NEWTON, Mass.-August 11, 2008-Hospitality Properties Trust (NYSE:
HPT) today announced its operating results for the quarter and six
months ended June 30, 2008 and a rent deferral agreement with a tenant.
Results for the quarter and six months ended June 30, 2008:
HPT's net income (loss) available for common shareholders for the
periods ended June 30, 2008 compared to the same periods in 2007 were as
follows:
3 Months Ended 6 Months Ended June 30,
June 30,
----------------- -----------------------
2008 2007 2008 2007
--------- ------- --------------- -------
(in thousands, except per share data)
Net income (loss) available
for common shareholders ($24,549) $46,812 $23,737 $85,825
Net income (loss) available
for common shareholders per
share ($0.26) $0.50 $0.25 $0.93
Weighted average common
shares outstanding 93,942 93,868 93,918 92,323
The 2008 periods include a non-cash impairment charge of $53.2
million, or $0.57 per share, related to the write down of certain
intangible assets arising from HPT's January 2007 acquisition of
TravelCenters of America, Inc. to their estimated fair market value as
of June 30, 2008. The results for the 2008 periods also reflect the
non-accrual of $3.5 million, or $0.04 per share, of straight line rent
for the quarter ended June 30, 2008, and a non-cash charge of $19.9
million, or $0.21 per share, to record a reserve for the straight line
rent receivable recorded in periods prior to the three months ended June
30, 2008. The straight line rent amounts relate to HPT's lease with
TravelCenters of America LLC (AMEX:TA) for 145 travel centers. Effective
July 1, 2008, HPT and TA have entered a rent deferral arrangement (see
below).
HPT's funds from operations, or FFO, for the periods ended June 30, 2008 compared to the same periods in 2007 were as follows:
3 Months Ended 6 Months Ended
June 30, June 30,
---------------- -----------------
2008 2007 2008 2007
------- -------- -------- --------
(in thousands, except per share
data)
Funds from operations $97,491 $111,541 $208,395 $210,003
FFO per share $1.04 $1.19 $2.22 $2.27
Weighted average common shares
outstanding 93,942 93,868 93,918 92,323
FFO for the 2008 periods were affected by the non-accrual of straight
line rent and the non-cash charge to record a reserve for straight line
rent discussed above. See page 6 for a reconciliation of FFO to net
income available to common shareholders.
Rent Deferral Arrangement with TA:
Simultaneously with the announcement of these operating results, HPT
also announced that it has entered an agreement with TA to permit TA to
defer rent up to $5 million/month for up to 30 months beginning July 1,
2008.
When TA was created by HPT and TA shares were distributed to HPT
shareholders on January 31, 2007, TA was capitalized with approximately
$200 million of cash and working capital. Later in 2007, TA and HPT
acquired Petro Stopping Centers, L.P. and TA completed an equity
offering for net proceeds of approximately $205 million. At the time of
these transactions, HPT and TA believed that TA was adequately
capitalized to meet all of its obligations to HPT. However, since then
there have been material changes in the market conditions in which TA
operates. Specifically, the price of diesel fuel which TA buys and sells
at its travel centers has increased by approximately 138% since the TA
spin off on January 31, 2007 and by approximately 109% since the Petro
transaction was completed on May 30, 2007, through June 30, 2008. These
increased costs and the slowing of the U.S. economy during the past year
have adversely affected TA's business and increased its working capital
requirements.
TA has undertaken a restructuring of its business to adjust to these
changed market conditions. Earlier today, TA announced its results for
the three months ended June 30, 2008, which shows that TA has materially
improved its financial results from those reported during prior
periods. HPT believes that TA's operating cash flows were sufficient to
meet TA's rent obligations in the three months ended June 30, 2008.
However, while certain TA operating issues appear to have been
corrected, TA's balance sheet flexibility and liquidity remain a concern
as potential fuel price increases will likely directly impact TA's
working capital requirements. In these circumstances, HPT and TA have
agreed upon a rent deferral arrangement to allow TA to build a working
capital cushion in the event that current adverse market conditions
persist for an extended period. Significant terms of this arrangement
include:
- TA currently leases 185 travel centers from HPT under two leases
for combined rent of $18.8 million per month. This rent amount
periodically increases pursuant to formulas in the leases. TA will have
the option to defer its monthly rent payments to HPT by up to $5
million/month for periods beginning July 1, 2008 until December 31,
2010.
- TA will not be obligated to pay cash interest on the deferred rent through December 31, 2009.
