| Related Party Transactions | Related Party Transactions We have relationships and historical and continuing transactions with HPT, The RMR Group LLC (formerly known as Reit Management & Research LLC), or RMR, and others related to them. We also have relationships and historical and continuing transactions with other companies to which RMR provides management services and which have directors, trustees and officers who are also directors or officers of us or RMR. For further information about these and other such relationships and certain other related person transactions, please refer to our Annual Report and our Current Reports on Form 8-K filed with the Securities Exchange Commission on June 5, 15, 22 and 25, 2015 and September 24, 2015. Relationship with HPT As of September 30, 2015 , HPT owned 3,420,000 of our common shares, representing approximately 8.9% of outstanding common shares. HPT is our largest shareholder. On June 1, 2015 , we entered a transaction agreement, or the Transaction Agreement, with HPT, pursuant to which, among other things (i) we and HPT agreed to expand and subdivide the lease pursuant to which we then leased 144 properties from HPT, or the Prior TA Lease, into four amended and restated leases, or the New TA Leases, (ii) we sold to HPT, for an aggregate of $279,383 , 14 travel centers and certain assets we owned at 11 properties we lease from HPT and we leased back these properties and assets from HPT under the New TA Leases, (iii) we purchased from HPT, for an aggregate of $45,042 , five travel centers that we then leased from HPT under the Prior TA Lease, and (iv) we agreed to sell to HPT five travel centers upon the completion of their development at a purchase price equal to their development costs, including the cost of the land, which costs are estimated to be not more than $118,000 in the aggregate, and we agreed to lease back these development properties from HPT under the New TA Leases. The terms of the Transaction Agreement were approved by special committees of our Independent Directors and HPT’s independent trustees, none of whom are directors or trustees of the other company. Each special committee was represented by separate counsel. As of September 30, 2015 , we completed the following transactions pursuant to the Transaction Agreement: • We entered into four New TA Leases with HPT, or New Lease 1, New Lease 2, New Lease 3 and New Lease 4 which expire in 2029 , 2028 , 2026 and 2030 , respectively. Each New TA Lease grants us two renewal options of 15 years each. Percentage rent for 2014 under the Prior TA Lease, which totaled $2,902 , was incorporated into the minimum annual rent under the New TA Leases, and 2015 became the percentage rent base year for the New TA Leases. Beginning in 2016 , percentage rent will be 3.0% of the excess of gross nonfuel revenues for any particular year over the percentage rent base year amount. Our deferred rent obligation of $107,085 , which was due December 31, 2022 , was allocated among the New TA Leases and the due dates were extended to the end of the initial term of each respective New TA Lease. • We sold to HPT, for $279,383 , 14 travel centers we owned and certain assets we owned at 11 properties we lease from HPT. We leased back these properties and assets from HPT under the New TA Leases. Our minimum annual rent increased by $24,027 as a result of the completion of our sale and lease back of these properties and assets. These sales generated an aggregate gain of $133,668 , which was deferred and will be amortized as a reduction of our rent expense over the terms of the New TA Leases. • We purchased from HPT, for $45,042 , five travel centers that we previously leased from HPT and subleased to franchisees. The lease of these properties had been accounted for as a financing, with the related assets recognized in our consolidated balance sheets. The purchase prices paid for the properties exceeded the unamortized balance of the sale leaseback financing obligation, resulting in our recognition of a loss on extinguishment of debt of $10,502 . Our minimum annual rent payment decreased by $3,874 as a result of the completion of our purchase of these properties. • We and HPT entered into an amendment to our Petro Lease, pursuant to which we lease 40 Petro travel centers from HPT. Among other things, this amendment eliminated percentage rent payable on fuel revenues, which in 2014 was nominal, and was not paid to HPT because HPT previously had waived payment of the first $2,500 of percentage rent due under the Petro Lease. As of September 30, 2015 , we leased from HPT a total of 153 properties under the New TA Leases and 40 properties under the Petro Lease, which we collectively refer to as the HPT Leases. As of September 30, 2015, the number of properties leased, the term, the minimum annual rent and deferred rent balances under our HPT Leases were as follows: Number of Sites Initial Term End Minimum Annual Rent as of September 30, 2015 Deferred Rent New TA Lease 1 39 December 31, 2029 $ 48,295 $ 27,421 New TA Lease 2 38 December 31, 2028 46,765 29,107 New TA Lease 3 38 December 31, 2026 49,613 29,324 New TA Lease 4 38 December 31, 2030 44,194 21,233 Petro Lease 40 June 30, 2024 62,949 42,915 193 $ 251,816 $ 150,000 Pro Forma Impact The following unaudited pro forma information includes adjustments related to the amendment to our leases with HPT, the purchase of assets and our sale and lease back of assets completed as of September 30, 2015 , in connection with our Transaction Agreement with HPT. The pro forma adjustments assume that these transactions occurred on January 1, 2015 . Three Months Ended Nine Months Ended Net Income $ 9,645 $ 33,768 Basic and diluted earnings per share $ 0.25 $ 0.89 The historical