Second Quarter Net Income Available for
Common Shareholders of $0.37 Per Share
Second Quarter Normalized FFO Available for
Common Shareholders of $1.06 Per Share
Hospitality Properties Trust (Nasdaq: HPT) today announced its
financial results for the quarter and six months ended
June 30, 2017.
Three Months Ended June
30, Six Months Ended June 30, 2017 2016 2017
2016 ($ in thousands, except per share and RevPAR data)
Net income available for common shareholders $ 60,699 $
50,895 $ 86,542 $ 97,780 Net income available for common
shareholders per share $ 0.37 $ 0.34 $ 0.53 $ 0.65 Adjusted EBITDA
(1) $ 220,297 $ 215,608 $ 414,873 $ 403,311 Normalized FFO
available for common shareholders (1) $ 173,604 $ 165,714 $ 322,411
$ 305,868 Normalized FFO available for common shareholders per
share (1) $ 1.06 $ 1.09 $ 1.96 $ 2.02
Portfolio
Performance
Comparable hotel RevPAR $ 101.97 $ 102.30 $ 95.60 $ 95.28 Change in
comparable hotel RevPAR (0.3 %) — 0.3 % — RevPAR (all hotels) $
103.38 $ 103.59 $ 96.47 $ 96.11 Change in RevPAR (all hotels) (0.2
%) — 0.4 % — Coverage of HPT’s minimum returns and rents for hotels
1.26x 1.34x 1.07x 1.13x Coverage of HPT's minimum rents for travel
centers 1.62x 1.64x 1.41x 1.50x
(1) Reconciliations of net income determined in accordance with
U.S. generally accepted accounting principles, or GAAP, to earnings
before interest, taxes, depreciation and amortization, or EBITDA,
and EBITDA as adjusted, or Adjusted EBITDA, and net income
available for common shareholders determined in accordance with
GAAP to funds from operations, or FFO, available for common
shareholders, and Normalized FFO available for common shareholders,
for the three and six months ended June 30, 2017 and 2016
appear later in this press release.
John Murray, President and Chief Operating Officer of HPT, made
the following statement regarding today's announcement:
“HPT’s second quarter 2017 comparable hotel RevPAR declined by
0.3% compared to the same period last year due to various factors
including a continued sluggish economy and room supply growth.
Nonetheless, we had continued high occupancy, increases in average
daily rate and solid coverage of our minimum returns. Also, our TA
properties generated solid performance this quarter with both fuel
and non-fuel margins increasing versus the same period last year
and steady rent coverage despite rent increases of over 5%.”
Results for the Three and Six Months Ended June 30, 2017
and Recent Activities:
- Net Income Available for Common
Shareholders: Net income available for common shareholders for
the quarter ended June 30, 2017 was $60.7 million, or $0.37
per diluted share, compared to net income available for common
shareholders of $50.9 million, or $0.34 per diluted share, for the
quarter ended June 30, 2016. Net income available for common
shareholders includes $17.8 million, or $0.11 per diluted share,
and $25.9 million, or $0.17 per diluted share, of estimated
business management incentive fee expense for the quarters ended
June 30, 2017 and 2016, respectively. The weighted average
number of diluted common shares outstanding was 164.2 million and
151.4 million for the quarters ended June 30, 2017 and 2016,
respectively.Net income available for common shareholders for the
six months ended June 30, 2017 was $86.5 million, or $0.53 per
diluted share, compared to net income available for common
shareholders of $97.8 million, or $0.65 per diluted share, for the
six months ended June 30, 2016. Net income available for
common shareholders includes $37.4 million, or $0.23 per diluted
share, and $31.2 million, or $0.21 per diluted share, of estimated
business management incentive fee expense for the six months ended
June 30, 2017 and 2016, respectively. Net income available for
common shareholders for the six months ended June 30, 2017 was
reduced by $9.9 million, or $0.06 per diluted share, for the amount
by which the liquidation preference for HPT's 7.125% Series D
cumulative redeemable preferred shares that were redeemed during
the period exceeded the carrying value for those preferred shares
as of the date of redemption. The weighted average number of
diluted common shares outstanding was 164.2 million and 151.4
million for the six months ended June 30, 2017 and 2016,
respectively.
- Adjusted EBITDA: Adjusted EBITDA
for the quarter ended June 30, 2017 compared to the same
period in 2016 increased 2.2% to $220.3 million.Adjusted EBITDA for
the six months ended June 30, 2017 compared to the same period
in 2016 increased 2.9% to $414.9 million.
- Normalized FFO Available for Common
Shareholders: Normalized FFO available for common shareholders
for the quarter ended June 30, 2017 were $173.6 million, or
$1.06 per diluted share, compared to Normalized FFO available for
common shareholders of $165.7 million, or $1.09 per diluted share,
for the quarter ended June 30, 2016.Normalized FFO available
for common shareholders for the six months ended June 30, 2017
were $322.4 million, or $1.96 per diluted share, compared to
Normalized FFO available for common shareholders of $305.9 million,
or $2.02 per diluted share, for the six months ended June 30,
2016.
- Hotel RevPAR (comparable
hotels): For the quarter ended June 30, 2017 compared to
the same period in 2016 for HPT’s 305 hotels that were owned
continuously since April 1, 2016: average daily rate, or ADR,
increased 0.8% to $127.78; occupancy decreased 0.9 percentage
points to 79.8%; and revenue per available room, or RevPAR,
decreased 0.3% to $101.97.For the six months ended June 30,
2017 compared to the same period in 2016 for HPT’s 302 hotels that
were owned continuously since January 1, 2016: ADR increased
0.9% to $126.29; occupancy decreased 0.4 percentage points to
75.7%; and RevPAR increased 0.3% to $95.60.