- TA will issue 1,540,000 TA common shares to HPT (i.e., 9.6% of
TA's shares outstanding after this new issuance). In the event TA does
not defer its monthly rent payments for the full permitted amounts
through December 31, 2009, the pro-rata amount of TA shares issued to
HPT may be repurchased by TA for nominal consideration.
- In the event that any rents which have been deferred remain
unpaid or additional rent amounts are deferred after December 31, 2009,
interest on all such amounts will be payable to HPT monthly at the rate
of 12% per annum, beginning January 1, 2010.
- No rent deferrals are permitted for rent periods after December
31, 2010. Any deferred rent (and interest thereon) not paid will be due
to HPT on July 1, 2011. Any deferred amounts (and interest) may be
prepaid at anytime.
- This deferral agreement also includes a prohibition on share
purchases and dividends by TA while any deferred rent remains unpaid and
has change of control covenants so that amounts deferred will be
payable to HPT in the event TA experiences a change of control while
deferred rent is unpaid.
HPT pointed out that the agreement it has entered with TA provides
for rent deferral, not rent forgiveness. HPT believes TA's second
quarter 2008 results demonstrate that TA has a valuable business
franchise which can pay its rent obligations. This agreement is intended
by HPT to afford TA improved financial flexibility to meet its working
capital needs which have resulted from the unusual combination of
significant price increases during a period of slowing demand for the
goods and services which TA sells. Despite the fact that this is a
deferral agreement, HPT has determined that, due to the uncertainties
regarding TA's ability to perform its obligations under the leases,
generally accepted accounting principles require HPT to reserve
previously accrued straight line rent and to defer recognition of future
straight line and deferred rents until circumstances change or these
amounts are collected.
Hotel Portfolio Performance:
For the quarter and six months ended June 30, 2008 compared to the
same periods last year, hotels owned by HPT produced revenue per
available room, or RevPAR, average daily rate, or ADR, and occupancy as
follows:
Quarter Ended June 30, Six Months Ended June 30,
------------------------ --------------------------
2008 2007 Change 2008 2007 Change
------- ------- ------ ------- ------- --------
RevPAR $ 82.80 $ 81.10 2.1% $ 79.74 $ 78.07 2.1%
ADR 110.25 107.99 2.1% 111.22 108.13 2.9%
Occupancy 75.1% 75.1% -- 71.7% 72.2% -0.7 pt
Common Dividend:
On July 9, 2008, HPT announced a regular quarterly common dividend of
$0.77 per share payable to shareholders of record on August 1, 2008;
this dividend will be paid on or about August 15, 2008.
Conference Call:
On Tuesday, August 12, 2008, at 11:00 a.m. Eastern Time, John Murray,
President and Chief Operating Officer, and Mark Kleifges, Treasurer and
Chief Financial Officer, will host a conference call to discuss the
results for the quarter and six months ended June 30, 2008 and the rent
deferral agreement with TA.
The conference call telephone number is (888) 637-7725. Participants
calling from outside the United States and Canada should dial (913)
312-0866. 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 Tuesday, August 19, 2008. To hear the replay, dial
(719) 457-0820. The replay pass code is 7663164.
A live audio webcast of the conference call will also be available in
a listen only mode on the company's web site, which is located at www.hptreit.com.
Participants wanting to access the webcast should visit the company's
web site about five minutes before the call. The archived webcast will
be available for replay on HPT's web site for about one week after the
call.
Supplemental Data:
A copy of HPT's Second Quarter 2008 Supplemental Operating and Financial Data is available for download at HPT's web site, www.hptreit.com.
Hospitality Properties Trust is a real estate investment trust, or
REIT, which owns 290 hotels and 185 travel centers located in 44 states,
Puerto Rico and Canada. HPT is headquartered in Newton, Massachusetts.
