First Quarter Net Income Available to Common Shareholders of $0.16
Per Share
First Quarter Normalized FFO Available to Common Shareholders of
$0.91 Per Share
NEWTON, Mass.--(BUSINESS WIRE)--
Hospitality Properties Trust (Nasdaq: HPT) today announced its financial
results for the quarter ended March 31, 2017.
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Three Months Ended March 31,
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2017
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2016
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($ in thousands, except per share and RevPAR data)
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Net income available for common shareholders
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$
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25,843
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$
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46,885
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Net income available for common shareholders per share
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$
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0.16
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$
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0.31
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Adjusted EBITDA (1)
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$
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194,576
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$
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187,703
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Normalized FFO available for common shareholders (1)
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$
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148,807
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$
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140,154
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Normalized FFO available for common shareholders per share (1)
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$
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0.91
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$
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0.93
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Portfolio Performance
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Comparable hotel RevPAR
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$
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89.40
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$
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88.49
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Comparable hotel RevPAR growth
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1.0
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%
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—
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RevPAR (all hotels)
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$
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89.45
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$
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88.67
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RevPAR growth (all hotels)
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0.9
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%
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—
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Coverage of HPT’s minimum returns and rents for hotels
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0.88
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x
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0.92x
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Coverage of HPT's minimum rents for travel centers
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1.22
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x
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1.37x
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(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 quarters ended March 31,
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 first quarter 2017 comparable hotel RevPAR grew by 1% despite
competition from new room supply and certain market specific impacts. We
continued our steady pace of acquisition growth, took advantage of debt
capital market opportunities to lower our capital costs and raised our
quarterly dividend. We remain cautiously optimistic regarding
performance for the balance of 2017.”
Results for the Three Months Ended March 31, 2017 and Recent
Activities:
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Net Income Available for Common Shareholders: Net income
available for common shareholders for the quarter ended March 31, 2017
was $25.8 million, or $0.16 per diluted share, compared to net income
available for common shareholders of $46.9 million, or $0.31 per
diluted share, for the quarter ended March 31, 2016. Net income
available for common shareholders includes $19.6 million, or $0.12 per
diluted share, and $5.3 million, or $0.04 per diluted share, of
estimated business management incentive fee expense for the quarters
ended March 31, 2017 and 2016, respectively. Net income available for
common shareholders for the quarter ended March 31, 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 164.1 million and 151.4 million for the quarters ended
March 31, 2017 and 2016, respectively.
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Adjusted EBITDA: Adjusted EBITDA for the quarter ended
March 31, 2017 compared to the same period in 2016 increased 3.7% to
$194.6 million.
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Normalized FFO Available for Common Shareholders: Normalized
FFO available for common shareholders for the quarter ended March 31,
2017 was $148.8 million, or $0.91 per diluted share, compared to
Normalized FFO available for common shareholders of $140.2 million, or
$0.93 per diluted share, for the quarter ended March 31, 2016.
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Hotel RevPAR (comparable hotels): For the quarter ended
March 31, 2017 compared to the same period in 2016 for HPT’s 302
hotels that were owned continuously since January 1, 2016: average
daily rate, or ADR, increased 0.9% to $125.03; occupancy increased 0.1
percentage points to 71.5%; and revenue per available room, or RevPAR,
increased 1.0% to $89.40.
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Hotel RevPAR (all hotels): For the quarter ended March 31, 2017
compared to the same period in 2016 for HPT’s 308 hotels: ADR
increased 0.7% to $125.63; occupancy increased 0.1 percentage point to
71.2%; and RevPAR increased 0.9% to $89.45.
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Coverage of Minimum Returns and Rents: For the quarter ended
March 31, 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
0.88x from 0.92x for the quarter ended March 31, 2016.
For
the quarter ended March 31, 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 1.22x from
1.37x for the quarter ended March 31, 2016.
As of
March 31, 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.
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Recent Property Acquisition Activities: As previously
disclosed, in February 2017, HPT acquired the 483 room Hotel Allegro
in Chicago, IL for a purchase price of $85.5 million, excluding
acquisition related costs. HPT added this Kimpton branded hotel to its
management agreement with InterContinental Hotels Group, plc (LON:
IHG; NYSE: IHG (ADRs)), or InterContinental.