- Hotel RevPAR (all hotels): For
the quarter ended June 30, 2017 compared to the same period in
2016 for HPT’s 310 hotels: ADR increased 0.8% to $129.55; occupancy
decreased 0.8 percentage points to 79.8%; and RevPAR decreased 0.2%
to $103.38.For the six months ended June 30, 2017 compared to
the same period in 2016 for HPT’s 310 hotels: ADR increased 0.8% to
$127.78; occupancy decreased 0.3 percentage points to 75.5%; and
RevPAR increased 0.4% to $96.47.
- Coverage of Minimum Returns and
Rents: For the quarter ended June 30, 2017, the aggregate
coverage ratio of (x) total hotel revenues minus all hotel expenses
and FF&E reserve escrows which are not subordinated to minimum
returns and minimum rent payments to HPT to (y) HPT’s minimum
returns and rents due from hotels decreased to 1.26x from 1.34x for
the quarter ended June 30, 2016.For the six months ended
June 30, 2017, the aggregate coverage ratio of (x) total hotel
revenues minus all hotel expenses and FF&E reserve escrows
which are not subordinated to minimum returns and minimum rent
payments to HPT to (y) HPT’s minimum returns and rents due from
hotels decreased to 1.07x from 1.13x for the six months ended
June 30, 2016.For the quarter ended June 30, 2017, the
aggregate coverage ratio of (x) total travel center revenues less
travel center expenses to (y) HPT’s minimum rent due from leased
travel centers decreased to 1.62x from 1.64x for the quarter ended
June 30, 2016.For the six months ended June 30, 2017, the
aggregate coverage ratio of (x) total travel center revenues less
travel center expenses to (y) HPT’s minimum rent due from leased
travel centers decreased to 1.41x from 1.50x for the six months
ended June 30, 2016.As of June 30, 2017, approximately
79% of HPT’s aggregate annual minimum returns and rents were
secured by guarantees or security deposits from HPT’s managers and
tenants pursuant to the terms of HPT’s operating agreements.
- Recent Property Acquisition
Activities: In May 2017, HPT acquired from TravelCenters of
America LLC (Nasdaq: TA), or TA, a newly developed travel center
located in Columbia, SC for a purchase price of $27.6 million,
excluding acquisition related costs. HPT added this Petro branded
travel center to its TA No. 4 lease.In June 2017, HPT acquired the
389 room Chase Park Plaza Hotel located in St. Louis, MO for a
purchase price of $87.6 million, excluding acquisition related
costs. HPT converted this hotel to the Royal Sonesta hotel brand
and added it to its management agreement with Sonesta International
Hotels Corporation, or Sonesta.Also in June 2017, HPT acquired the
495 room Crowne Plaza Ravinia hotel located in Atlanta, GA for a
purchase price of $88.6 million, excluding acquisition related
costs. HPT added this hotel to its management agreement with
InterContinental Hotels Group, plc (LON: IHG; NYSE: IHG
(ADRs)), or InterContinental.In July 2017, HPT entered into an
agreement to acquire 14 extended stay hotels with 1,653 suites
located in 12 states for a purchase price of $138.0 million,
excluding acquisition related costs. HPT currently expects to
complete this acquisition during the third quarter of 2017. HPT
plans to re-brand these hotels to the Sonesta ES Suites brand and
add them to its management agreement with Sonesta.Also in July
2017, HPT entered into an agreement to acquire the 300 room Crowne
Plaza hotel located in Charlotte, NC for a purchase price of $44.0
million, excluding acquisition related costs. HPT currently expects
to complete this acquisition during the third quarter of 2017. HPT
plans to add this hotel to its management agreement with
InterContinental.In August 2017, HPT acquired the 419 room Crowne
Plaza & Lofts hotel located in Columbus, OH for a purchase
price of $49.0 million, excluding acquisition related costs. HPT
added this hotel to its management agreement with
InterContinental.
- Recent Property Disposition
Activities:In July 2017, HPT entered an agreement to sell its
143 room Country Inn & Suites hotel located in Naperville, IL
for $6.6 million, excluding closing costs. HPT currently expects to
complete this sale during the third quarter of 2017.In August 2017,
HPT sold its 159 room Radisson hotel located in Chandler, AZ for a
sale price of $9.5 million, excluding closing costs.
- Tenants and Managers: As of
June 30, 2017, HPT had nine operating agreements with seven
hotel operating companies for 310 hotels with 48,087 rooms, which
represented 66% of HPT’s total annual minimum returns and rents,
and five lease agreements with one travel center operating company
for 199 travel centers, which represented 34% of HPT’s total annual
minimum returns and rents.
- Marriott Agreements: As of
June 30, 2017, 122 of HPT’s hotels were operated by
subsidiaries of Marriott International, Inc. (Nasdaq: MAR), or
Marriott, under three agreements. HPT’s Marriott No. 1 agreement
includes 53 hotels, and provides for annual minimum return payments
to HPT of $69.0 million as of June 30, 2017 (approximately
$17.3 million per quarter). Because there is no guarantee or
security deposit for this agreement, the minimum returns HPT
receives under this agreement are limited to available hotel cash
flows after payment of operating expenses and funding of a FF&E
reserve. During the three months ended June 30, 2017, HPT
realized returns under its Marriott No. 1 agreement of $20.4
million. HPT’s Marriott No. 234 agreement includes 68 hotels and
requires annual minimum returns to HPT of $106.4 million as of
June 30, 2017 (approximately $26.6 million per quarter).
During the three months ended June 30, 2017, HPT realized
returns under its Marriott No. 234 agreement of $26.6 million.
HPT’s Marriott No. 234 agreement is partially secured by a security
deposit and a limited guarantee from Marriott; during the three
months ended June 30, 2017, the available security deposit was
replenished by $5.6 million from a share of hotel cash flows in
excess of the minimum returns due to HPT for the period. At
June 30, 2017, the available security deposit from Marriott
for the Marriott No. 234 agreement was $22.3 million and there was
$30.7 million remaining under Marriott’s guaranty for up to 90% of
the minimum returns due to HPT to cover future payment shortfalls
if and after the available security deposit is depleted. HPT's
Marriott No. 5 agreement includes one resort hotel in Kauai, HI
which is leased to Marriott on a full recourse basis. The
contractual rent due to HPT for this hotel for the three months
ended June 30, 2017 of $2.5 million was paid to HPT.
