Target Hospitality Stock

Target Hospitality Corp. (Target Hospitality) operates as an integrated specialty rental and hospitality services company in North America. The company’s customers enter into contracts with it because of its differentiated scale and ability to deliver premier accommodations and in-house culinary and hospitality services across many key geographies in which they operate.

The company operates across the U.S., primarily in the Southwest and the Midwest. The company also owns and operates the largest family residential center in the U.S. Target Hospitality provides comprehensive turnkey solutions to customers’ unique needs, from the initial planning stages through the full cycle of development and ongoing operations. The company provides cost-effective and customized specialty rental accommodations, culinary services and hospitality solutions, including site design, construction, operations, security, housekeeping, catering, concierge services and health and recreation facilities.

The company has established a leadership position in providing a fully integrated service offering to its large customer base, which consists of the United States government service providers, major companies supporting natural resource developments, and large-scale infrastructure projects throughout the United States. The company is built on the foundation of the following core values: safety, care, excellence, integrity and collaboration.

Business Model

The company’s business model allows its customers to focus their efforts and resources on their core businesses. This makes the company an integral part of the planning and execution phases for all customers.

The company provides a safe, comfortable, and healthy environment to its guests, employees and workers across the U.S. and anywhere its customers need its facilities and services. Under its Target 12 service model, the company provides benefits to its customers, delivering high quality food, rest, connection, wellness, community, and hospitality, which optimizes its customers’ workforce engagement, performance, safety, loyalty, and productivity during work hours.

The company provides all of the hospitality services at its sites, and as a result it delivers more consistent and high-quality hospitality services at each community compared to its peers. The company’s employees are focused on the other 12 hours—the time its customers and their employees are not working—making sure it delivers a well fed, well rested, happier, loyal, safer and more productive employee every day.

Using its expansive community network, unique core competencies and full-service turnkey hospitality solutions, the company provides critical facilities and hospitality support services for fully integrated natural resource development companies and contractors of the United States Government. The company’s assets are well-suited to support the full lifecycle of development plans and it is able to scale its facility size to meet customers’ growing needs. The company is well-positioned to continue serving its customers throughout the full cycle of their projects, which typically last for several decades. The company’s integrated model provides value to its customers by reducing project timing and counterparty risks associated with projects. More broadly, the company’s accommodations networks, combined with its integrated value-added hospitality and facilities services creates value for its customers by optimizing their engagement, performance, safety, loyalty, productivity, preparedness and profitability.

Summary of Value-Added Services

The company offers across its range of community and hospitality services offerings. The majority of Target’s communities include in-house culinary and hospitality services. The company’s world-class culinary and catering professionals serve approximately 14,000,000 meals on average each year with fresh ingredients and many of its meals are made from scratch. The company self-manages most culinary and hospitality services, which provides it with greater control over service quality, as well as incremental revenue and profit potential. The company’s communities are designed to promote rest and quality of life for its customers’ workforces and include amenities, such as:

Summary of Amenities at various Communities include innovative modular design; media lounges and WIFI throughout; single occupancy design; individual Xbox/PSII Pods; swimming pool, volleyball, basketball courts; flat-screen TVs in each room; commercial kitchen; 40+ Premium TV channel line-up; fast food lounges; personal laundry service; full and self service dining areas; individually controlled HVAC system; TV sport/entertainment lounges; hotel access unity lock systems; training/conference rooms; 24 hour no-limit dining; core passive recreation areas; free DVD rentals; active fitness centers; self dispensing free laundry; lodge recreation areas; commercial laundry; locker/storage/boot-up areas; transportation to project site; parking areas; 24 hour gated security; waste water treatment facility; daily cleaning and custodial service; on-site commissary; and professional uniformed staff.