In March
2017, HPT acquired the 121 room Hotel Alexis in Seattle, WA for a
purchase price of $71.6 million, excluding acquisition related costs.
HPT added this Kimpton branded hotel to its management agreement with
InterContinental.
Also in March 2017, HPT entered into an
agreement to acquire the 389 room Chase Park Plaza hotel located in
St. Louis, MO for a purchase price of $87.8 million, excluding
acquisition related costs. HPT currently expects to complete this
acquisition during the second quarter of 2017. HPT plans to re-brand
this hotel to the Royal Sonesta hotel brand and add it to
its management agreement with Sonesta International Hotels
Corporation, or Sonesta.
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.
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Recent Financing Activities: In January 2017, HPT issued $600.0
million aggregate principal amount of senior notes in underwritten
public offerings, which included $200.0 million aggregate principal
amount of 4.500% unsecured senior notes due 2023 and $400.0 million
aggregate principal amount of 4.950% unsecured senior notes due
2027. The proceeds from these offerings of $593.3 million after
discounts and offering expenses were used to repay amounts outstanding
under HPT's revolving credit facility, to redeem, in February 2017,
all of HPT's 11.6 million outstanding 7.125% Series D cumulative
redeemable preferred shares for $25.00 per share plus accrued and
unpaid dividends (an aggregate of $291.4 million) and for general
business purposes, including acquisitions.
In March 2017,
HPT repurchased at par plus accrued and unpaid interest $8.4 million
of the principal amount of its outstanding 3.80% convertible senior
notes due 2027 which were tendered by the holders of these notes for
repurchase by HPT. In April 2017, HPT redeemed at par plus accrued and
unpaid interest the remaining $47,000 of the principal amount
outstanding of these notes.
Tenants and Managers: As of March 31, 2017, HPT had nine
operating agreements with seven hotel operating companies for 308 hotels
with 47,187 rooms, which represented 65% of HPT’s total annual minimum
returns and rents, and five lease agreements with one travel center
operating company for 198 travel centers, which represented 35% of HPT’s
total annual minimum returns and rents.
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Marriott Agreements: As of March 31, 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 $68.8 million as of March 31, 2017 (approximately
$17.2 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 March 31, 2017, HPT realized returns under its Marriott
No. 1 agreement of $17.2 million. HPT’s Marriott No. 234 agreement
includes 68 hotels and requires annual minimum returns to HPT of
$106.4 million as of March 31, 2017 (approximately $26.6 million per
quarter). During the three months ended March 31, 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
March 31, 2017, the available security deposit was replenished by $0.3
million from a share of hotel cash flows in excess of the minimum
returns due to HPT for the period. At March 31, 2017, the available
security deposit from Marriott for the Marriott No. 234 agreement was
$16.7 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
March 31, 2017 of $2.5 million was paid to HPT.
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InterContinental Agreement: As of March 31, 2017, 96 of HPT’s
hotels were operated by subsidiaries of InterContinental under one
agreement requiring annual minimum returns and rents to HPT of $174.4
million (approximately $43.6 million per quarter). During the three
months ended March 31, 2017, HPT realized returns and rents under its
InterContinental agreement of $41.6 million. HPT’s InterContinental
agreement is partially secured by a security deposit. During the three
months ended March 31, 2017, HPT reduced the available security
deposit by $1.6 million to cover shortfalls in hotel cash flows
available to pay the minimum returns due to HPT for the period. In
connection with the acquisition of the two hotels described above,
InterContinental provided HPT with $12.6 million to supplement the
existing security deposit. At March 31, 2017, the available
InterContinental security deposit which HPT held to pay future payment
shortfalls was $83.8 million.
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Wyndham Agreement: As of March 31, 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 $27.3 million as of March 31, 2017
(approximately $6.8 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 three months ended
March 31, 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 May 9, 2017, all amounts due to HPT under
the management agreement and the lease have been paid to HPT.
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Morgans Agreement: As of March 31, 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 March 31, 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 currently engaging in
discussions with Morgans and SBE regarding this matter and is pursuing
remedies, which may include terminating the Morgans agreement. As of
May 9, 2017, all scheduled rent payments due to HPT under the lease
have been paid.
