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WESTLAKE, Ohio — TravelCenters of America LLC (TA) has become a force in the convenience store acquisition arena. In fact, the company counts the convenience channel among its three key growth strategies.
TA has acquired more than 153 locations during the year, including more than 100 in the latter part of the third quarter, according to CEO Tom O'Brien. The operations of these sites are being transitioned, and TA's branding plans are underway.
Despite the high level of activity during the third quarter, the company was successful in eliminating certain selling, general and administrative costs, which grew year over year largely as expected, but decreased sequentially from the second quarter.
"Of the 181 c-stores purchased from December 2013 to end of the third-quarter 2015, we've only [got] 14 yet to have their gasoline branding completed and we've completed the Minit Mart branding process at nearly half," O'Brien reported during the company's third-quarter earnings call Monday morning. "The rebranding process is expected to be fully completed for these sites during the first half of 2016."
The addition of restaurants at select sites is expected to take a bit longer, but will be completed in 2016, the chief executive added.
"Our approach to growth, both recently and going forward, is the most important item I would like to talk about today," O'Brien said. "I will reiterate our travel center business is our core business and I expect that will continue to be so for the foreseeable future. I believe in continuation of our travel center acquisitions, but I also expect, based on what we currently see on the pipeline, that activity may not be high in the next year or so."
As acquisition opportunities began to wane late last year in the travel center space, TA adapted its approach to growth activities, he explained. Its current growth approach includes three key elements:
1. Ground-up development of a limited number of new travel centers, mostly on land TA already owns;
2. C-store acquisitions; and
3. Internal growth.
TA currently has five ground-up properties in various stages of development and the company has an agreement to sell these sites upon their completion to Hospitality Properties Trust. Three of the sites are expected to open in the first half of next year, with the remaining two opening in the second half of 2016 or early 2017.
"We set in motion our strategy in the convenience store space, the space we think includes a large number of acquisition candidates that offer the potential for attractive returns, which have become available as part of a wave of consolidation in that industry," O'Brien said.
He explained that the company has been in "something like the convenience store business" for a long time as part of its truck stop business. While TA acquired 153 standalone c-stores in 2015, the total number of c-stores it operates — including those at truck stops — is now more than twice that amount.
"The c-store fuel business complements our existing fuel business. C-stores principally sell gasoline to consumers and truck stops principally sell diesel to businesses," he noted. "Although these are both fuel, the markets are different and distinct in many ways and balancing these two products a bit more may tend to reduce our longer-term reliance on markets and structures that can be vague and include cyclical industries."
As for internal growth, TA's strategy is not limited to unit growth, O'Brien said.
"We continue to assess and act upon the best opportunities internally, notwithstanding the high level of other activities, and our competitive advantages in the travel center space remain front and center of our focus," he emphasized. "This focus has allowed us to continue to capitalize on many of the opportunities we told you about in the past."
For instance, he pointed to TA's Reserve-It parking program and mobile maintenance business, which generated more than $8 million in non-fuel revenue combined over the past 12 months.
"Looking ahead, I believe TA has positioned itself to grow in a multitude of potential future circumstances. If there are acquisition opportunities with pricing and return scenarios that are similar to what we've been seeing in the truck stop, convenience store or even the restaurant space, we will allocate a relatively larger share of financial and human capital toward these opportunities," O'Brien explained.
"I believe adding unit count will enhance the future of certain internal programs. But if acquisition opportunities become scarce or unavailable at a reasonable price, we will allocate a larger portion of resources to internal growth avenues with attractive returns, which I believe are plentiful," he added.