The company’s hospitality services and programming are designed to promote safety, security and rest, which in turn promote greater on-the-job productivity for its customers’ workforces. The company’s communities strictly adhere to its community code of conduct, which, among other things, prohibits drugs, illegal firearms, co-habitation and guests. The company works closely with its customers to ensure that its communities are an extension of the safe environment and culture they aim to provide to their employees while they are on a project location. The company’s community code of conduct is adopted by each corporate customer and enforced in conjunction with its customers through their documented health, safety and environmental policies, standards and customer management. The company recognizes that safety and security extends beyond the customers’ jobsite and is a 24-hour responsibility which requires 24-hour services by Target Hospitality in close collaboration with its customers.

The company is one of the few vertically integrated specialty rental and hospitality services provider that service the entire value chain from site identification to long-term community development and facilities management. The company’s industry divides specialty rental accommodations into three primary types: communities, temporary worker lodges and mobile assets. The company principally focuses on communities across several end markets, including natural resource developments, large-scale infrastructure and U.S. government. Communities typically contain a larger number of rooms and require more time and capital to develop. These facilities typically have commercial kitchens, dining areas, conference rooms, medical and dental services, recreational facilities, media lounges and landscaped grounds where climate permits. A substantial portion of its communities are built and underpinned by multi-year committed contracts which often include exclusivity provisions. These facilities are designed to serve the long-term needs of customers regardless of the end markets they serve. The company’s communities provide fully-integrated and value-added hospitality services, including but not limited to: catering and food services, housekeeping, health and recreation facilities, laundry services and overall workforce community management, as well as water and wastewater treatment, power generation, communications and personnel logistics where required. In contrast, temporary lodges are usually smaller in number of rooms and generally do not include hospitality, catering, facilities services or other value-added on-site services and typically serve customers on a spot or short-term basis without long-term committed contracts. These temporary facilities are open for any customer who needs lodging services. Finally, mobile assets, or rig housing, are designed to follow customers’ activities and are generally used for drilling rig operators. They are often used to support conventional drilling crews and are contracted on a project-by-project or short-term basis.

The company’s specialty rental modular assets and hospitality services deliver the essential services and accommodations when and where there is a lack of sufficient accessible or cost-effective housing, infrastructure or local labor. Many of the geographic areas near the southern U.S. border lack sufficient temporary housing and infrastructure for asylum-seeking immigrants or may require additional infrastructure in the future. In the U.S. natural resource development industry, many of the largest hydrocarbon reservoirs are in remote and expansive geographic locations, like the Southwestern portion of the United States and North Dakota where limited infrastructure exists. The company’s communities and integrated hospitality services allow its customers to outsource their accommodations needs to a single provider, optimizing employee morale, productivity, safety, and loyalty while focusing their investment on their core businesses and long term planning.

Strategy

The key elements of the company’s strategy include expansion through acquisitions and diversify its service offerings; maintaining and expanding existing customer relationships; enhancing contract scope and services; and growing and pursuing new customer/contract opportunities.

Business Operations

Target Hospitality provides specialty rental and hospitality services, temporary specialty rental and hospitality services solutions and facilities management services across North America. The company’s primary customers are the U.S. Government related contractors, investment grade natural resource development companies and other workforce accommodation providers operating in the regions served by its HFS – South and Midwest segments. The company’s specialty rental and hospitality and management services are highly customizable and are tailored to each customer’s needs and requirements. Target Hospitality is also an approved U.S. General Services Administration (GSA) contract holder and offers a comprehensive range of housing, deployment, operations and management services through its GSA professional services schedule agreement. The GSA contract allows the U.S. federal agencies to acquire its products and services directly from Target Hospitality which expedites the commercial procurement process often required by government agencies.

Target Hospitality operates its business in four key end markets, such as government (Government), which includes the facilities, services and operations of the family residential center and the related support communities in Dilley, Texas (the South Texas Family Residential Center) provided pursuant to its lease and services agreement with a national provider of migrant programming; and several facilities in West, Texas provided pursuant to its lease and services agreement with a leading national nonprofit organization (NP Partner) in support of their humanitarian aid efforts, both locations backed by committed United States Government contracts; HFS – South, which includes the facilities and operations in fourteen communities located across Texas and New Mexico; HFS – Midwest, which includes facilities and operations in three communities in North Dakota; and TCPL Keystone (TCPL Keystone), which provided ongoing preparatory work and plans for facilities and services provided in connection with the TC Energy Keystone pipeline project. The company terminated the underlying contract and settled with TC Energy in July 2021 related to these ongoing preparatory work and plans, which eliminated all activity from this end market subsequent to July 2021.