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Other Hotel Agreements: As of March 31, 2017, HPT’s remaining
67 hotels were operated under three agreements: one management
agreement with Sonesta (34 hotels), requiring annual minimum returns
of $90.2 million as of March 31, 2017 (approximately $22.6 million per
quarter); 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 March 31, 2017 (approximately $5.5
million per quarter); and one management agreement with a subsidiary
of Carlson Hotels Worldwide (11 hotels), requiring annual minimum
returns of $12.9 million as of March 31, 2017 (approximately $3.2
million per quarter). Minimum returns due to HPT are partially
guaranteed under the Hyatt and Carlson agreements. 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
March 31, 2017 were paid to HPT.
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Travel Center Agreements: As of March 31, 2017, HPT’s 198
travel centers located along the U.S. Interstate Highway system were
leased to TA under five lease agreements, which required aggregate
annual minimum rents of $276.2 million (approximately $69.1 million
per quarter). As of March 31, 2017, all payments due to HPT from TA
under these leases were current.
Conference Call:
On Wednesday, May 10, 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 first 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, May
17, 2017. To hear the replay, dial (412) 317-0088. The replay pass code
is 10104365.
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 first
quarter conference call is strictly prohibited without the prior written
consent of HPT.
Supplemental Data:
A copy of HPT’s First 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:
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AS OF MARCH 31, 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
TO PAY MINIMUM RETURNS DUE TO HPT FOR THE QUARTER ENDED MARCH 31,
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 MARCH 31, 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,
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MR. MURRAY NOTES IN THIS PRESS RELEASE THAT HPT'S COMPARABLE HOTEL
REVPAR GREW 1% IN THE FIRST QUARTER OF 2017, DESPITE COMPETITION FROM
NEW ROOM SUPPLY AND CERTAIN MARKET SPECIFIC IMPACTS. THIS MAY IMPLY
THAT HPT'S COMPARABLE HOTEL REVPAR GROWTH WILL CONTINUE TO GROW. HPT'S
COMPARABLE HOTEL REVPAR MAY DECLINE IN FUTURE PERIODS, ESPECIALLY IF
HPT'S HOTELS CONTINUE TO FACE COMPETITIVE PRESSURES FROM NEWER HOTELS,
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MR. MURRAY STATES IN THIS PRESS RELEASE THAT HPT CONTINUED ITS STEADY
ACQUISITION GROWTH, TOOK ADVANTAGE OF DEBT CAPITAL MARKET
OPPORTUNITIES TO LOWER HPT'S CAPITAL COSTS AND RAISED ITS DIVIDEND.
THESE STATEMENTS MAY IMPLY THAT HPT WILL CONTINUE TO GROW BY
ACQUISITIONS, THAT IT WILL MAINTAIN REDUCED CAPITAL COSTS AND THAT IT
WILL MAINTAIN ITS INCREASED DIVIDEND RATE OR INCREASE IT. HOWEVER, HPT
MAY BE UNABLE TO IDENTIFY PROPERTIES THAT IT WANTS TO ACQUIRE OR TO
NEGOTIATE ACCEPTABLE PURCHASE PRICES, ACQUISITION FINANCING,
MANAGEMENT CONTRACTS OR LEASE TERMS FOR NEW PROPERTIES. IN ADDITION,
HPT MAY NOT BE ABLE TO MAINTAIN THE LOWER CAPITAL COSTS IT RECENTLY
ACHIEVED AND ITS CAPITAL COSTS MAY INCREASE. ALSO, HPT'S DIVIDEND
RATES ARE SET AND RESET FROM TIME TO TIME BY ITS BOARD OF TRUSTEES.