- InterContinental Agreement: As
of June 30, 2017, 97 of HPT’s hotels were operated by
subsidiaries of InterContinental under one agreement requiring
annual minimum returns and rents to HPT of $181.5 million
(approximately $45.4 million per quarter). During the three months
ended June 30, 2017, HPT realized returns and rents under its
InterContinental agreement of $46.9 million. HPT’s InterContinental
agreement is partially secured by a security deposit. During the
three months ended June 30, 2017, the available security
deposit was replenished by $7.5 million from a share of hotel cash
flows in excess of the minimum returns due to HPT for the
period. In connection with the June 2017 acquisition of the
Crowne Plaza hotel described above, InterContinental provided HPT
with $7.1 million to supplement the existing security deposit. At
June 30, 2017, the available InterContinental security deposit
which HPT held to pay future payment shortfalls was $98.3
million.
- Wyndham Agreement: As of
June 30, 2017, 22 of HPT’s hotels were operated under a
management agreement with a subsidiary of Wyndham Worldwide
Corporation (NYSE: WYN), or Wyndham, requiring annual minimum
returns of $27.4 million as of June 30, 2017 (approximately
$6.9 million per quarter). HPT also leases 48 vacation units in one
of the hotels to Wyndham Vacation Resorts, Inc., a subsidiary
of Wyndham, which requires annual minimum rent of $1.4 million
(approximately $0.4 million per quarter). The guarantee provided by
Wyndham with respect to the lease is unlimited. The guarantee
provided by Wyndham with respect to the management agreement is
limited to $35.7 million and as of December 31, 2016, $1.1 million
remained available to cover payment shortfalls of minimum returns
due to HPT under the management agreement. During the six months
ended June 30, 2017, the hotels under this agreement generated
cash flows that were less than the minimum returns due to HPT and
the remaining guaranty was depleted. As of August 8, 2017, all
amounts due to HPT under the management agreement and the lease
have been paid to HPT.
- Carlson Agreement: As of
June 30, 2017, 11 of HPT's hotels were operated under a
management agreement with Carlson Hotels Worldwide, or Carlson,
that, prior to the amendment described below, was scheduled to
expire in 2030 and required annual minimum returns of $12.9 million
as of June 30, 2017 (approximately $3.2 million per quarter).
Minimum returns due to HPT are partially guaranteed under the
Carlson agreement. In June 2017, HPT amended its agreement with
Carlson whereby HPT and Carlson agreed to pursue the sale of three
hotels with an aggregate of 511 rooms and an aggregate net book
value of $14.1 million as of June 30, 2017. As described above, HPT
sold one of these hotels in August 2017 and entered into an
agreement in July 2017 to sell a second of these hotels. The net
proceeds from the sales of these three hotels will be used to fund
certain renovations to the remaining hotels operated under the
Carlson agreement and HPT has agreed to fund up to $35.0 million
for renovation costs in excess of the net sales proceeds and
available FF&E reserves for those remaining hotels. HPT's
annual minimum return and the limited guarantee cap under the
Carlson agreement will increase by 8% of any amounts HPT funds
(excluding the net sales proceeds described above). In addition,
the initial term of the management agreement and the limited
guarantee provided by Carlson were extended to December 31, 2035.
The payments due to HPT under this agreement for the three months
ended June 30, 2017 were paid to HPT.
- Morgans Agreement: As of
June 30, 2017, HPT leases one hotel to a subsidiary of Morgans
Hotel Group Co., or Morgans, requiring annual minimum rent to HPT
of $7.6 million as of June 30, 2017 (approximately $1.9
million per quarter). In December 2016, HPT advised Morgans that
the closing of its merger with SBE Entertainment Group, LLC, or
SBE, without HPT's consent was in violation of the Morgans
agreement, and HPT filed an action in California for unlawful
detainer against Morgans and SBE. HPT is in discussions with
Morgans and SBE regarding this matter and is pursuing remedies,
which may include terminating the Morgans agreement. As of
August 8, 2017, all scheduled rent payments due to HPT under
the lease have been paid.
- Other Hotel Agreements: As of
June 30, 2017, HPT’s remaining 57 hotels were operated under
two agreements: one management agreement with Sonesta (35 hotels),
requiring annual minimum returns of $97.1 million as of
June 30, 2017 (approximately $24.3 million per quarter) and
one management agreement with a subsidiary of Hyatt Hotels
Corporation (NYSE: H), or Hyatt (22 hotels), requiring annual
minimum returns of $22.0 million as of June 30, 2017
(approximately $5.5 million per quarter). Minimum returns due to
HPT are partially guaranteed under the Hyatt agreement. There is no
guarantee or security deposit for the Sonesta agreement and the
minimum returns HPT receives under that agreement are limited to
available hotel cash flows after payment of operating expenses. The
payments due to HPT under these agreements for the three months
ended June 30, 2017 were paid to HPT.
- Travel Center Agreements: As of
June 30, 2017, HPT’s 199 travel centers located along the U.S.
Interstate Highway system were leased to TA under five lease
agreements, which require aggregate annual minimum rents of $280.7
million (approximately $70.2 million per quarter). As of
June 30, 2017, all payments due to HPT from TA under these
leases were current.
Conference Call:
On Wednesday, August 9, 2017, at 10:00 a.m. Eastern Time,
John Murray, President and Chief Operating Officer, and Mark
Kleifges, Chief Financial Officer and Treasurer, will host a
conference call to discuss HPT's second quarter 2017 financial
results. The conference call telephone number is (877) 329-3720.
