchisees and the closure of seven franchised standalone restaurants since the beginning of 2018.
Fuel Gross Margin.
Fuel gross margin for the
six months ended
June 30, 2019
,
decrease
d by
$5,706
, or
3.6%
, as compared to the
six months ended
June 30, 2018
, primarily as a result of the
$23,251
benefit recognized in the
six months ended
June 30, 2018
, in connection with the February 2018 reinstatement for 2017 of the federal biodiesel blenders' tax credit, partially offset by an increase in fuel sales volume and a more favorable fuel purchasing environment in the
six months ended June 30, 2019
, than in the
six months ended June 30, 2018
. As of the date of this Quarterly Report, the U.S. government has not enacted legislation reinstating the federal biodiesel blenders' tax credit for 2018 or 2019 and we have not recognized any amounts for the expected federal biodiesel blenders' tax credit for 2018 or 2019.
Nonfuel Gross Margin.
Nonfuel gross margin for the
six months ended
June 30, 2019
,
increase
d by
$11,528
, or
2.1%
, as compared to the
six months ended
June 30, 2018
, due to the
increase
in nonfuel revenues. Nonfuel gross margin percentage was
61.2%
and
61.4%
for the
six months ended
June 30, 2019
and
2018
, respectively. The slight decline in the nonfuel gross margin percentage was primarily due to a change in the mix of products and services sold.
Site Level Operating Expense.
Site level operating expense for the
six months ended
June 30, 2019
,
increase
d by
$15,492
, or
3.4%
, as compared to the
six months ended
June 30, 2018
, primarily due to increased labor costs to support the increase in nonfuel sales, as well as higher maintenance costs and property taxes. Site level operating expense as a percentage of nonfuel revenues was
51.0%
for the
six months ended
June 30, 2019
, as compared to
50.5%
for the
six months ended
June 30, 2018
. The increase in this percentage reflects, among other things, the hiring and training of additional truck service personnel to support the planned increase in sales in that department.
Selling, General and Administrative Expense.
Selling, general and administrative expense for the
six months ended
June 30, 2019
,
increase
d by
$12,698
, or
19.8%
, as compared to the
six months ended
June 30, 2018
. This
increase
was primarily due to
$10,082
of reimbursed litigation costs collected from Comdata during the six months ended June 30, 2018, and an increase in compensation expense as a result of annual salary increases and increased headcount, partially offset by
$3,571
of expenses related to an executive officer retirement agreement recognized in the
six months ended
June 30, 2018
.
Real Estate Rent Expense.
Real estate rent expense for the
six months ended
June 30, 2019
,
decrease
d by
$10,737
, or
7.6%
, as compared to the
six months ended
June 30, 2018
. The
decrease
in real estate rent expense was primarily the result of our purchase of
20
travel centers from HPT in January 2019, which reduced our annual minimum rent due to HPT by
$43,148
, partially offset by increases that resulted from our sales to, and lease back from, HPT of improvements at leased sites during 2018.
Depreciation and Amortization Expense.
Depreciation and amortization expense for the
six months ended
June 30, 2019
,
increase
d by
$6,303
, or
15.1%
, as compared to the
six months ended
June 30, 2018
. This
increase
primarily resulted from an increase, since June 30, 2018, in our amount of depreciable assets as a result of the locations we acquired (primarily the
20
travel centers acquired from HPT in January 2019) and other capital investments we completed (and did not subsequently sell to HPT).
Benefit for Income Taxes
. We had a benefit for income taxes of
$5,669
and
$2,592
for the
six months ended June 30, 2019
and
2018
, respectively. The
increase
in the benefit for income taxes is primarily due to a pretax loss recognized in the
six months ended
June 30, 2019
, as compared to pretax income recognized in the
six months ended June 30, 2018
.
Liquidity and Capital Resources
Our principal liquidity requirements are to meet our operating and financing costs and to fund our capital expenditures, acquisitions and working capital requirements. Our principal sources of liquidity to meet these requirements are our:
|
|
•
|
our revolving credit facility, or our Credit Facility, with a current maximum availability of
$200,000
subject to limits based on our qualified collateral;
|
|
|
•
|
sales to HPT of improvements we make to the sites we lease from HPT;
|
|
|
•
|
potential issuances of new debt and equity securities; and
|
|
|
•
|
potential financing or selling of unencumbered real estate that we own.