THE HPT BOARD CONSIDERS MANY FACTORS WHEN SETTING DIVIDEND RATES
INCLUDING HPT’S HISTORICAL AND PROJECTED INCOME, NORMALIZED FUNDS FROM
OPERATIONS, THE THEN CURRENT AND EXPECTED NEEDS AND AVAILABILITY OF
CASH TO PAY HPT’S OBLIGATIONS, DISTRIBUTIONS WHICH MAY BE REQUIRED TO
BE PAID TO MAINTAIN HPT’S QUALIFICATION FOR TAXATION AS A REAL ESTATE
INVESTMENT TRUST AND OTHER FACTORS DEEMED RELEVANT BY HPT’S BOARD OF
TRUSTEES IN ITS DISCRETION. ACCORDINGLY, FUTURE DIVIDEND RATES MAY BE
INCREASED OR DECREASED AND THERE IS NO ASSURANCE AS TO THE RATE AT
WHICH FUTURE DIVIDENDS WILL BE PAID,
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MR. MURRAY ALSO STATES IN THIS PRESS RELEASE THAT HPT IS CAUTIOUSLY
OPTIMISTIC ABOUT ITS PERFORMANCE FOR THE BALANCE OF 2017. HPT'S
BUSINESS IS SUBJECT TO VARIOUS RISKS AND UNCERTAINTIES; HPT'S
PERFORMANCE MAY NOT MEET ITS EXPECTATIONS DUE TO VARIOUS FACTORS,
INCLUDING FACTORS BEYOND ITS CONTROL,
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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 CURRENTLY ENGAGED 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, AND
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HPT HAS ENTERED INTO AN AGREEMENT TO ACQUIRE A HOTEL FOR A PURCHASE
PRICE OF $87.8 MILLION, EXCLUDING ACQUISITION RELATED COSTS, AND HPT
EXPECTS TO COMPLETE THIS TRANSACTION DURING THE SECOND QUARTER OF 2017
AND TO ADD THIS HOTEL TO ITS EXISTING MANAGEMENT AGREEMENT WITH
SONESTA. THIS TRANSACTION IS SUBJECT TO CONDITIONS. THESE CONDITIONS
MAY NOT BE SATISFIED. AS A RESULT, THIS ACQUISITION AND THE EXPECTED
MANAGEMENT ARRANGEMENT MAY NOT OCCUR, MAY BE DELAYED OR THEIR TERMS
MAY CHANGE.
THE INFORMATION CONTAINED IN HPT’S FILINGS WITH THE SECURITIES AND
EXCHANGE COMMISSION, OR SEC, INCLUDING UNDER THE CAPTION “RISK FACTORS”
IN HPT’S PERIODIC REPORTS, OR INCORPORATED THEREIN, IDENTIFIES OTHER
IMPORTANT FACTORS THAT COULD CAUSE DIFFERENCES FROM HPT’S FORWARD
LOOKING STATEMENTS. HPT’S FILINGS WITH THE SEC ARE AVAILABLE ON THE
SEC’S WEBSITE AT WWW.SEC.GOV.
YOU SHOULD NOT PLACE UNDUE RELIANCE UPON FORWARD LOOKING STATEMENTS.
EXCEPT AS REQUIRED BY LAW, HPT DOES NOT INTEND TO UPDATE OR CHANGE ANY
FORWARD LOOKING STATEMENTS AS A RESULT OF NEW INFORMATION, FUTURE EVENTS
OR OTHERWISE.
