Jeff Geygan

Travel Centers of America: Undervalued Stock?

This is a very complex story. You are right, there is more to it than meets the eye. For starters, the company has a realtionship with HPT (who spun off TA several years ago) in which there are clear conficts. In fact, a shareholer suit on behalf of TA vs HPT (see Kahn v HPT in the 10-k) may resolve the conflict leaving TA in a more favorable operating position.

Additionally, TA has a rent deferral agreement with HPT that currently that allows the postponement of $5 million per month in rent - see balance sheet for accruing liability. This explains in part the surplus of cash. However, at year end if TA doesn't pay back the deferred rent, it begins accruing at 12%.

If this is going to be a great investment in the future, the company must continue to control 'site level' operating expenses, drive non-fuel (high gross margin, i.e. 60%) sales and experience a return of normal levels of transportation traffic.

The CEO, Tom O'brien, seems committed to the company. He however has an employment history with HPT that may potentially blurr his good management vision. O'brien has been working hard to control costs having initiated several cost control programs in 2008. This is the time when his efforts could pay off for shareholders.

By the way, I am long the shares.