WARNING CONCERNING FORWARD LOOKING STATEMENTS
THIS PRESS RELEASE CONTAINS FORWARD LOOKING STATEMENTS WITHIN THE
MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND
OTHER FEDERAL SECURITIES LAWS. THESE FORWARD LOOKING STATEMENTS ARE
BASED UPON HPT'S PRESENT BELIEFS AND EXPECTATIONS, BUT THEY ARE NOT
GUARANTEED TO OCCUR AND THEY MAY NOT OCCUR. FOR EXAMPLE:
- THIS PRESS RELEASE STATES THAT THE AGREEMENT WHICH HPT HAS
ENTERED WITH TA PROVIDES FOR A RENT DEFERRAL NOT FOR RENT FORGIVENESS,
THAT THIS AGREEMENT WILL ALLOW TA TO BUILD A WORKING CAPITAL CUSHION AND
IMPROVE TA'S FINANCIAL FLEXIBILITY AND THAT HPT BELIEVES TA HAS A
VALUABLE BUSINESS FRANCHISE WHICH CAN PAY ITS RENT OBLIGATIONS. THE
IMPLICATIONS OF THESE STATEMENTS ARE THAT THE RENT DEFERRAL WILL PROVIDE
TA WITH ADEQUATE WORKING CAPITAL TO MEET ITS BUSINESS REQUIREMENTS AND
THAT TA WILL, IN THE FUTURE, PAY HPT THE HISTORICAL CONTRACTUAL RENT,
INCLUDING THE DEFERRED AMOUNTS DUE HPT. IN FACT, THE DEFERRAL MAY NOT BE
ADEQUATE FOR TA'S BUSINESS AND TA MAY BE UNABLE TO PAY RENT TO HPT AT
ITS HISTORICAL CONTRACTUAL RATE OR TO PAY HPT THE DEFERRED AMOUNTS.
AMONG OTHER REASONS WHY THESE FORWARD LOOKING STATEMENTS MAY NOT
OCCUR ARE THE FOLLOWING, MOST OR ALL OF WHICH ARE BEYOND HPT'S CONTROL:
- THE PRICE WHICH TA MUST PAY TO PURCHASE DIESEL FUEL AND OTHER
PRODUCTS WHICH IT SELLS MAY CONTINUE TO MATERIALLY INCREASE, AND THESE
PRICE INCREASES MAY INCREASE TA'S WORKING CAPITAL REQUIREMENTS MORE THAN
CURRENTLY EXPECTED;
- THE CURRENT SLOWING OF THE U.S. ECONOMY MAY CONTINUE FOR LONGER
OR BE WORSE THAN HPT NOW ANTICIPATES. SUCH CIRCUMSTANCES MAY REDUCE THE
DEMAND FOR TA'S GOODS AND SERVICES AND REDUCE TA'S ABILITY TO GENERATE
THE CASH FLOWS NECESSARY TO PAY HPT'S RENTS;
- FUEL CONSERVATION EFFORTS, AN EXTENDED PERIOD OF LIMITED
ACTIVITY IN THE HOUSING DEVELOPMENT INDUSTRY OR A SIGNIFICANT AND
PROLONGED DECLINE IN THE IMPORT INTO THE U.S. OF CONSUMER GOODS, EACH OF
WHICH MAY AFFECT THE DEMAND FOR TA'S GOODS AND SERVICES BY TRUCKERS,
WOULD ADVERSELY AFFECT TA'S BUSINESS AND TA'S ABILITY TO PAY RENTS,
INCLUDING DEFERRED AMOUNTS DUE TO HPT; OR
- TA MAY BE OR BECOME UNABLE TO PROPERLY MANAGE ITS BUSINESS TO PRODUCE ADEQUATE CASH FLOWS TO PAY ITS OBLIGATIONS.
FOR THESE REASONS, AMONG OTHERS, INVESTORS ARE CAUTIONED NOT TO PLACE
UNDUE RELIANCE UPON THE FORWARD LOOKING STATEMENTS AND THEIR
IMPLICATIONS IN THIS PRESS RELEASE.
Hospitality Properties Trust
CONSOLIDATED STATEMENT OF INCOME AND FUNDS FROM OPERATIONS
(in thousands, except per share data)
(Unaudited)
Quarter Ended June 30, Six Months Ended June 30,
---------------------- -------------------------
2008 2007 2008 2007
------------- -------- ---------------- --------
Revenues:
Hotel operating
revenues (1) $244,566 $249,774 $467,006 $474,245
Rental income (1) 87,561 77,540 177,517 135,150
FF&E reserve income
(2) 6,342 5,769 12,525 11,208
Interest income 306 658 906 3,806
------------- -------- ---------------- --------
Total revenues 338,775 333,741 657,954 624,409
------------- -------- ---------------- --------
Expenses:
Hotel operating
expenses (1) 177,471 184,311 333,847 344,709
Interest (including
amortization of
deferred financing
costs of $1,009,
$913, $2,048 and
$1,652,
respectively) 36,528 33,795 74,097 64,450
Depreciation and
amortization 59,577 54,505 117,828 102,823
General and
administrative 9,595 9,160 21,039 16,953
TA spin off costs
(3) -- -- -- 2,711
Reserve for
straight line
rent receivable
(4) 19,613 -- 19,613 --
Loss on asset
impairment (5) 53,225 -- 53,225 --
------------- -------- ---------------- --------
Total expenses 356,009 281,771 619,649 531,646
------------- -------- ---------------- --------
Income (loss) before
gain on sale of real
estate and income
taxes (17,234) 51,970 38,305 92,763
Gain on sale of
real estate (6) 629 -- 1,274 --
------------- -------- ---------------- --------
Income (loss) before
income taxes (16,605) 51,970 39,579 92,763
Income tax
expense (474) (743) (902) (1,222)
------------- -------- ---------------- --------
Income (loss) from
continuing operations (17,079) 51,227 38,677 91,541
