Newly acquired stores and fuel sales increases are among the factors that led to first quarter growth for TravelCenters of America.
TravelCenters of America LLC has released the company’s financial results for the three months ending March 31, 2016. Despite a disappointing year over year comparison for the first quarter, the company remains optimistic about future growth.
First Quarter 2016 Business Commentary
Fuel sales volume increased 40.4 million gallons, or 8.1%, in the 2016 first quarter compared to the 2015 first quarter: a 48.6 million gallon increase from sites acquired since the beginning of 2015, offset by an 8.2 million gallon decrease in same site volume. Fuel revenue declined by $293.6 million, or 29.3%, due to significantly lower market prices for fuel compared to the 2015 first quarter.
Fuel gross margin declined $20.7 million, or $0.055 per gallon, to $91.7 million, or $0.170 per gallon, primarily due to a favorable purchasing environment in the 2015 first quarter that did not recur in 2016 first quarter.
Nonfuel revenue for the 2016 first quarter increased $49.1 million, or 12.2%, compared to the 2015 first quarter: $42.7 million of this increase was due to sites acquired since the beginning of 2015 and $6.4 million was due to an increase in same site revenue.
Nonfuel gross margin for the 2016 first quarter increased by $21.2 million, or 9.5%, compared to the 2015 first quarter: $14.0 million of this increase was due to sites acquired since the beginning of 2015 and $7.2 million was due to an increase in same site nonfuel gross margin.
Nonfuel gross margin as a percentage of nonfuel revenue for the 2016 first quarter was 54.2%, a 1.4 percentage point decline compared to the 2015 first quarter. This decline was due to the inclusion of additional standalone convenience stores in the 2016 first quarter results. Nonfuel gross margin percentage in TA’s standalone convenience store operations is typically lower than the nonfuel gross margin percentage for TA’s travel center operations; standalone convenience store revenue in the 2016 first quarter represented 13.6% of total nonfuel revenue versus 5.2% in the 2015 first quarter.
Site level operating expenses increased $28.5 million, or 13.8%, in the 2016 first quarter compared to the 2015 first quarter: $21 million of this increase was due to sites acquired since the beginning of 2015 and $7.5 million was due to an increase in same site expenses.
Selling, general and administrative expenses increased $3.4 million, or 12.1%, in the 2016 first quarter compared to the 2015 first quarter, principally as a result of increased personnel costs, which were due primarily to increased personnel to support the growth of our business.
Real estate rent expense increased $7.9 million, or 14.3%, in the 2016 first quarter compared to the 2015 first quarter primarily due to increased rent resulting from our transactions with Hospitality Properties Trust (HPT): $5.8 million of this increase was attributable to sales in June 2015 and September 2015 of 14 owned travel centers and certain assets at eleven properties currently leased from HPT and $2.4 million was attributable to sales of improvements at leased sites TA sold to HPT since the beginning of 2015.
Interest expense, net, increased $0.5 million in the 2016 first quarter compared to the 2015 first quarter, principally as a result of TA’s issuance in October 2015 of $100 million of bonds due in 2030.
EBITDAR for the 2016 first quarter decreased by $30.4 million, or 28.8%, compared to the 2015 first quarter primarily due to the decrease in fuel gross margin.
Net loss for the 2016 first quarter was $9.9 million, or $0.26 per common share, compared to net income of $15.7 million, or $0.41 per common share, for the 2015 first quarter. The change in net income is primarily due to the decrease in fuel gross margin.
Travel Centers Segment
Revenues from TA’s travel center segment for the 2016 first quarter decreased by $337.3 million, or 24.9%, compared to the 2015 first quarter, due to decreases in fuel revenues as a result of lower market prices for fuel. These decreases were partially offset by increases in nonfuel revenues as a result of three sites acquired since the beginning of 2015 and a 1.5% increase in nonfuel revenues on a same site basis.
Site level gross margin in excess of site level operating expenses for TA’s travel center segment for the 2016 first quarter decreased by $29.2 million, or 22.4%, compared to the 2015 first quarter. This decrease principally reflects a $29.1 million decline in same site fuel gross margin primarily as a result of the favorable purchasing environment in the 2015 first quarter that did not recur in the 2016 first quarter.