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HOSPITALITY PROPERTIES TRUST
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CONDENSED CONSOLIDATED STATEMENTS OF INCOME
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(amounts in thousands, except share data)
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(Unaudited)
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Three Months Ended March 31,
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2017
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2016
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Revenues:
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Hotel operating revenues (1)
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$
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407,587
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$
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396,503
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Rental income (2)
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79,788
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76,259
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FF&E reserve income (3)
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1,227
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1,356
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Total revenues
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488,602
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474,118
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Expenses:
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Hotel operating expenses (1)
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282,723
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276,305
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Depreciation and amortization
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93,451
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87,271
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General and administrative (4)
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32,346
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16,023
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Acquisition related costs (5)
|
|
|
|
—
|
|
|
|
612
|
|
Total expenses
|
|
|
|
408,520
|
|
|
|
380,211
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
|
80,082
|
|
|
|
93,907
|
|
|
|
|
|
|
|
|
|
Dividend income
|
|
|
|
626
|
|
|
|
—
|
|
Interest income
|
|
|
|
257
|
|
|
|
98
|
|
Interest expense (including amortization of debt issuance costs
and debt discounts and
|
|
|
|
(43,566
|
)
|
|
|
(41,586
|
)
|
premiums of $2,152 and $1,865, respectively)
|
|
|
|
|
|
|
|
|
|
Loss on early extinguishment of debt (6)
|
|
|
|
—
|
|
|
|
(70
|
)
|
Income before income taxes and equity in earnings of an investee
|
|
|
|
37,399
|
|
|
|
52,349
|
|
Income tax expense
|
|
|
|
(356
|
)
|
|
|
(375
|
)
|
Equity in earnings of an investee
|
|
|
|
128
|
|
|
|
77
|
|
Net income
|
|
|
|
37,171
|
|
|
|
52,051
|
|
Preferred distributions
|
|
|
|
(1,435
|
)
|
|
|
(5,166
|
)
|
Excess of liquidation preference over carrying value of preferred
shares redeemed (7)
|
|
|
|
(9,893
|
)
|
|
|
—
|
|
Net income available for common shareholders
|
|
|
|
$
|
25,843
|
|
|
|
$
|
46,885
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding (basic)
|
|
|
|
164,120
|
|
|
|
151,402
|
|
Weighted average common shares outstanding (diluted)
|
|
|
|
164,149
|
|
|
|
151,415
|
|
|
|
|
|
|
|
|
|
Net income available for common shareholders per common share (basic
and diluted)
|
|
|
|
$
|
0.16
|
|
|
|
$
|
0.31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes on pages 10 and 11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 March 31,
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
Calculation of Funds from Operations (FFO) and Normalized FFO
available for common shareholders: (8)
|
|
|
|
|
|
|
|
Net income available for common shareholders
|
|
|
|
$
|
25,843
|
|
|
|
$
|
46,885
|
Add:
|
|
|
Depreciation and amortization
|
|
|
|
93,451
|
|
|
|
87,271
|
FFO available for common shareholders
|
|
|
|
119,294
|
|
|
|
134,156
|
Add:
|
|
|
Acquisition related costs (5)
|
|
|
|
—
|
|
|
|
612
|
|
|
|
Estimated business management incentive fees (4)
|
|
|
|
19,620
|
|
|
|
5,316
|
|
|
|
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
|
|
|
|
$
|
148,807
|
|
|
|
$
|
140,154
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding (basic)
|
|
|
|
164,120
|
|
|
|
151,402
|
Weighted average common shares outstanding (diluted)
|
|
|
|
164,149
|
|
|
|
151,415
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted per common share amounts:
|
|
|
|
|
|
|
|
|
|
|
FFO available for common shareholders
|
|
|
|
$
|
0.73
|
|
|
|
$
|
0.89
|
|
|
|
Normalized FFO available for common shareholders
|
|
|
|
$
|
0.91
|
|
|
|
$
|
0.93
|
|
|
|
Distributions declared per share
|
|
|
|
$
|
0.51
|
|
|
|
$
|
0.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
Calculation of EBITDA and Adjusted EBITDA: (9)
|
|
|
|
|
|
|
|
Net income
|
|
|
|
$
|
37,171
|
|
|
|
$
|
52,051
|
Add:
|
|
|
Interest expense
|
|
|
|
43,566
|
|
|
|
41,586
|
|
|
|
Income tax expense
|
|
|
|
356
|
|
|
|
375
|
|
|
|
Depreciation and amortization
|
|
|
|
93,451
|
|
|
|
87,271
|
EBITDA
|
|
|
|
174,544
|
|
|
|
181,283
|
Add:
|
|
|
Acquisition related costs (5)
|
|
|
|
—
|
|
|
|
612
|
|
|
|
General and administrative expense paid in common shares (10)
|
|
|
|
412
|
|
|
|
422
|
|
|
|
Estimated business management incentive fees (4)
|
|
|
|
19,620
|
|
|
|
5,316
|
|
|
|
Loss on early extinguishment of debt (6)
|
|
|
|
—
|
|
|
|
70
|
Adjusted EBITDA
|
|
|
|
$
|
194,576
|
|
|
|
$
|
187,703
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes on pages 10 and 11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) At March 31, 2017, HPT owned 308 hotels; 305 of these hotels were
managed by hotel operating companies and three hotels were leased to
hotel operating companies. At March 31, 2017, HPT also owned 198 travel
centers; all 198 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. Certain of HPT's managed hotels had net operating
results that were, in the aggregate, $16,924 and $16,429 less than the
minimum returns due to HPT in the three months ended March 31, 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. Hotel operating expenses were
reduced by $6,662 and $4,377 in the three months ended March 31, 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 $11,889 and
$12,052 in the three months ended March 31, 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, $2,791 and $8,363 more than the
minimum returns due to HPT in the three months ended March 31, 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 $1,504 and $2,522 in the three
months ended March 31, 2017 and 2016, respectively, as a result of such
replenishments.