Participants calling from outside the United States and Canada
should dial (412) 317-5434. No pass code is necessary to access the
call from either number. Participants should dial in about 15
minutes prior to the scheduled start of the call. A replay of the
conference call will be available through Wednesday, August 16,
2017. To hear the replay, dial (412) 317-0088. The replay pass code
is 10110424.
A live audio webcast of the conference call will also be
available in a listen only mode on HPT’s website, which is located
at www.hptreit.com. Participants wanting to access the webcast
should visit HPT’s website about five minutes before the call. The
archived webcast will be available for replay on HPT’s website for
about one week after the call. The transcription, recording and
retransmission in any way of HPT’s second quarter conference call
is strictly prohibited without the prior written consent of
HPT.
Supplemental Data:
A copy of HPT’s Second Quarter 2017 Supplemental Operating and
Financial Data is available for download at HPT’s website,
www.hptreit.com. HPT’s website is not incorporated as part of this
press release.
Hospitality Properties Trust is a real estate investment trust,
or REIT, which owns a diverse portfolio of hotels and travel
centers located in 45 states, Puerto Rico and Canada. HPT’s
properties are operated under long term management or lease
agreements. HPT is managed by the operating subsidiary of The RMR
Group Inc. (Nasdaq: RMR), an alternative asset management company
that is headquartered in Newton, Massachusetts.
Please see the following pages for a more detailed statement of
HPT’s operating results and financial condition and for an
explanation of HPT’s calculation of FFO available for common
shareholders and Normalized FFO available for common shareholders,
EBITDA and Adjusted EBITDA and a reconciliation of those amounts to
amounts determined according to GAAP.
WARNING CONCERNING
FORWARD LOOKING STATEMENTS
THIS PRESS RELEASE CONTAINS STATEMENTS THAT CONSTITUTE FORWARD
LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995 AND OTHER SECURITIES LAWS. ALSO,
WHENEVER HPT USES WORDS SUCH AS “BELIEVE”, “EXPECT”, “ANTICIPATE”,
“INTEND”, “PLAN”, “ESTIMATE”, "WILL", “MAY” AND NEGATIVES OR
DERIVATIVES OF THESE OR SIMILAR EXPRESSIONS, HPT IS MAKING FORWARD
LOOKING STATEMENTS. THESE FORWARD LOOKING STATEMENTS ARE BASED UPON
HPT’S PRESENT INTENT, BELIEFS OR EXPECTATIONS, BUT FORWARD LOOKING
STATEMENTS ARE NOT GUARANTEED TO OCCUR AND MAY NOT OCCUR. ACTUAL
RESULTS MAY DIFFER MATERIALLY FROM THOSE CONTAINED IN OR IMPLIED BY
HPT’S FORWARD LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS.
FOR EXAMPLE:
- AS OF JUNE 30, 2017, APPROXIMATELY
79% OF HPT’S AGGREGATE ANNUAL MINIMUM RETURNS AND RENTS WERE
SECURED BY GUARANTEES OR SECURITY DEPOSITS FROM HPT’S MANAGERS AND
TENANTS. THIS MAY IMPLY THAT THESE MINIMUM RETURNS AND RENTS WILL
BE PAID. IN FACT, CERTAIN OF THESE GUARANTEES AND SECURITY DEPOSITS
ARE LIMITED IN AMOUNT AND DURATION AND ALL THE GUARANTEES ARE
SUBJECT TO THE GUARANTORS’ ABILITY AND WILLINGNESS TO PAY. FURTHER,
WYNDHAM'S GUARANTEE OF THE MINIMUM RETURNS DUE FROM HPT'S HOTELS
THAT ARE MANAGED BY WYNDHAM WAS DEPLETED AS OF JUNE 30, 2017. HPT
DOES NOT KNOW WHETHER WYNDHAM WILL CONTINUE TO PAY THE MINIMUM
RETURNS DUE TO HPT DESPITE THE DEPLETED GUARANTEE OR IF WYNDHAM
WILL DEFAULT ON ITS PAYMENTS. THE BALANCE OF HPT’S ANNUAL MINIMUM
RETURNS AND RENTS AS OF JUNE 30, 2017 WAS NOT GUARANTEED NOR
DOES HPT HOLD A SECURITY DEPOSIT WITH RESPECT TO THOSE AMOUNTS. HPT
CANNOT BE SURE OF THE FUTURE FINANCIAL PERFORMANCE OF HPT’S
PROPERTIES AND WHETHER SUCH PERFORMANCE WILL COVER HPT’S MINIMUM
RETURNS AND RENTS, WHETHER THE GUARANTEES OR SECURITY DEPOSITS WILL
BE ADEQUATE TO COVER FUTURE SHORTFALLS IN THE MINIMUM RETURNS OR
RENTS DUE TO HPT, OR REGARDING HPT’S MANAGERS’, TENANTS’ OR
GUARANTORS’ FUTURE ACTIONS IF AND WHEN THE GUARANTEES AND SECURITY
DEPOSITS EXPIRE OR ARE DEPLETED OR THEIR ABILITY OR WILLINGNESS TO
PAY MINIMUM RETURNS AND RENTS OWED TO HPT. MOREOVER, THE SECURITY
DEPOSITS HELD BY HPT ARE NOT SEGREGATED FROM HPT’S OTHER ASSETS AND
THE APPLICATION OF SECURITY DEPOSITS TO COVER PAYMENT SHORTFALLS
WILL RESULT IN HPT RECORDING INCOME, BUT WILL NOT RESULT IN HPT
RECEIVING ADDITIONAL CASH,
- MR. MURRAY NOTES IN THIS PRESS RELEASE
THAT HPT'S COMPARABLE HOTEL REVPAR DECLINED 0.3% IN THE SECOND
QUARTER OF 2017 DUE TO VARIOUS FACTORS AND THAT HPT'S TRAVEL CENTER
PROPERTIES GENERATED SOLID PERFORMANCE FOR THE SECOND QUARTER.
