NEWTON, Mass.--(BUSINESS WIRE)--
Hospitality Properties Trust (NYSE: HPT) today announced that it has
entered agreements to re-align three of its five sets of hotel
management contracts with Marriott International, Inc. (NYSE: MAR). The
three sets of affected contracts (which HPT has historically referred to
as its Marriott Contracts Nos. 2, 3 and 4) concern 71 hotels and
currently provide for payments of owner's priority returns and rents to
HPT totaling $98.1 million/year. Among other terms the re-aligned
agreements provide as follows:
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All 71 hotels will be combined economically so that any excess cash
flows from any of the hotels is available to pay owner's priority
returns for all 71 affected hotels.
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The combined annual priority returns due to HPT will be $98.1
million/year; i.e., equal to the current
annual amounts of owner's priority returns and rents due to HPT. In
addition, an HPT taxable REIT subsidiary (a TRS) will participate in
the net cash flows from hotel operations after payment of management
fees to Marriott, which fees will continue to be subordinated to HPT's
priority returns/rents.
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The new combined contracts extend through 2025. In addition, Marriott
has the option to renew the contracts for two consecutive ten year
terms on an all or none basis; i.e., the
renewal options must be exercised for all of the hotels included in
the contracts.
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The cash security deposits which secure the owner's priority payments
to HPT under two of the three affected contracts will be combined and
continue to secure the owner's priority payments under the combined
contracts for all 71 hotels. These security deposits originally
totaled $64.7 million. As of March 31, 2011, the amounts of these
deposits totaled $10.9 million, as the deposits were reduced to fund
shortfalls in the operating results from 2009 through March 31, 2011.
The new contracts provide that the combined security deposit may be
replenished up to the original amount of $64.7 million from 70% of the
cash flows realized from operations of the 71 hotels after payment of
HPT's owner's priority returns and working capital advances, if any,
by HPT or Marriott, while 30% is paid to Marriott toward agreed
amounts for management fees.
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In addition to this security deposit, Marriott will provide a limited
guaranty for 90% of the owner's priority returns due to HPT through
2017.
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The combined contracts will continue to require that 5-6% of gross
revenues from hotel operations be escrowed for hotel maintenance and
periodic refurbishments; i.e., a FF&E
Reserve.
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In addition to amounts available in the FF&E Reserve, HPT will fund
approximately $102 million for a general refurbishment of the hotels
during the next two years. As such funding is advanced by HPT, the
amounts of the owner's priority payments due to HPT shall increase by
9% p.a. of the amounts funded.
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HPT and Marriott have identified 21 hotels of the 71 hotels in the
combined contracts which will be offered for sale. If and as these
hotels are sold, HPT will retain the sales proceeds and the amounts of
the owner's priority returns due to HPT will decrease by 9% p.a. of
the sales proceeds. HPT currently expects that the proceeds it may
receive from the sale of these hotels may be at least equal to the
capital investment it will make during the next two years as described
above; however, the timing of hotel sales and capital investments will
likely differ.
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One of the sets of contracts which are re-aligned by the agreements
announced today (HPT's historical Marriott contract no. 4) concerns
hotels owned by HPT which were leased to Barcelo Crestline and managed
by Marriott. Simultaneously with agreements between HPT and Marriott,
Marriott arranged with Barcelo Crestline to terminate that lease.
Accordingly, all 71 affected hotels will be owned by HPT, leased to an
HPT owned TRS and managed by Marriott. The re-aligned agreements are
effective retroactive to January 1, 2011.
HPT's two additional sets of contracts for Marriott hotels are
unaffected by the agreements announced today: (i) HPT's historical
Contract No. 1 for 53 hotels that are leased by HPT to Host Hotels and
Resorts (NYSE: HST) for annual rent of $65.8 million, plus percentage
rents; and (ii) HPT's historical Marriott Contract No. 5 for one resort
hotel in Hawaii that is leased directly to Marriott for annual rent of
$9.4 million plus CPI adjustments. All rent payments due under these two
contracts and the deposit and the guaranty, respectively, which secure
these payments remain in full force.
John Murray, President of HPT, made the following statement regarding
the re-aligned contracts with Marriott:
"When HPT was founded in 1995, our first hotel operating agreements were
with Marriott. These contracts have survived through several business
cycles since then. At HPT, we are pleased that we are able to continue
our business relationship with Marriott under the re-aligned contracts
announced today.
"At the beginning of 2011, HPT set an internal goal to restructure its
contractual relationships with three major operators of its properties:
TravelCenters of America LLC, Marriott International, Inc. and
InterContinental Hotels Group, plc. We have now completed this work with
TravelCenters and Marriott. We are actively involved in discussions with
Intercontinental Hotels Group. Moreover, with two of these three
negotiations completed, we have also begun to focus on new investment
opportunities."