Income from
discontinued
operations (7) -- 3,055 -- 6,113
------------- -------- ---------------- --------
Net income (loss) (17,079) 54,282 38,677 97,654
Preferred
distributions (7,470) (7,470) (14,940) (11,829)
------------- -------- ---------------- --------
Net income (loss)
available for common
shareholders ($24,549) $46,812 $23,737 $85,825
============= ======== ================ ========
----------------------------------------------------------------------
Calculation of FFO
(8):
Net income (loss)
available for common
shareholders ($24,549) $46,812 $23,737 $85,825
Add: FF&E deposits not
in net income
(discontinued
operations) (2) -- 492 -- 990
Depreciation and
amortization
(continuing
operations) 59,577 54,505 117,828 102,823
Depreciation and
amortization
(discontinued
operations) (7) -- 754 -- 1,507
Deferred
percentage rent
(continuing
operations) (7) 1,550 1,612 3,102 3,097
Deferred
percentage rent
(discontinued
operations)
(7)(9) -- 72 -- 257
Deferred
additional
returns
(continuing
operations) (10) 8,317 7,294 11,777 12,793
Loss on asset
impairment
(continuing
operations) (5) 53,225 -- 53,225 --
TA spin off costs
(continuing
operations) (3) -- -- -- 2,711
Less: Gain on sale of
real estate
(continuing
operations) (6) (629) -- (1,274) --
------------- -------- ---------------- --------
Funds from operations
("FFO") $97,491 $111,541 $208,395 $210,003
============= ======== ================ ========
Weighted average
common shares
outstanding 93,942 93,868 93,918 92,323
============= ======== ================ ========
Per common share
amounts:
Income (loss) from
continuing
operations
available for
common shareholders ($0.26) $0.47 $0.25 $0.86
Income from
discontinued
operations
available for
common shareholders $0.00 $0.03 $0.00 $0.07
Net income (loss)
available for
common shareholders ($0.26) $0.50 $0.25 $0.93
FFO (8) $1.04 $1.19 $2.22 $2.27
Common distributions
declared $0.77 $0.76 $1.54 $1.52
(1) At June 30, 2008, each of our 290 hotels are included in one of
eleven operating agreements of which 198 are leased to our taxable REIT
subsidiaries and managed by independent hotel operating companies and 92
are leased to third parties. Our 185 travel centers are leased under
two agreements. Our consolidated statement of income includes hotel
operating revenues and expenses of managed hotels and rental income from
our leased hotels and travel centers.
(2) Various percentages of total sales at most of our hotels are
escrowed as reserves for future renovations or refurbishment, or
FF&E Reserve escrows. At June 30, 2008, we own all the FF&E
escrows for our hotels. Through July 26, 2007, we had a security and
remainder interest in the FF&E Reserve escrows for our former
Homestead Studio Suites hotels (see Note 7). When we own the FF&E
Reserve escrows at hotels leased to third parties we report payments
into the escrow as additional rent. When we had a security and remainder
interest in the FF&E Reserve escrows of our Homestead Studio Suites
hotels, deposits were not included in revenue. We do not report the
amounts which are escrowed as FF&E reserves for our managed hotels
as FF&E reserve income in our consolidated statement of income.
(3) During the first quarter of 2007, we expensed $2,711 of costs in
connection with the spin off of our former subsidiary, TravelCenters of
America LLC, or TA, to our shareholders on January 31, 2007.
(4) During the second quarter of 2008, we recorded a $19,613, or $.21
per share, non-cash reserve for the straight line rent receivable
relating to our lease with TA for 145 travel centers.
(5) During the second quarter of 2008, we recorded a $53,225, or $.57
per share, non-cash loss on asset impairment related to the write down
of certain intangible assets arising from our TA acquisition to their
estimated fair value.
(6) On February 5, 2008, we sold our Park Plaza hotel in North
Phoenix, Arizona for $8,000 and recognized a gain on sale of $645. On
June 18, 2008, we sold our AmeriSuites hotel in Atlantic Beach, North
Carolina for $6,350 and recognized a gain on sale of $629.