|
We believe that the primary risks we currently face with respect to our operating cash flow are:
|
|
•
|
continuing decreased demand for our fuel products resulting from regulatory and market efforts for improved engine fuel efficiency, fuel conservation and alternative fuels and technologies;
|
|
|
•
|
decreased demand for our products and services that we may experience as a result of competition or otherwise;
|
|
|
•
|
the fixed nature of a significant portion of our expenses, which may restrict our ability to realize a sufficient reduction in our expenses to offset a reduction in our revenues;
|
|
|
•
|
the costs and funding that may be required to execute our growth initiatives;
|
|
|
•
|
the possible inability of acquired or developed properties to generate the stabilized financial results we expected at the time of acquisition or development;
|
|
|
•
|
increasing labor cost inflation;
|
|
|
•
|
increasing market interest rates that may increase our cost of capital;
|
|
|
•
|
the risk of an economic slowdown or recession in the U.S. economy; and
|
|
|
•
|
the negative impacts on our gross margins and working capital requirements if there were a return to the higher level of prices for petroleum products we experienced in prior years or due to increases in the cost of our fuel or nonfuel products resulting from inflation generally.
|
Our business requires substantial amounts of working capital, including cash liquidity, and our working capital requirements can be especially large because of the volatility of fuel prices. Our growth strategy of selectively acquiring additional properties and businesses and developing new sites requires us to expend substantial capital for any such properties, businesses or developments. In addition, our properties are high traffic sites with many customers and large trucks entering and exiting our properties daily, requiring us to expend capital to maintain, repair and improve our properties. Although we had a cash balance of
$25,785
at
June 30, 2019
, and net cash
provided by
operating activities of
$58,913
for the
six months ended
June 30, 2019
, we cannot be sure that we will maintain sufficient amounts of cash, that we will generate future profits or positive cash flows or that we will be able to obtain additional financing, if and when it becomes necessary or desirable to pursue business opportunities.
Proceeds from Sale of Convenience Stores Business
In December 2018, we sold our convenience stores business for an aggregate sales price of
$330,609
. This sale generated net cash proceeds of approximately
$319,853
after transaction related costs and cash sold. See Note 4 to the Consolidated Financial Statements included in Item 1 of this Quarterly Report for more information about the sale of our convenience stores business.
Lease Amendments and Travel Center Purchases
In
January 2019
, we acquired from HPT
20
travel centers we previously leased from HPT for
$309,637
, which amount includes
$1,437
of transaction related costs, and amended our leases with HPT, providing for, among other things, a
$43,148
reduction in our annual minimum rent payments and payment in
16
equal quarterly installments, which began on April 1, 2019, of deferred rent that aggregate to
$70,458
to fully satisfy and discharge our previous
$150,000
deferred rent obligation. See Note 6 to the Consolidated Financial Statements included in Item 1 of this Quarterly Report for more information about these lease amendments.
Revolving Credit Facility
On
July 19, 2019
, we entered into an amendment, or the Amendment, to our Credit Facility. The Amendment amended our Credit Facility to, among other things: (i) extend the maturity of the Credit Facility to
July 19, 2024
; (ii) reduce the applicable margins on borrowings and standby letter of credit fees by
25
basis points and on commercial letter of credit fees by
12.5
basis points; (iii) make certain adjustments to the limitations on investments, dividends and stock repurchases under the Credit Facility; (iv) reduce the sublimit for issuance of letters of credit under the Credit Facility from
$170,000
to
$125,000
; and (v) make certain adjustments to the borrowing base calculation. Under the Credit Facility, a maximum of
$200,000
may be drawn, repaid and redrawn until maturity. See Note 7 to the Consolidated Financial Statements included in Item 1 of this Quarterly Report for more information about the Amendment.
The availability of the maximum amount is subject to limits based on qualified collateral. Subject to available collateral and lender participation, the maximum amount of this Credit Facility may be increased to
$300,000
. The Credit Facility may be used for general business purposes and allows for the issuance of letters of credit. Generally, no principal payments are due until maturity. Under the terms of the Credit Facility, interest is payable on outstanding borrowings at a rate based on, at our option, LIBOR or a base rate, plus a premium (which premium is subject to adjustment based upon facility availability, utilization and other matters). At
June 30, 2019
, based on our qualified collateral, a total of
$142,143
was available to us for loans and letters of credit under the Credit Facility. At
June 30, 2019
, there were
no
loans outstanding under the Credit Facility but we had outstanding
$14,813
of letters of credit issued under that facility, which reduced the amount available for borrowing under the Credit Facility, leaving
$127,330
available for our use as of that date.
Sources and Uses of Cash
During the
six
months ended
June 30, 2019
and
2018
, we had net cash
inflows
from operating activities of continuing operations of
$58,913
and
$76,316
, respectively. This
$17,403
decrease
was primarily due to the reimbursement of litigation costs from Comdata and the enactment of the federal biodiesel blenders' tax credit during the six months ended June 30, 2018, that did not recur during the
six months ended June 30, 2019
. This decrease was partially offset by higher operating cash flow in the
six months ended June 30, 2019
, as compared to the
six months ended June 30, 2018
, after excluding the impact of the Comdata litigation costs and the federal biodiesel blenders' tax credit.