Hospitality Properties Trust is a real estate investment trust, or REIT,
headquartered in Newton, Massachusetts, which owns 289 hotels and 185
travel centers located in 44 states, Puerto Rico and Ontario, Canada.
WARNING REGARDING FORWARD LOOKING STATEMENT
THIS PRESS RELEASE CONTAINS FORWARD LOOKING STATEMENTS WITHIN THE
MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND
OTHER SECURITIES LAWS. THESE FORWARD LOOKING STATEMENTS ARE BASED UPON
HPT'S CURRENT BELIEFS AND EXPECTATIONS. HOWEVER, THESE FORWARD LOOKING
STATEMENTS AND THEIR IMPLICATIONS ARE NOT GUARANTEED TO OCCUR AND MAY
NOT OCCUR FOR VARIOUS REASONS, INCLUDING SOME REASONS BEYOND HPT'S
CONTROL.
FOR EXAMPLE:
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THIS PRESS RELEASE STATES THAT THE SECURITY DEPOSIT FOR THE OWNER'S
PRIORITY PAYMENT DUE HPT UNDER THE RE-ALIGNED CONTRACTS MAY BE
INCREASED TO $64.7 MILLION FROM 70% OF THE CASH FLOWS FROM HOTELS
INCLUDED IN THE RE-ALIGNED, COMBINED CONTRACTS AFTER PAYMENT OF HPT'S
PRIORITY RETURN AND WORKING CAPITAL ADVANCES, IF ANY, BY HPT OR
MARRIOTT. AN IMPLICATION OF THIS STATEMENT MAY BE THAT THE SECURITY
DEPOSIT WILL INCREASE AND THAT IT MAY BE SUFFICIENT TO PROVIDE FOR
CONTINUED PAYMENT OF HPT'S PRIORITY RETURNS. IN FACT, DURING THE PAST
TWO YEARS THE HISTORICAL SECURITY DEPOSITS HAVE BEEN USED TO PAY
SHORTFALLS IN THE RENTS AND OWNER'S PRIORITY RETURNS DUE HPT. HPT CAN
PROVIDE NO ASSURANCE THAT THE OPERATING RESULTS OF THE HOTELS INCLUDED
IN THE RE-ALIGNED CONTRACTS WILL BE SUFFICIENT TO PAY HPT'S OWNER'S
PRIORITY RETURNS OR TO INCREASE THE SECURITY DEPOSIT. THE OPERATING
RESULTS AT HPT'S OWNED HOTELS WHICH ARE MANAGED BY MARRIOTT DEPEND ON
MARRIOTT'S ABILITIES TO SUCCESSFULLY OPERATE THE HOTELS AND, IN LARGE
PART, UPON GENERAL ECONOMIC CONDITIONS, BOTH OF WHICH ARE BEYOND HPT'S
CONTROL.
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THIS PRESS RELEASE STATES THAT MARRIOTT WILL GUARANTEE 90% OF THE
OWNER'S PRIORITY RETURNS DUE HPT UNDER THE RE-ALIGNED CONTRACTS
THROUGH 2017. AN IMPLICATION OF THIS STATEMENT MAY BE THAT HPT WILL
RECEIVE AT LEAST 90% OF THE OWNER'S PRIORITY RETURNS DUE UNDER THE
RE-ALIGNED CONTRACTS THROUGH 2017. HOWEVER, MARRIOTT'S GUARANTY IS
LIMITED SO THAT THE MAXIMUM PAYMENTS MARRIOTT IS REQUIRED TO MAKE TO
HPT UNDER THIS GUARANTY IS $40 MILLION. MOREOVER, MARRIOTT MAY INCUR
DEBT OR BE REORGANIZED IN A WAY WHICH JEOPARDIZES ITS ABILITY TO PAY
GUARANTY OBLIGATIONS. ACCORDINGLY, THERE IS NO ASSURANCE THAT HPT WILL
RECEIVE AT LEAST 90% OF ITS OWNER'S PRIORITY RETURNS THROUGH 2017 OR
THAT MARRIOTT WILL BE ABLE TO HONOR ITS GUARANTY OBLIGATIONS.