Convenience Stores Segment
Revenues from TA’s convenience store segment for the 2016 first quarter increased by $92 million, or 217.8%, compared to the 2015 first quarter, due to increases in fuel sales volume from sites acquired since the beginning of 2015, partially offset by decreases in market prices for fuel and a 2.3% decrease in same site fuel sales volume. Revenues also increased as a result of increased nonfuel revenues primarily from sites acquired since the beginning of 2015.
Site level gross margin in excess of site level operating expenses for TA’s convenience store segment for the 2016 first quarter increased by $2.7 million, or 169.2%, compared to the 2015 first quarter: $2.3 million of this increase is from sites acquired since the beginning of 2015 and the remaining $0.4 million is primarily from a same site increase in fuel gross margin.
“During the first quarter of 2016, we continued progress in the integration of our new sites, principally the 148 convenience stores we acquired during the last half of 2015 and the first quarter of 2016. Ramp up of newly acquired locations is proceeding largely as expected,” Thomas O’Brien, TA’s CEO, said.
“In addition to lower fuel gross margin per gallon in 2016 as compared to the first quarter of 2015, we also experienced some negative impact on fuel volumes at certain locations due to reduced demand from customers involved in the energy sector,” O’Brien continued. “Despite the disappointing year over year comparative results, we remain positive about the future and the several initiatives that we are in the process of executing.”
Investment Activity
Acquisition and Development Activity
TA’s 2016 first quarter activities included the acquisition of 24 standalone convenience stores for an aggregate purchase price of $35.1 million, as well as $4.9 million of investments to improve these and other recently acquired locations.
Since its acquisition program began in 2011, and through the first quarter of 2016, TA has acquired 37 travel centers and 224 standalone convenience stores. As of March 31, 2016, TA’s investments, including improvements, in the 37 travel centers and 224 standalone convenience stores acquired totaled $315.6 million and $424.2 million, respectively. TA estimates that it will invest an additional $19.8 million to complete the expansion and renovation of certain of these travel centers and $17.4 million to complete the rebranding, expansion and improvements of certain of these convenience stores. These 261 locations generated revenues in excess of cost of goods sold of $69.5 million in the time TA owned them during the twelve months ended March 31, 2016.
As of March 31, 2016, TA had completed construction of two travel centers, had begun construction of two other travel centers and had plans to develop an additional travel center. Through March 31, 2016, TA spent $46.2 million (including land costs) on the four development sites not yet sold to HPT. TA estimated the additional development costs of the remaining travel centers as of March 31, 2016, were $47.8 million. TA currently expects to complete development of one of these travel centers during the second quarter of 2016, another during the first quarter of 2017 and another thereafter.
Capital improvements to recently purchased travel centers are often substantial and require a long period of time to plan, design, permit and complete; and, after being completed, the improved travel centers require a period of time to become part of TA’s customers’ supply networks and produce stabilized financial results. TA estimates that the travel centers it acquires generally will reach stabilization in approximately the third year after acquisition. Capital improvements to recently acquired convenience stores are typically less capital intensive than travel centers. TA estimates that the convenience stores it acquires generally will reach stabilization in approximately one year after acquisition. Actual results for both travel centers and convenience stores can vary widely from these estimates due to many factors, some of which are outside TA’s control.
Conference Call
On Monday, May 9, 2016, at 10 a.m. Eastern Time, TA hosted a conference call to discuss its financial results and other activities for the three months ending March 31, 2016. Following management’s remarks, there was a question and answer period.
A replay of the conference call will be available for about a week after the call. To hear the replay, dial 412-317-0088. The replay pass code is 10084032.
A live audio webcast of the conference call was also available in a listen only mode on TA’s website at www.ta-petro.com. The archived webcast will be available for replay on TA’s website for about one week after the call. The transcription, recording and retransmission in any way of TA’s first quarter conference call is strictly prohibited without the prior written consent of TA.