In its latest 10-Q, TravelCenters of America (TA) revealed it discounts operating leases by 9.1%. This rate is significantly higher than TA’s travel center, fuel, and quick serve restaurant (QSR) peers which report the following discount rates in recent filings:

-Berkshire Hathaway (BRKA, BRKB) Owns ⅓ of Pilot: 3.6%
-FleetCor Technologies (FLT) Fuel & travel cards: 4.18%
-Casey’s General Stores (CASY): 4.42%
-Dine Brands (DIN) IHOP Owner & TA partner: 5.6%

Using an inflated discount rate hide’s a firm’s true liabilities from investors.

TA has $2.88 billion in future operating lease obligations. The present value of those obligations, according to TA, is $1.78 billion. If we use the blended average discount rate for TA’s peer group— 4.45%— we calculate a lease liability of $2.16 billion. It means TA is understating the present value of its lease liabilities by approximately $380 million, or 13.19% of its future operating lease obligations.

The discount rate TA selected is also significantly higher than its real borrowing rates; 8.00% & 8.25% Senior Notes, 6.1% Term Facility, and 4% Term Loan. The blended average rate is approximately 6.1%, or 32.9% less than the discount rate TA uses to understate its future lease liabilities. Even a more conservative treatment— comparing the discount rate with TA’s most expensive Senior Notes— results in a discount rate 10.3% higher than the company’s cost to borrow.