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THIS PRESS RELEASE STATES THAT THE RE-ALIGNED, COMBINED CONTRACTS WILL
REQUIRE THAT 5-6% OF GROSS REVENUES FROM HOTEL OPERATIONS BE ESCROWED
AS A FF&E RESERVE. AN IMPLICATION OF THIS STATEMENT MAY BE THAT THE
FF&E RESERVE WILL BE SUFFICIENT TO FUND FUTURE CAPITAL NEEDS AT THE
AFFECTED HOTELS. HPT BELIEVES THAT THESE ESCROW PERCENTAGES MAY BE
AMONG THE HIGHEST IN THE HOSPITALITY INDUSTRY. NONETHELESS, HPT'S
EXPERIENCE IS THAT THESE ESCROW PERCENTAGES MAY NOT BE SUFFICIENT TO
PAY ALL COSTS OF MAINTAINING THE HOTELS TO BRAND STANDARDS OR
OTHERWISE IN A MANNER WHICH IS ATTRACTIVE TO HOTEL CUSTOMERS.
ACCORDINGLY, HPT MAY PERIODICALLY INVEST ADDITIONAL AMOUNTS TO
MAINTAIN ITS HOTELS.
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THIS PRESS RELEASE STATES THAT HPT WILL FUND APPROXIMATELY $102
MILLION TO REFURBISH THE HOTELS INCLUDED IN THE RE-ALIGNED CONTRACTS
DURING THE NEXT TWO YEARS. THE COSTS AND TIMING OF HOTEL REFURBISHMENT
PROJECTS ARE DIFFICULT TO ESTIMATE. COST OVERRUNS MAY OCCUR AND
PROJECTS MAY BE DELAYED FOR MANY DIFFERENT REASONS, INCLUDING VARIOUS
REASONS WHICH ARE BEYOND HPT'S CONTROL. THERE IS NO ASSURANCE THAT THE
PLANNED REFURBISHMENTS CAN BE COMPLETED FOR $102.3 MILLION OR WITHIN
TWO YEARS.
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THIS PRESS RELEASE STATES THAT HPT AND MARRIOTT HAVE IDENTIFIED 21
HOTELS OF THE 71 HOTELS IN THE RE-ALIGNED CONTRACTS TO BE OFFERED FOR
SALE AND THAT HPT EXPECTS IT MAY RECEIVE SALE PROCEEDS AT LEAST EQUAL
TO THE CAPITAL INVESTMENT IT WILL MAKE IN THE HOTELS INCLUDED IN THE
RE-ALIGNED CONTRACT DURING THE NEXT TWO YEARS. HPT HAS RECEIVED
OPINIONS OF VALUE FROM REAL ESTATE BROKERS WHOM IT HAS SOLICITED FOR
SALE ASSIGNMENTS. HOWEVER, OPINIONS OF VALUE ARE NOT APPRAISALS AND
THERE IS NO ASSURANCE THAT HPT WILL BE ABLE TO SELL ALL OR ANY OF THE
HOTELS OFFERED FOR SALE AT THE EXPECTED SALES PRICES OR FOR ANY PRICES
WHICH HPT AND MARRIOTT DETERMINE TO BE ACCEPTABLE. HPT'S COMMITMENT TO
FUND RENOVATIONS AT HOTELS INCLUDED IN THE RE-ALIGNED CONTRACTS IS NOT
CONDITIONED UPON ITS ABILITY TO SELL HOTELS. MOREOVER, IF HPT DOES NOT
SELL CERTAIN HOTELS DESIGNATED FOR SALE IT MAY BE REQUIRED TO RENOVATE
THE UNSOLD HOTELS AND HPT'S INVESTMENT NECESSARY TO FUND REFURBISHMENT
PROJECTS DURING THE NEXT TWO YEARS MAY INCREASE.
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THIS PRESS RELEASE STATES THAT RENT PAYMENTS DUE HPT UNDER CONTRACTS
NOS. 1 AND 5, AS DESCRIBED, ARE CURRENT AND THESE CONTRACTS ARE NOT
AFFECTED BY THE RE-ALIGNMENT AGREEMENTS. AN IMPLICATION OF THESE
STATEMENTS MAY BE THAT HPT WILL CONTINUE TO RECEIVE THE RENTS DUE
UNDER CONTRACTS NOS. 1 AND 5. HOWEVER, HOST HOTELS AND RESORTS HAS
NOTIFIED HPT THAT IT WILL NOT RENEW ITS CONTRACT NO. 1 LEASE WHEN IT
EXPIRES AT YEAR END 2012. THEREAFTER, THE PAYMENTS WHICH HPT RECEIVES
FOR THE HOTELS INCLUDED IN CONTRACT NO. 1 WILL BE DEPENDENT UPON THE
FUTURE OPERATING PERFORMANCE OF THESE HOTELS OR UPON NEW TERMS WHICH
HPT MAY NEGOTIATE FOR THESE HOTELS. ALSO, THE RENT DUE HPT UNDER
CONTRACT NO. 5 IS A FULL RECOURSE OBLIGATION OF MARRIOTT AND THEREFORE
DEPENDS UPON MARRIOTT'S CAPACITY TO HONOR ITS FINANCIAL OBLIGATIONS, A
MATTER WHICH IS BEYOND HPT'S CONTROL. FOR THESE REASONS, AMONG OTHERS,
HPT MAY NOT RECEIVE PAYMENTS FOR THE HOTELS INCLUDED IN CONTRACTS NOS.