HPT'S COMPARABLE HOTEL REVPAR MAY DECLINE FURTHER IN FUTURE PERIODS
AND HPT'S TRAVEL CENTER PERFORMANCE MAY DECLINE IN FUTURE PERIODS
DUE TO VARIOUS FACTORS INCLUDING COMPETITIVE PRESSURES, CONTINUED
OR INCREASED REDUCTIONS IN TRUCKING FREIGHT VOLUMES AND INCREASED
FUEL EFFICIENCY OF TRUCK ENGINES AND ADOPTION OF ALTERNATIVE
TRANSPORTATION TECHNOLOGIES IN THE TRUCKING INDUSTRY,
- HPT HAS ADVISED MORGANS THAT THE
CLOSING OF ITS MERGER WITH SBE WAS IN VIOLATION OF HPT'S AGREEMENT
WITH MORGANS, HPT HAS FILED AN ACTION FOR UNLAWFUL DETAINER AGAINST
MORGANS AND SBE TO COMPEL MORGANS AND SBE TO SURRENDER POSSESSION
OF THE SAN FRANCISCO HOTEL WHICH MORGANS HISTORICALLY LEASED FROM
HPT, AND HPT IS IN DISCUSSIONS WITH MORGANS AND SBE REGARDING THIS
MATTER. THE OUTCOME OF THIS PENDING LITIGATION AND OF THESE
DISCUSSIONS WITH MORGANS AND SBE IS NOT ASSURED, BUT HPT BELIEVES
MORGANS MAY SURRENDER POSSESSION OF THIS HOTEL OR THAT THE COURT
WILL DETERMINE THAT MORGANS AND SBE HAVE BREACHED THE HISTORICAL
LEASE. HPT ALSO BELIEVES THAT THIS HOTEL MAY REQUIRE SUBSTANTIAL
CAPITAL INVESTMENT TO REMAIN COMPETITIVE IN ITS MARKET. THE
CONTINUATION OF THIS DISPUTE WITH MORGANS AND SBE REQUIRES HPT TO
EXPEND LEGAL FEES AND HPT BELIEVES THE RESULT OF THIS DISPUTE MAY
CAUSE SOME LOSS OF RENT AT LEAST UNTIL THIS HOTEL MAY BE RENOVATED
AND OPERATIONS IMPROVE. LITIGATION AND DISPUTES WITH TENANTS OFTEN
PRODUCE UNEXPECTED RESULTS AND HPT CAN PROVIDE NO ASSURANCE
REGARDING THE RESULTS OF THIS DISPUTE,
- HPT HAS ENTERED INTO AGREEMENTS TO
ACQUIRE 15 HOTELS FOR AN AGGREGATE PURCHASE PRICE OF $182.0
MILLION, EXCLUDING ACQUISITION RELATED COSTS, AND HPT EXPECTS TO
COMPLETE THESE TRANSACTIONS DURING THE THIRD QUARTER OF 2017 AND TO
ADD THESE HOTELS TO ITS EXISTING MANAGEMENT AGREEMENTS WITH
INTERCONTINENTAL AND SONESTA. THESE TRANSACTIONS ARE SUBJECT TO
CONDITIONS. THESE CONDITIONS MAY NOT BE SATISFIED. AS A
RESULT, THESE ACQUISITIONS AND THE EXPECTED MANAGEMENT ARRANGEMENTS
MAY NOT OCCUR, MAY BE DELAYED OR THEIR TERMS
MAY CHANGE,
- HPT HAS ENTERED INTO AN AGREEMENT TO
SELL A HOTEL FOR A SALES PRICE OF $6.6 MILLION, EXCLUDING
CLOSING COSTS, AND HPT EXPECTS TO COMPLETE THIS TRANSACTION DURING
THE THIRD QUARTER OF 2017. THIS TRANSACTION IS SUBJECT TO
CONDITIONS. THESE CONDITIONS MAY NOT BE SATISFIED. AS A
RESULT, THIS SALE MAY NOT OCCUR, MAY BE DELAYED OR ITS TERMS
MAY CHANGE,
- HPT AND CARLSON HAVE AGREED TO PURSUE
THE SALE OF A THIRD HOTEL THAT CARLSON MANAGES. HOWEVER, HPT MAY
NOT SUCCEED IN SELLING THIS HOTEL AND ANY SALE IT MAY COMPLETE MAY
BE FOR A PRICE BELOW ITS CARRYING VALUE, AND
- HPT AND CARLSON HAVE AGREED THAT THE
NET PROCEEDS FROM THE SALE OF THREE HOTELS THEY HAVE AGREED TO
PURSUE SELLING WILL BE USED TO FUND CERTAIN RENOVATIONS AT CERTAIN
OF THE REMAINING HOTELS CARLSON MANAGES FOR HPT. HPT HAS ALSO
AGREED TO FUND AN ADDITIONAL $35 MILLION FOR RENOVATION COSTS FOR
THOSE OTHER CARLSON MANAGED HOTELS IN EXCESS OF THE NET SALES
PROCEEDS FROM THE SALES OF THE THREE HOTELS AND AVAILABLE FF&E
RESERVES. THE COMMITMENT TO FUND RENOVATIONS MAY IMPLY AN
EXPECTATION THAT THE OPERATING RESULTS OF THE APPLICABLE HOTELS
WILL IMPROVE AS A RESULT OF THOSE RENOVATIONS. HOWEVER, HPT CANNOT
BE SURE THAT THE PERFORMANCE OF THOSE HOTELS WOULD IMPROVE AND THEY
COULD DECLINE WHILE THE RENOVATIONS ARE BEING PERFORMED AND
THEREAFTER. FURTHER, THE COSTS TO COMPLETE THE RENOVATIONS COULD BE
GREATER, AND THE TIME TO COMPLETE THE RENOVATIONS COULD TAKE
LONGER, THAN EXPECTED. IN ADDITION, ANY IMPROVED RESULTS OF THE
RENOVATED HOTELS MAY NOT OFFSET THE RENOVATION COSTS OR OTHERWISE
GENERATE THE EXPECTED RETURNS.