(7) Income from discontinued operations relates to the 18 Homestead
Studio Suites hotels that we sold in July 2007. We have reclassified our
consolidated statement of income for all periods presented to show the
results of operations of the hotels which have been sold as
discontinued.
(8) We compute FFO as shown. Our calculation of FFO differs from the
National Association of Real Estate Investment Trusts, or NAREIT,
definition because we include FF&E deposits not included in net
income (loss) (see Note 2), deferred percentage rent (see Note 9) and
deferred additional returns (see Note 10) and exclude loss on asset
impairment (see Note 5) and TA spin off costs (see Note 3). We consider
FFO to be an appropriate measure of performance for a REIT, along with
net income and cash flows from operating, investing and financing
activities. We believe that FFO provides useful information to investors
because by excluding the effects of certain historical costs, such as
depreciation expense, it may facilitate comparison of operating
performance among REITs. FFO does not represent cash generated by
operating activities in accordance with generally accepted accounting
principles, or GAAP, and should not be considered an alternative to net
income or cash flow from operating activities as a measure of financial
performance or liquidity. FFO is among the important factors considered
by our board of trustees when determining the amount of distributions to
shareholders. Other important factors include, but are not limited to,
requirements to maintain our status as a REIT, limitations in our
revolving credit facility and public debt covenants, the availability of
debt and equity capital to us and our expectation of our future capital
needs and operating performance.
(9) In calculating net income (loss) we recognize percentage rental
income received for the first, second and third quarters in the fourth
quarter, which is when all contingencies are met and the income is
earned. Although we defer recognition of this revenue until the fourth
quarter for purposes of calculating net income, we include these amounts
in the calculation of FFO for each quarter of the year. The fourth
quarter FFO calculation excludes the amounts recognized during the first
three quarters.
(10) Our share of the operating results of our managed hotels in
excess of the minimum returns due to us, or additional returns, are
generally determined based upon annual calculations. In calculating net
income (loss), we recognize additional returns in the fourth quarter,
which is when all contingencies are met and the income is earned.
Although we defer recognition of this income until the fourth quarter
for purposes of calculating net income (loss), we include these amounts
in the calculation of FFO for each quarter of the year. The fourth
quarter FFO calculation excludes the amounts recognized during the first
three quarters.
Hospitality Properties Trust
CONSOLIDATED BALANCE SHEET
(dollars in thousands, except share data)
June 30, December 31,
2008 2007
------------ ------------
(Unaudited)
ASSETS
---------------------------------------------
Real estate properties, at cost:
Land $ 1,392,390 $ 1,377,520
Buildings, improvements and equipment 4,958,778 4,818,711
------------ ------------
6,351,168 6,196,231
Accumulated depreciation (950,212) (849,470)
------------ ------------
5,400,956 5,346,761
Cash and cash equivalents 13,492 23,401
Restricted cash (FF&E reserve escrow) 37,003 28,134
Other assets, net 190,424 281,011
------------ ------------
$ 5,641,875 $ 5,679,307
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
---------------------------------------------
Revolving credit facility $ 401,000 $ 158,000
Senior notes, net of discounts 1,693,245 1,842,756
Convertible senior notes 575,000 575,000
Mortgage payable 3,597 3,635
Security deposits 169,406 169,406
Accounts payable and other liabilities 122,716 134,705
Due to affiliate 4,697 4,617
Dividends payable 4,754 4,754
------------ ------------
Total liabilities 2,974,415 2,892,873
------------ ------------
Commitments and contingencies
Shareholders' equity:
Preferred shares of beneficial interest; no
par value; 100,000,000 shares authorized:
Series B preferred shares; 8 7/8%
cumulative redeemable; 3,450,000 shares
issued and outstanding, aggregate
liquidation preference $86,250
83,306 83,306
Series C preferred shares; 7% cumulative
redeemable; 12,700,000 shares issued
and outstanding, aggregate liquidation
preference $317,500
306,833 306,833
Common shares of beneficial interest; $0.01
par value; 150,000,000 shares authorized;
93,951,260 and 93,892,719 shares issued
and outstanding, respectively 940 939
Additional paid-in capital 3,050,766 3,048,881
Cumulative net income 1,749,755 1,711,079
Cumulative preferred distributions (108,701) (93,761)
Cumulative common distributions (2,415,439) (2,270,843)
------------ ------------
Total shareholders' equity 2,743,797 2,786,434
------------ ------------
$ 5,641,875 $ 5,679,307
============ ============
Hospitality Properties
Trust Timothy A. Bonang
617-796-8232
Director of Investor Relations
Carlynn Finn
617-796-8232
Manager of Investor Relations
www.hptreit.com