Government

The Government segment includes, but is not limited to, two primary end markets which make up approximately 72% of the company’s revenue for the year ended December 31, 2022:

Residential Facilities: Residential facilities, including the South Texas Family Residential Center, provide space and residential services in an open and safe environment to women with children. Residential facilities offer services, including but not limited to, educational programs, medical care, recreational activities, counseling, and access to religious and legal services.

Humanitarian Aid Efforts: Community facilities providing a suite of comprehensive service offerings supporting humanitarian aid efforts.

Target Hospitality builds and leases and operates the South Texas Family Residential Center through a sub-lease and services agreement with a national provider of migrant programming, which provides management services. Target Hospitality owns the facility and provides select on-site services, including catering, culinary, management, janitorial and light maintenance. The South Texas Family Residential Center includes 524,000 square feet of building space including residential housing units with 2,400 beds, as well as classrooms, a library, chapels, an infirmary with full medical, dental, pharmaceutical and x-ray capabilities, a dining hall, offices and an industrial laundry center.

In March 2021, the company entered into a lease and services agreement with its NP Partner, backed by a committed United States Government contract, to provide a suite of comprehensive service offerings in support of their humanitarian aid efforts at a residential housing facility. During the year ended December 31, 2022, the company executed a new contract with its NP Partner that became effective on May 16, 2022, which represented a significantly expanded lease and services agreement (Expanded Humanitarian Contract) to provide enhanced infrastructure and comprehensive facility services that support the critical hospitality solutions the company provides to the NP Partner and the U.S. Government in their humanitarian aid missions. The Expanded Humanitarian Contract provided for a significant scope expansion and term extension for the continuation of services provided under the agreement that originated in March 2021 with approximately 6,375 beds. This partnership is consistent with the company’s Government segment and strategy of diversifying end-markets through high quality contracts with premier partners that provide strong revenue visibility and cash flows.

The company looks forward to expanding the products and services of its Government segment through its GSA designations, specifically its designation to maintain the professional services schedule (PSS) for logistics service solutions, which are designed to assist federal agencies in procuring comprehensive logistics solutions, including planning, consulting, management, and operational support when deploying supplies, equipment, materials and associated personnel. GSA’s PSS is a multiple award schedule (MAS) contract for innovative solutions, offered to federal, state and local governments, for their professional service’s needs. PSS is one of the GSA’s schedule contracts, which are indefinite delivery, indefinite quantity (IDIQ), long-term contracts under the GSA MAS program.

Hospitality & Facilities Services - South

The HFS – South segment serves an area that stretches across the southeast corner of New Mexico and a large portion of western Texas, encompassing approximately a hundred thousand square miles and dozens of counties. This geographic area, also known as the Permian Basin, is one of the world’s oldest natural resource producing regions. The company’s customers utilize both unconventional and conventional development techniques, encompassing multiple stacked development zones, which increases the potential recoverable resource and lengthens their development lifecycle.

While understanding the significant economic potential in this region, Target entered the market in 2012, ahead of many of the company’s competitors. The company started in HFS – South with an 80-bed community in Pecos, TX.

As of December 31, 2022, with 14 communities and approximately 6,000 beds across HFS – South, the company offers the largest network of turnkey specialty rental accommodations and hospitality services.

Hospitality & Facilities Services - Midwest

The HFS – Midwest segment serves an area that spans North Dakota and is home to the largest concentration of natural resource development in the geographic region.

In 2009, the company entered this regional market and built its first community in Williston, North Dakota for a large natural resources services company. The community was the first of its kind in the region and provided specialty rental and hospitality services for more than 150 remote workers. As of December 31, 2022, the company had three community locations and 706 available beds serving customers in the HFS – Midwest region. The company is the largest specialty rental and hospitality services provider in the region with approximately 35% of the market share with the next closest direct competitor having less than 16% of the market share.