During the
six
months ended
June 30, 2019
and
2018
, we had net cash
outflows
from investing activities of continuing operations of
$347,436
and
$33,937
, respectively. The increase in net cash
outflows
from investing activities of continuing operations primarily resulted from the purchase for
$309,637
of
20
travel centers we previously leased from HPT, and also reflects reduced amounts of capital expenditures and sales of improvements to HPT in the
six months ended June 30, 2019
, as compared to the
six months ended June 30, 2018
. See Notes 3 and 6 to the Consolidated Financial Statements included in Item 1 of this Quarterly Report for more information about our transactions with HPT.
Related Party Transactions
We have relationships and historical and continuing transactions with HPT, The RMR Group LLC, or RMR, Affiliates Insurance Company, or AIC, and others related to them. For example: HPT is our former parent company, our largest shareholder and our principal landlord; RMR provides management services to both us and to HPT and RMR employs certain of our and HPT's executive officers, as well as our Managing Directors and HPT's managing trustees, and, as of
June 30, 2019
, HPT and RMR owned approximately
8.5%
and
3.7%
, respectively, of our outstanding common shares. We also have relationships and historical and continuing transactions with other companies to which RMR or its subsidiaries provide management services and some of which may have directors, trustees and officers who are also directors, trustees or officers of us, HPT or RMR. For further information about these and other such relationships and related party transactions, see Notes 6, 8 and 9 to the Consolidated Financial Statements included in Item 1 of this Quarterly Report, our Annual Report, our definitive Proxy Statement for our 2019 Annual Meeting of Shareholders and our other filings with the Securities and Exchange Commission, or SEC. In addition, please see the section captioned "Risk Factors" of our Annual Report for a description of risks that may arise as a result of these and other related party transactions and relationships. Our filings with the SEC and copies of certain of our agreements with these related parties, including our business management agreement with RMR and our various agreements with HPT, are available as exhibits to our filings with the SEC and accessible at the SEC's website,
www.sec.gov
. We may engage in additional transactions with related parties, including businesses to which RMR or its subsidiaries provide management services.
Environmental and Climate Change Matters
Legislation and regulation regarding climate change, including greenhouse gas emissions, and other environmental matters and market reaction to any such legislation or regulation or to climate change concerns, may decrease the demand for our fuel products, may require us to expend significant amounts and may otherwise negatively impact our business. For instance, federal and state governmental requirements addressing emissions from trucks and other motor vehicles, such as the U.S. Environmental Protection Agency's, or EPA's, gasoline and diesel sulfur control requirements that limit the concentration of sulfur in motor fuel, as well as new fuel efficiency standards for medium and heavy duty commercial trucks, have caused us to add certain services and provide certain products to our customers at a cost to us that we may be unable to pass through to our customers. Also, various private initiatives and government regulations to promote fuel efficiency that raise the cost of trucking as compared to other types of freight transport, may decrease the demand for our fuel products and negatively impact our business.
For example, in August 2016 the EPA and the National Highway Traffic Safety Administration established final regulations that will phase in more stringent greenhouse gas emission and fuel efficiency standards for medium and heavy duty trucks beginning in model year 2021 (model year 2018 for certain trailers) through model year 2027, and these regulations are estimated to reduce fuel usage between 9% and 25% (depending on vehicle category) by model year 2027. Under the Trump Administration, the EPA and the U.S. Department of Transportation have publicly announced that they will review and reconsider various rules relating to greenhouse gas emissions and fuel efficiency standards for trucks and other motor vehicles, including portions of the rule discussed above, and have proposed, for example, changes to the rule's application to certain types of vehicles. It is difficult to predict what, if any, changes to the existing rule will ultimately occur as a result of the Trump Administration's review or as a result of related legal challenges and, if changes occur, what impact those changes would have on our industry, us or our business. We may not be able to completely offset the loss of business we may suffer as a result of increasing engine efficiency and other fuel conservation efforts under this rule or as a result of other existing or future regulation or changes in customer demand.
Some observers believe severe weather activities in different parts of the country over the last few years evidence global climate change. Such severe weather that may result from climate change may have an adverse effect on individual properties we own, lease or operate, or the volume of business at our locations. We mitigate these risks by owning, leasing and operating a diversified portfolio of properties, by procuring insurance coverage we believe adequately protects us from material damages and losses and by attempting to monitor and be prepared for such events. However, there can be no assurance that our mitigation efforts will be sufficient or that storms that may occur due to future climate change or otherwise could not have a material adverse effect on our business.
For further information about these and other environmental and climate change matters, and the related risks that may arise, see the disclosure under the heading "Environmental Contingencies" in Note 10 to the Consolidated Financial Statements included in Item 1 of this Quarterly Report, which disclosure is incorporated herein by reference.