consolidated financial information has been adjusted in the pro forma information to give effect to pro forma events that are: (1) directly attributable to the transactions with HPT; (2) factually supportable; and (3) expected to have a continuing impact on the combined results. The $10,502 loss on extinguishment of debt recognized in June 2015, as noted above, is not reflected in the pro forma information above because it is non-recurring. The following table summarizes the various amounts related to the HPT Leases and other leases that are reflected in real estate rent expense in our condensed consolidated statements of income and comprehensive income. Three Months Ended Nine Months Ended 2015 2014 2015 2014 Cash payments for rent under the HPT Leases $ 62,445 $ 55,771 $ 178,818 $ 166,520 Change in accrued estimated percentage rent (878 ) 72 (1,275 ) 670 Adjustments to recognize expense on a straight line basis (52 ) (332 ) (4,639 ) (1,232 ) Less sale leaseback financing obligation amortization (64 ) (595 ) (1,132 ) (1,778 ) Less portion of rent payments recognized as interest expense (446 ) (1,471 ) (2,866 ) (4,412 ) Less deferred tenant improvements allowance amortization (942 ) (1,692 ) (4,077 ) (5,077 ) Amortization of deferred gain on sale leaseback transactions (2,053 ) (96 ) (2,871 ) (289 ) Rent expense related to HPT Leases 58,010 51,657 161,958 154,402 Rent paid to others (1) 2,693 2,774 7,858 8,088 Adjustments to recognize expense on a straight line basis for other leases (87 ) (71 ) (288 ) (195 ) Total real estate rent expense $ 60,616 $ 54,360 $ 169,528 $ 162,295 (1) Includes rent paid directly to HPT’s landlords under leases for properties we sublease from HPT as well as rent related to properties we lease from landlords other than HPT. The following table summarizes the various amounts related to the HPT Leases that are included in our condensed consolidated balance sheets. September 30, December 31, Current HPT Leases liabilities: Accrued rent $ 20,509 $ 19,407 Sale leaseback financing obligation (1) 196 2,547 Straight line rent accrual (2) 2,458 2,529 Deferred gain (3) 9,238 385 Deferred tenant improvements allowance (4) 3,770 6,769 Total Current HPT Lease liabilities $ 36,171 $ 31,637 Noncurrent HPT Leases liabilities: Deferred rent obligation (5) $ 150,000 $ 150,000 Sale leaseback financing obligation (1) 21,165 82,591 Straight line rent accrual (2) 48,705 50,234 Deferred gain (3) 123,399 2,732 Deferred tenant improvements allowance (4) 46,299 47,377 Total Noncurrent HPT Lease liabilities $ 389,568 $ 332,934 (1) Sale leaseback Financing Obligation. Prior to the New TA Leases, the assets related to nine travel centers leased from HPT were reflected in our consolidated balance sheets, as was the related financing obligation. This accounting was required primarily because, at the time of the inception of the Prior TA Lease, more than a minor portion of these nine travel centers was subleased to third parties. The assets were depreciated on a straight line basis in the normal course under GAAP, and a portion of the rental payments made to HPT was allocated to amortize the related financing obligation. As part of the June 2015 transactions with HPT, we purchased five of the nine travel centers. That purchase was accounted for under GAAP as an extinguishment of the related financing obligation and resulted in a loss on extinguishment of debt of $10,502 because the price we paid to HPT to purchase the five properties was $10,502 in excess of the then remaining related financing obligation. Also, because the New TA Leases were accounted for under GAAP as new leases and two of the remaining four properties reflected as financings under the Prior TA Lease qualified for operating lease treatment, the remaining net assets and financing obligation related to these two properties was eliminated, resulting in a gain of $1,033 , which was deferred and will be recognized over the terms of the New TA Leases as a reduction of rent expense. (2) Straight Line Rent Accrual. The Prior TA Lease began in 2007 and, from 2007 to 2012 , minimum annual rents due included stated increases, resulting in a portion of the straight line rent accrual previously reflected in our consolidated balance sheets. The New TA Leases, which began in 2015 , are new leases under GAAP and contain no stated increase in minimum annual rent. As a result, the related prior straight line rent accrual continues to be amortized on a straight line basis over the terms of the New TA Leases as a reduction to real estate rent expense. The straight line rent accrual also includes our obligation for the estimated cost of removal of underground storage tanks at properties leased from HPT at the end of the related lease; and we recognize these obligations on a straight line basis over the term of the related leases as additional rent expense. (3) Deferred Gain . The deferred gain primarily includes $133,668 of gains from the sale of assets to HPT under the New TA Leases during 2015. We amortize the deferred gains on a straight line basis over the terms of the related leases as a reduction of rent expense. (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 commitment, we recognized a liability for the rent deemed to be related to this deferred tenant improvements allowance. We amortize 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. (5) Deferred Rent Obligation. Pursuant to a rent deferral agreement with HPT, from July 2008 through December 31, 2010 , we deferred a total of $150,000 of rent payable to HPT. This deferred rent obligation was allocated among the HPT Leases and is due at the end of the initial terms of the respective HPT Leases as noted above. HPT waived $271 and $133 of percentage rent under our Petro Lease for the