THE INFORMATION CONTAINED IN HPT’S FILINGS WITH THE SECURITIES
AND EXCHANGE COMMISSION, OR SEC, INCLUDING UNDER THE CAPTION “RISK
FACTORS” IN HPT’S PERIODIC REPORTS, OR INCORPORATED THEREIN,
IDENTIFIES OTHER IMPORTANT FACTORS THAT COULD CAUSE DIFFERENCES
FROM HPT’S FORWARD LOOKING STATEMENTS. HPT’S FILINGS WITH THE SEC
ARE AVAILABLE ON THE SEC’S WEBSITE AT WWW.SEC.GOV.
YOU SHOULD NOT PLACE UNDUE RELIANCE UPON FORWARD LOOKING
STATEMENTS.
EXCEPT AS REQUIRED BY LAW, HPT DOES NOT INTEND TO UPDATE OR
CHANGE ANY FORWARD LOOKING STATEMENTS AS A RESULT OF NEW
INFORMATION, FUTURE EVENTS OR OTHERWISE.
HOSPITALITY PROPERTIES TRUST
CONDENSED CONSOLIDATED STATEMENTS OF
INCOME
(amounts in thousands, except share
data)
(Unaudited)
Three Months Ended June 30, Six Months Ended June 30, 2017
2016 2017 2016 Revenues: Hotel operating revenues (1) $ 488,477 $
471,910 $ 896,064 $ 868,413 Rental income (2) 80,971 77,293 160,759
153,552 FF&E reserve income (3) 1,155 1,096 2,382
2,452 Total revenues 570,603 550,299
1,059,205 1,024,417 Expenses: Hotel operating
expenses (1) 339,549 324,922 622,272 601,227 Depreciation and
amortization 95,155 88,782 188,606 176,053 General and
administrative (4) 30,347 37,365 62,693 53,388 Acquisition related
costs (5) — 117 — 729 Total expenses
465,051 451,186 873,571 831,397
Operating income 105,552 99,113 185,634 193,020 Dividend
income 626 749 1,252 749 Interest income 122 40 379 138 Interest
expense (including amortization of debt issuance costs and debt
discounts and premiums of $2,194, $2,127, $4,346 and $3,993,
respectively) (45,189 ) (41,698 ) (88,755 ) (83,284 ) Loss on early
extinguishment of debt (6) — — — (70 ) Income
before income taxes and equity in earnings of an investee 61,111
58,204 98,510 110,553 Income tax expense (786 ) (2,160 ) (1,142 )
(2,535 ) Equity in earnings of an investee 374 17 502
94 Net income 60,699 56,061 97,870 108,112 Preferred
distributions — (5,166 ) (1,435 ) (10,332 ) Excess of liquidation
preference over carrying value of preferred shares redeemed (7) —
— (9,893 ) — Net income available for common
shareholders $ 60,699 $ 50,895 $ 86,542 $
97,780 Weighted average common shares outstanding
(basic) 164,123 151,408 164,121 151,405
Weighted average common shares outstanding (diluted) 164,165
151,442 164,157 151,428 Net income
available for common shareholders per common share (basic and
diluted) $ 0.37 $ 0.34 $ 0.53 $ 0.65
See Notes on pages 11 and 12
HOSPITALITY PROPERTIES TRUST
RECONCILIATIONS OF FUNDS FROM
OPERATIONS,
NORMALIZED FUNDS FROM OPERATIONS,
EBITDA AND ADJUSTED EBITDA
(amounts in thousands, except share
data)
(Unaudited)
Three
Months Ended June 30, Six Months Ended June 30, 2017
2016 2017 2016 Calculation of Funds from Operations
(FFO) and Normalized FFO available for common shareholders: (8) Net
income available for common shareholders $ 60,699 $ 50,895 $ 86,542
$ 97,780
Add:
Depreciation and amortization
95,155 88,782 188,606 176,053 FFO available
for common shareholders 155,854 139,677 275,148 273,833
Add:
Acquisition related costs (5)
— 117 — 729 Estimated business management incentive fees (4) 17,750
25,920 37,370 31,236 Loss on early extinguishment of debt (6) — — —
70 Excess of liquidation preference over carrying value of
preferred shares redeemed (7) — — 9,893 —
Normalized FFO available for common shareholders $ 173,604 $
165,714 $ 322,411 $ 305,868 Weighted average
common shares outstanding (basic) 164,123 151,408
164,121 151,405 Weighted average common shares outstanding
(diluted) 164,165 151,442 164,157 151,428
Basic and diluted per common share amounts: FFO available
for common shareholders $ 0.95 $ 0.92 $ 1.68 $ 1.81 Normalized FFO
available for common shareholders $ 1.06 $ 1.09 $ 1.96 $ 2.02
Distributions declared per share $ 0.52 $ 0.51 $ 1.03 $ 1.01
Three Months Ended June 30, Six Months Ended June 30, 2017 2016
2017 2016 Calculation of EBITDA and Adjusted EBITDA: (9) Net income
$ 60,699 $ 56,061 $ 97,870 $ 108,112
Add:
Interest expense
45,189 41,698 88,755 83,284 Income tax expense 786 2,160 1,142
2,535 Depreciation and amortization 95,155 88,782
188,606 176,053 EBITDA 201,829 188,701 376,373 369,984
Add:
Acquisition related costs (5)
— 117 — 729 General and administrative expense paid in common
shares (10) 718 870 1,130 1,292 Estimated business management
incentive fees (4) 17,750 25,920 37,370 31,236 Loss on early
extinguishment of debt (6) — — — 70 Adjusted
EBITDA $ 220,297 $ 215,608 $ 414,873 $ 403,311
See Notes on pages 11 and 12
(1) At June 30, 2017, HPT owned 310 hotels; 307 of these
hotels were managed by hotel operating companies and three hotels
were leased to hotel operating companies. At June 30, 2017,
HPT also owned 199 travel centers; all 199 of these travel centers
were leased to a travel center operating company under five lease
agreements. HPT’s condensed consolidated statements of income
include hotel operating revenues and expenses of managed hotels and
rental income from its leased hotels and travel centers. The net
operating results of HPT’s managed hotel portfolios exceeded the
minimum returns due to HPT in both the three months ended
June 30, 2017 and 2016. Certain of HPT's managed hotels had
net operating results that were, in the aggregate, $14,299 and
$11,544 less than the minimum returns due to HPT in the six months
ended June 30, 2017 and 2016, respectively. When the managers
of these hotels fund the shortfalls under the terms of HPT’s
operating agreements or their guarantees, HPT reflects such
fundings (including security deposit applications) in its condensed
consolidated statements of income as a reduction of hotel operating
expenses. There was no reduction to hotel operating expenses in the
three months ended June 30, 2017 or 2016 and reductions of
$3,716 and $1,766 in the six months ended June 30, 2017 and
2016, respectively, as a result of such fundings. HPT had
shortfalls at certain of its managed hotel portfolios not funded by
the managers of these hotels under the terms of its operating
agreements of $10,583 and $9,778 in the six months ended
June 30, 2017 and 2016, respectively, which represent the
unguaranteed portions of HPT's minimum returns from Sonesta.