(2) Rental income includes $3,008 and $3,752 in the three months ended
March 31, 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
three 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 $19,620 and $5,316 of estimated business
management incentive fee expense in the three months ended March 31,
2017 and 2016, respectively.
(5) Represents costs associated with HPT’s acquisition activities.
Acquisition costs incurred during the 2017 period 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
three months ended March 31, 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 three months ended March 31, 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 an indicator of HPT’s operating performance or as
a measure 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 an alternative to net income, net income available for
common shareholders or operating income as an indicator of operating
performance or as a measure 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)
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
|
2017
|
|
|
2016
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate properties:
|
|
|
|
|
|
|
|
Land
|
|
|
|
$
|
1,604,366
|
|
|
|
$
|
1,566,630
|
|
Buildings, improvements and equipment
|
|
|
|
7,307,972
|
|
|
|
7,156,759
|
|
Total real estate properties, gross
|
|
|
|
8,912,338
|
|
|
|
8,723,389
|
|
Accumulated depreciation
|
|
|
|
(2,590,844
|
)
|
|
|
(2,513,996
|
)
|
Total real estate properties, net
|
|
|
|
6,321,494
|
|
|
|
6,209,393
|
|
Cash and cash equivalents
|
|
|
|
23,772
|
|
|
|
10,896
|
|
Restricted cash (FF&E reserve escrow)
|
|
|
|
56,713
|
|
|
|
60,456
|
|
Due from related persons
|
|
|
|
68,920
|
|
|
|
65,332
|
|
Other assets, net
|
|
|
|
318,535
|
|
|
|
288,151
|
|
Total assets
|
|
|
|
$
|
6,789,434
|
|
|
|
$
|
6,634,228
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured revolving credit facility
|
|
|
|
$
|
130,000
|
|
|
|
$
|
191,000
|
|
Unsecured term loan, net
|
|
|
|
398,587
|
|
|
|
398,421
|
|
Senior unsecured notes, net
|
|
|
|
3,160,757
|
|
|
|
2,565,908
|
|
Convertible senior unsecured notes
|
|
|
|
47
|
|
|
|
8,478
|
|
Security deposits
|
|
|
|
100,640
|
|
|
|
89,338
|
|
Accounts payable and other liabilities
|
|
|
|
162,137
|
|
|
|
188,053
|
|
Due to related persons
|
|
|
|
24,180
|
|
|
|
58,475
|
|
Dividends payable
|
|
|
|
—
|
|
|
|
5,166
|
|
Total liabilities
|
|
|
|
3,976,348
|
|
|
|
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
|
|
|
|
1,643
|
|
|
|
1,643
|
|
authorized; 164,268,199 shares issued and outstanding
|
|
|
|
|
|
|
|
|
|
Additional paid in capital
|
|
|
|
4,539,673
|
|
|
|
4,539,673
|
|
Cumulative net income
|
|
|
|
3,132,044
|
|
|
|
3,104,767
|
|
Cumulative other comprehensive income
|
|
|
|
61,322
|
|
|
|
39,583
|
|
Cumulative preferred distributions
|
|
|
|
(343,412
|
)
|
|
|
(341,977
|
)
|
Cumulative common distributions
|
|
|
|
(4,578,184
|
)
|
|
|
(4,494,407
|
)
|
Total shareholders’ equity
|
|
|
|
2,813,086
|
|
|
|
3,129,389
|
|
Total liabilities and shareholders’ equity
|
|
|
|
$
|
6,789,434
|
|
|
|
$
|
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/20170510005379/en/
Source: Hospitality Properties Trust