three months ended September 30, 2015 and 2014 , respectively, and $819 and $402 for the nine months ended September 30, 2015 and 2014 , respectively. As of September 30, 2015 , HPT has cumulatively waived $1,826 of the $2,500 of percentage rent it previously agreed to waive. The total amount of percentage rent (which is net of the waived amount) was $0 and $573 for the three months ended September 30, 2015 and 2014 , respectively, and $1,999 and $2,195 , for the nine months ended September 30, 2015 and 2014 , respectively. During the nine months ended September 30, 2015 and 2014 , pursuant to the terms of the HPT Leases, we sold to HPT $70,150 and $41,961 , respectively, of improvements we made to properties leased from HPT. As a result, our minimum annual rent payable to HPT increased by approximately $5,963 and $3,567 , respectively. At September 30, 2015 , our property and equipment balance included $34,685 of improvements of the type that we typically request that HPT purchase for an increase in minimum annual rent; however, HPT is not obligated to purchase these improvements. In October 2015, HPT completed the purchase of the land and improvements at a travel center it then leased from a third party and subleased to us located in Waterloo, NY. Upon HPT's acquisition, the land and improvements were directly leased to us under the Petro Lease. Minimum annual rent under the Petro Lease increased by $1,275 , but our obligation to pay the ground rent of $1,260 annually, was terminated. Relationship with RMR Pursuant to our business management agreement and property management agreement with RMR, we incurred aggregate fees of $3,632 and $3,257 for the three months ended September 30, 2015 and 2014 , respectively, and $10,253 and $9,335 for the nine months ended September 30, 2015 and 2014 , respectively. These amounts are included in selling, general and administrative expenses in our condensed consolidated statements of income and comprehensive income. On March 12, 2015, we and RMR entered into an amended and restated business management agreement, which was approved by our Compensation Committee, comprised solely of our Independent Directors. As amended, RMR may terminate the business management agreement upon 120 days written notice, and we continue to have the right to terminate the business management agreement upon 60 days written notice, subject to approval by a majority vote of our Independent Directors. As amended, if we terminate or do not renew the business management agreement other than for cause, as defined, we are obligated to pay RMR a termination fee equal to 2.875 times the annual base management fee and the annual internal audit services expense,which amounts are based on averages during the 24 consecutive calendar months prior to the date of notice of termination or nonrenewal. If we terminate for cause, as defined, no termination fee is payable. Also, as amended, RMR agrees to provide certain transition services for us for 120 days following termination by us or notice of termination by RMR. Relationship with AIC As of September 30, 2015 , our investment in Affiliates Insurance Company, or AIC, an Indiana insurance company, had a carrying value of $6,807 , which amount is included in other assets in our condensed consolidated balance sheets. We recognized a loss of $25 and income of $54 related to our investment in AIC for the three months ended September 30, 2015 and 2014 , respectively, and income of $70 and $61 for the nine months ended September 30, 2015 and 2014 , respectively. Our other comprehensive income includes unrealized losses on securities held for sale which are owned by AIC of $72 and $33 for the three months ended September 30, 2015 and 2014 , respectively, and $91 and unrealized gains of $7 for the nine months ended September 30, 2015 and 2014 , respectively. In June 2015, we and the other shareholders of AIC renewed our participation in an insurance program arranged by AIC. In connection with that renewal, we purchased a three year combined property insurance policy providing $500,000 of coverage annually with the premium to be paid annually and a one year combined policy providing terrorism coverage of $200,000 for our properties, which policies were arranged by AIC. We paid aggregate annual premiums, including taxes and fees, of $2,283 in connection with these policies for the policy year ending June 30, 2016 , and this amount may be adjusted from time to time as we acquire and dispose of properties that are included in the property insurance program. Relationship with PTP As of September 30, 2015 , our investment in Petro Travel Plaza Holdings LLC, or PTP, had a carrying value of $23,892 , which amount is included in other assets in our condensed consolidated balance sheets. During the three months ended September 30, 2015 and 2014 , we recognized management and accounting fee income of $200 from PTP. At September 30, 2015 , we had a net payable to PTP of $455 . We recognized income of $1,361 and $1,018 during the three months ended September 30, 2015 and 2014 , respectively, and $3,086 and $1,950 for the nine months ended September 30, 2015 and 2014 , respectively, as our share of PTP’s net income. Directors' and Officers' Liability Insurance In August 2015 , we extended through September 2017 our combined directors' and officers' insurance policy with RMR and five other companies managed by RMR that provides $10,000 in aggregate primary coverage. At that time, we also extended through September 2016 our separate additional directors' and officers' liability insurance policies that provide $20,000 of aggregate excess coverage plus $5,000 of excess non-indemnifiable coverage. The total premium payable by us for these extensions was approximately $239 . |
