Hospitality Properties Trust recently entered agreements with TravelCenters of America LLC to sell 20 travel centers to TA that HPT currently owns and leases to TA and that HPT and TA amended their existing leases.
John Murray, HPT’s President and Chief Executive Officer, said that the agreements “benefit HPT in several ways. First, the agreed upon sales are at an attractive cap rate and are expected to result in a significant gain for HPT. Furthermore, the sales unlock value in our existing asset base and provide liquidity for additional hotel investments. Second, these agreements enable HPT to improve the quality of its travel center portfolio by materially improving the aggregate coverage of minimum rents for the portfolio. As we move into the tenth year of this economic recovery, materially improving rent coverage for a tenant that accounts for approximately one third of HPT’s returns helps HPT maintain secure, steady cash flows and provides our largest tenant financial flexibility to help weather any potential economic downturns in the future. Third, the acceleration of payment of the previously deferred rent obligations at a discounted value addresses potential uncertainty relating to our collection of these deferred rents.”
The terms of the agreements between HPT and TA were negotiated and approved by special committees of HPT’s Independent Trustees and TA’s Independent Directors who were represented by separate counsel, according to a prepared statement.
Hospitality Properties Trust is a real estate investment trust, or REIT, which owns a diverse portfolio of hotels and travel centers located in 45 states, Puerto Rico and Canada. HPT’s properties are operated under long term management or lease agreements.
The transaction highlights are as follows:
- HPT will sell 20 travel centers located in 15 states to TA for $308.2 million. HPT expects to realize a gain of $160.0 million from these sales. The sales price reflects a 5.7% capitalization rate based on property level cash flows (property level revenues minus property level expenses) for the twelve months ended September 30, 2018. HPT expects to use the proceeds from these sales to repay borrowings under its revolving credit facility and for general business purposes.
- HPT expects the agreements to result in stronger property level rent coverage for its travel center portfolio. The aggregate annual minimum rents due from TA for the remaining 179 travel centers HPT leases to TA will be $243.9 million. On a proforma basis, coverage for the twelve-month period ending September 30, 2018 would have increased from 1.60x to approximately 1.80x.
- HPT will receive $70.5 million of previously deferred rents in 16 equal quarterly installments beginning on April 1, 2019. Timing of the repayment was accelerated from the previous staggered due dates between June 2024 and December 2030 in exchange for the deferred rent amounts being discounted.
- HPT will receive additional potential percentage rent beginning in 2020 equal to 0.5% of the excess of nonfuel revenues over nonfuel revenues in 2019. This percentage rent is in addition to any percentage rent amounts HPT is already receiving from TA.
- The lease term under each of the five TA leases was extended three years.