Certain of HPT’s managed hotel portfolios had net operating results
that were, in the aggregate, $36,559 and $43,440 more than the
minimum returns due to HPT in the three months ended June 30,
2017 and 2016, respectively, and $36,724 and $46,918 more than the
minimum returns due to HPT in the six months ended June 30,
2017 and 2016, respectively. Certain guarantees to HPT and security
deposits held by HPT may be replenished by a share of these excess
cash flows from the applicable hotel operations pursuant to the
terms of the respective operating agreements or the guarantees.
When these guarantees and security deposits are replenished by cash
flows from hotel operations, HPT reflects such replenishments in
its condensed consolidated statements of income as an increase to
hotel operating expenses. Hotel operating expenses were increased
by $14,682 and $20,057 in the three months ended June 30, 2017
and 2016, respectively, and $13,240 and $19,968 in the six months
ended June 30, 2017 and 2016, respectively, as a result of
such replenishments.
(2) Rental income includes $3,113 and $3,693 in the three months
ended June 30, 2017 and 2016, respectively, and $6,121 and
$7,445 in the six months ended June 30, 2017 and 2016,
respectively, of adjustments necessary to record scheduled rent
increases under certain of HPT’s leases, the deferred rent
obligations under HPT’s travel center leases and the estimated
future payments to HPT under its travel center leases for the cost
of removing underground storage tanks on a straight line basis.
(3) Various percentages of total sales at certain of HPT’s
hotels are escrowed as reserves for future renovations or
refurbishment, or FF&E reserve escrows. HPT owns all the
FF&E reserve escrows for its hotels. HPT reports deposits by
its tenants into the escrow accounts under its hotel leases as
FF&E reserve income. HPT does not report the amounts which are
escrowed as FF&E reserves for its managed hotels as FF&E
reserve income.
(4) Incentive fees under HPT’s business management agreement are
payable after the end of each calendar year, are calculated based
on common share total return, as defined, and are included in
general and administrative expense in HPT’s condensed consolidated
statements of income. In calculating net income in accordance with
GAAP, HPT recognizes estimated business management incentive fee
expense, if any, in the first, second and third quarters. Although
HPT recognizes this expense, if any, in the first, second and third
quarters for purposes of calculating net income, HPT does not
include these amounts in the calculation of Normalized FFO
available for common shareholders or Adjusted EBITDA until the
fourth quarter, which is when the business management incentive fee
expense amount for the year, if any, is determined. Net income
includes $17,750 and $25,920 of estimated business management
incentive fee expense in the three months ended June 30, 2017
and 2016, respectively, and $37,370 and $31,236 of estimated
business management incentive fee expense in the six months ended
June 30, 2017 and 2016, respectively.
(5) Represents costs associated with HPT’s acquisition
activities. Acquisition costs incurred during the 2017 periods have
been capitalized in purchase accounting pursuant to a change in
GAAP.
(6) HPT recorded a loss on early extinguishment of debt of $70
in the six months ended June 30, 2016, in connection with the
redemption of certain senior unsecured notes.
(7) On February 10, 2017, HPT redeemed all 11,600,000 of its
outstanding 7.125% Series D cumulative redeemable preferred shares
at the stated liquidation preference of $25.00 per share plus
accrued and unpaid distributions to the date of redemption (an
aggregate of $291,435). The liquidation preference of the redeemed
shares exceeded the carrying amount for the redeemed shares as of
the date of redemption by $9,893, or $0.06 per share, and HPT
reduced net income available to common shareholders in the six
months ended June 30, 2017 by that excess amount.
(8) HPT calculates FFO available for common shareholders and
Normalized FFO available for common shareholders as shown above.
FFO available for common shareholders is calculated on the basis
defined by The National Association of Real Estate Investment
Trusts, or NAREIT, which is net income available for common
shareholders calculated in accordance with GAAP, excluding any gain
or loss on sale of properties and loss on impairment of real estate
assets, if any, plus real estate depreciation and amortization, as
well as certain other adjustments currently not applicable to HPT.