TCPL Keystone

Future Pipeline Services Plans

The company contracted with TC Energy to construct, deliver, cater and manage all accommodations and hospitality services in conjunction with the planned construction of the TCPL Keystone project. The company’s contract with TC Energy was executed in 2013. In October 2018, the company received partial release for certain pre-work related to the project and performed a limited scope of work based on work orders issued by TC Energy.

All Other

In addition to the four segments, the company has facilities and operations for one community in Oklahoma; has facilities and operations for one community in Canada; and provides catering and other services to communities and other workforce accommodation facilities for the natural resource development industries not owned by Target Hospitality (Facilities Management).

The company provides specialty rental and hospitality services, including concierge, culinary, catering, maintenance, security, janitorial and related services at facilities owned by other companies. The company provides Facilities Management, culinary and catering services and site services for one facility located in Wyoming for which it does not own the specialty rental accommodation assets.

Customers

The company’s principal customers include the U.S. Government contractors, investment grade natural resource development companies and energy infrastructure companies. For the year ended December 31, 2022, the company had two customers, who accounted for approximately 61% and 11% of its revenue, respectively.

Community and Services Contracts

Lease and Services Agreements

The company’s operations in the HFS – South and HFS – Midwest segments are primarily conducted through committed contractual minimum revenue arrangements with its customers. For certain of the company’s largest customers, it uses network lease and services agreements (NLSAs), which cover the customer’s full enterprise and are exclusive agreements with set terms and rates for all geographic regions in which the company operates. The NLSAs obligate the customers to use the company’s facilities and services across the U.S. The company’s NLSAs have an average set term of two to three years.

Certain other customers are subject to lease and services agreements (LSAs), which are more limited in geographic scope and cover only specified areas with the same structural commercial terms as the NLSAs. The LSAs obligate customers to pay for a fixed amount of rooms over a term regardless of occupancy with terms that can range from one month to multiple years.

The company also has master services agreements (MSAs) with certain customers which are typically exclusive arrangements without the committed component of the NLSAs and LSAs and no minimum contractual liability for the customer.

The company’s operations in the Government segment includes the South Texas Family Residential Center pursuant to a contractual arrangement (the Family Residential Center Contract or FRCC) with a national provider of migrant programming (the FRCC Partner). This FRCC provides for the company’s sublease and ongoing operation of the South Texas Family Residential Center through September 2026.

The company’s FRCC Partner depends on the U.S. government and its funding. Any impasse or delay in reaching a federal budget agreement, debt ceiling or government shutdowns, and the subsequent lack of funding to the applicable government entity, could result in material payment delays, payment reductions or contract terminations.

The company also operates several facilities in connection with a lease and services agreement with the NP Partner, backed by a committed United States Government contract, to provide a suite of comprehensive service offerings in support of their humanitarian aid efforts.

During the year ended December 31, 2022, the company executed the Expanded HumanitarianContract with the company’s NP Partner that became effective on May 16, 2022, which represented a significantly expanded lease and services agreement to provide enhanced infrastructure and comprehensive facility services supporting the NP Partner and the U.S. Government in their humanitarian aid missions. The Expanded Humanitarian Contract provided for a significant scope expansion and term extension for the continuation of services provided under the agreement that originated in March 2021. The Expanded Humanitarian Contract operates with similar structure to the company’s existing government services contracts, which are centered around minimum revenue commitments supported by the United States Government. Additionally, the Expanded Humanitarian Contract includes variable services revenue that will align with monthly community population.

Intellectual Property

Target Hospitality owns a number of trademarks important to the business. Its material trademarks are registered or pending registration in the U.S. Patent and Trademark Office. The business operates primarily under the Target Hospitality brand.

Communities/Owned and Leased Real Estate

Target Hospitality operates 28 underlying real property of 43%, leases the underlying real property of 39%, and both owns and leases the underlying real property of 7%. The remaining 11% are customer sites.

History

Target Hospitality Corp. was founded in 1978. The company was incorporated in 2019.