1 AND 5 AT THE HISTORICAL AMOUNTS OR ANY AMOUNTS.
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THIS PRESS RELEASE INCLUDES A STATEMENT THAT HPT IS ACTIVELY INVOLVED
IN DISCUSSIONS WITH INTERCONTINENTAL HOTELS GROUP. THE IMPLICATION OF
THIS STATEMENT MAY BE THAT HPT WILL SOON ANNOUNCE A RESTRUCTURING OR
RE-ALIGNMENT OF THE HPT CONTRACTS WITH INTERCONTINENTAL. HPT HAS HAD
RESTRUCTURING DISCUSSIONS WITH INTERCONTINENTAL ABOUT THESE CONTRACTS
FOR ABOUT ONE YEAR; SEVERAL PROPOSALS AND COUNTER-PROPOSALS HAVE BEEN
DISCUSSED, BUT TO DATE NO AGREEMENTS HAVE BEEN CONCLUDED. SINCE 2008,
INTERCONTINENTAL HAS PAID HPT $125 MILLION TO COVER THE GUARANTEED
AMOUNTS BY WHICH THE OPERATING RESULTS AT HPT'S OWNED HOTELS OPERATED
BY INTERCONTINENTAL HAVE BEEN LESS THAN HPT'S CONTRACTUAL OWNER
PRIORITY RETURNS AND HPT IS NOW REDUCING THE SECURITY DEPOSIT WHICH IT
HOLDS TO PAY THE OWNER'S PRIORITY RETURNS CONTRACTUALLY DUE. THERE IS
NO ASSURANCE THAT HPT AND INTERCONTINENTAL WILL REACH ANY AGREEMENTS,
AND HPT MAY REBRAND SOME OR ALL OF THESE HOTELS AND/OR RECEIVE LOWER
OWNER'S PRIORITY RETURNS FROM THESE HOTELS THAN HPT HAS HISTORICALLY
RECEIVED.
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THIS PRESS RELEASE STATES THAT HPT HAS BEGUN TO FOCUS ON NEW
INVESTMENT OPPORTUNITIES. AN IMPLICATION OF THIS STATEMENT MAY BE THAT
HPT WILL ANNOUNCE NEW INVESTMENTS IN THE NEAR FUTURE. HPT'S ABILITY TO
MAKE NEW INVESTMENTS DEPENDS, IN LARGE PART, UPON INVESTMENT
OPPORTUNITIES BECOMING KNOWN TO HPT AND HPT'S ABILITY TO NEGOTIATE
PURCHASE TERMS WITH THE CURRENT PROPERTY OWNERS AND LEASE OR
MANAGEMENT TERMS WITH PROPERTY OPERATORS. HPT IS CURRENTLY HAVING SUCH
NEGOTIATIONS BUT THERE CAN BE NO ASSURANCE THAT ANY PROPERTY PURCHASES
OR OPERATING AGREEMENTS WILL BE SUCCESSFULLY CONCLUDED.
THE INFORMATION CONTAINED IN OUR FILINGS WITH THE SECURITIES AND
EXCHANGE COMMISSION, INCLUDING UNDER "RISK FACTORS" IN OUR PERIODIC
REPORTS, IDENTIFIES OTHER IMPORTANT FACTORS THAT COULD CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THOSE IN OR IMPLIED BY OUR FORWARD
LOOKING STATEMENTS. OUR FILINGS WITH THE SECURITIES AND EXCHANGE
COMMISSION ARE AVAILABLE ON ITS WEBSITE AT WWW.SEC.GOV.
YOU SHOULD NOT PLACE UNDUE RELIANCE UPON FORWARD LOOKING STATEMENTS.
EXCEPT AS REQUIRED BY LAW, WE DO NOT INTEND TO UPDATE OR CHANGE ANY
FORWARD LOOKING STATEMENTS AS A RESULT OF NEW INFORMATION, FUTURE EVENTS
OR OTHERWISE.
A Maryland Real Estate Investment Trust with transferable shares of
beneficial interest listed on the New York Stock Exchange.
No
shareholder, Trustee or officer is personally liable for any act or
obligation of the Trust.
Hospitality Properties Trust
Timothy A. Bonang, 617-796-8232
Vice
President, Investor Relations
or
Carlynn Finn, 617-796-8232
Manager
of Investor Relations
www.hptreit.com