HPT’s calculation of Normalized FFO available for common
shareholders differs from NAREIT’s definition of FFO available for
common shareholders because HPT includes business management
incentive fees, if any, only in the fourth quarter versus the
quarter when they are recognized as expense in accordance with GAAP
due to their quarterly volatility not necessarily being indicative
of HPT’s core operating performance and the uncertainty as to
whether any such business management incentive fees will be payable
when all contingencies for determining such fees are known at the
end of the calendar year, and HPT excludes excess of liquidation
preference over carrying value of preferred shares redeemed,
acquisition related costs expensed under GAAP and loss on early
extinguishment of debt. HPT considers FFO available for common
shareholders and Normalized FFO available for common shareholders
to be appropriate supplemental measures of operating performance
for a REIT, along with net income, net income available for common
shareholders and operating income. HPT believes that FFO available
for common shareholders and Normalized FFO available for common
shareholders provide useful information to investors because by
excluding the effects of certain historical amounts, such as
depreciation expense, FFO available for common shareholders and
Normalized FFO available for common shareholders may facilitate a
comparison of HPT’s operating performance between periods and with
other REITs. FFO available for common shareholders and Normalized
FFO available for common shareholders are among the factors
considered by HPT’s Board of Trustees when determining the amount
of distributions to shareholders. Other factors include, but are
not limited to, requirements to maintain HPT’s qualification for
taxation as a REIT, limitations in its credit agreement and public
debt covenants, the availability to HPT of debt and equity capital,
HPT’s expectation of its future capital requirements and operating
performance and HPT’s expected needs for and availability of cash
to pay its obligations. FFO available for common shareholders and
Normalized FFO available for common shareholders do not represent
cash generated by operating activities in accordance with GAAP and
should not be considered as alternatives to net income, net income
available for common shareholders or operating income as indicators
of HPT’s operating performance or as measures of HPT’s liquidity.
These measures should be considered in conjunction with net income,
net income available for common shareholders and operating income
as presented in HPT’s condensed consolidated statements of
income. Other real estate companies and REITs may calculate
FFO available for common shareholders and Normalized FFO available
for common shareholders differently than HPT does.
(9) HPT calculates EBITDA and Adjusted EBITDA as shown above.
HPT considers EBITDA and Adjusted EBITDA to be appropriate
supplemental measures of its operating performance, along with net
income, net income available for common shareholders and operating
income. HPT believes that EBITDA and Adjusted EBITDA provide useful
information to investors because by excluding the effects of
certain historical amounts, such as interest, depreciation and
amortization expense, EBITDA and Adjusted EBITDA may facilitate a
comparison of current operating performance with HPT’s past
operating performance. In calculating Adjusted EBITDA, HPT
includes business management incentive fees only in the fourth
quarter versus the quarter when they are recognized as expense in
accordance with GAAP due to their quarterly volatility not
necessarily being indicative of HPT’s core operating performance
and the uncertainty as to whether any such business management
incentive fees will be payable when all contingencies for
determining such fees are known at the end of the calendar year.
EBITDA and Adjusted EBITDA do not represent cash generated by
operating activities in accordance with GAAP and should not be
considered alternatives to net income, net income available for
common shareholders or operating income as indicators of operating
performance or as measures of HPT’s liquidity. These measures
should be considered in conjunction with net income, net income
available for common shareholders and operating income as presented
in HPT’s condensed consolidated statements of income. Other real
estate companies and REITs may calculate EBITDA and Adjusted EBITDA
differently than HPT does.
(10) Amounts represent the equity compensation for HPT’s
trustees, its officers and certain other employees of HPT’s
manager.
HOSPITALITY PROPERTIES TRUST
CONDENSED CONSOLIDATED BALANCE
SHEETS
(amounts in thousands, except share
data)
(Unaudited)
June 30, December 31, 2017 2016 ASSETS Real
estate properties: Land $ 1,627,010 $ 1,566,630 Buildings,
improvements and equipment 7,487,816 7,156,759 Total
real estate properties, gross 9,114,826 8,723,389 Accumulated
depreciation (2,647,568 ) (2,513,996 ) Total real estate
properties, net 6,467,258 6,209,393 Cash and cash equivalents
49,670 10,896 Restricted cash (FF&E reserve escrow) 58,911
60,456 Due from related persons 71,741 65,332 Other assets, net
325,868 288,151 Total assets $ 6,973,448 $
6,634,228 LIABILITIES AND SHAREHOLDERS’ EQUITY
Unsecured revolving credit facility $ 278,000 $ 191,000 Unsecured
term loan, net 398,753 398,421 Senior unsecured notes, net
3,162,275 2,565,908 Convertible senior unsecured notes — 8,478
Security deposits 120,757 89,338 Accounts payable and other
liabilities 190,017 188,053 Due to related persons 43,448 58,475
Dividends payable — 5,166 Total liabilities 4,193,250
3,504,839 Commitments and contingencies
Shareholders’ equity: Preferred shares of beneficial interest, no
par value; 100,000,000 shares authorized: Series D preferred
shares; 7 1/8% cumulative redeemable; zero and 11,600,000 shares
issued and outstanding, respectively, aggregate liquidation
preference of zero and $290,000, respectively — 280,107 Common
shares of beneficial interest, $.01 par value; 200,000,000 shares
authorized; 164,282,700 and 164,268,199 shares issued and
outstanding, respectively 1,643 1,643 Additional paid in capital
4,540,414 4,539,673 Cumulative net income 3,192,744 3,104,767
Cumulative other comprehensive income 52,412 39,583 Cumulative
preferred distributions (343,412 ) (341,977 ) Cumulative common
distributions (4,663,603 ) (4,494,407 ) Total shareholders’ equity
2,780,198 3,129,389 Total liabilities and
shareholders’ equity $ 6,973,448 $ 6,634,228
A Maryland Real Estate Investment Trust with
transferable shares of beneficial interest listed on the Nasdaq.No
shareholder, Trustee or officer is personally liable for any act or
obligation of the Trust.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170809005275/en/
Hospitality Properties TrustKatie Strohacker, 617-796-8232Senior
Director, Investor Relations
Hospitality Properties Trust (NASDAQ:HPTRP)
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