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Hospitality Properties Trust Agrees to Sell 20 Travel Centers for $308.2 Million, Amends Lease Agreements with TA

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Jan 16, 2019

HPT Expects to Realize a Gain on Sale of $160 million

Agreements are Expected to Significantly Improve Property Level Rent Coverage

HPT Will Receive $70.5 Million of Previously Deferred Rent Obligations Starting in 2019 and Additional Percentage Rent Starting in 2020

NEWTON, Mass.--(BUSINESS WIRE)-- Hospitality Properties Trust (Nasdaq: HPT) today announced it entered agreements with TravelCenters of America LLC (Nasdaq: TA), or TA, to sell 20 travel centers to TA that HPT currently owns and leases to TA and that HPT and TA amended their existing leases. The transaction highlights are:

  • HPT will sell 20 travel centers located in 15 states to TA for $308.2 million. HPT expects to realize a gain of $160.0 million from these sales.The sales price reflects a 5.7% capitalization rate based on property level cash flows (property level revenues minus property level expenses) for the twelve months ended September 30, 2018. HPT expects to use the proceeds from these sales to repay borrowings under its revolving credit facility and for general business purposes.
  • HPT expects the agreements to result in stronger property level rent coverage for its travel center portfolio. The aggregate annual minimum rents due from TA for the remaining 179 travel centers HPT leases to TA will be $243.9 million. On a proforma basis, coverage for the twelve-month period ending September 30, 2018 would have increased from 1.60x to approximately 1.80x.
  • HPT will receive $70.5 million of previously deferred rents in 16 equal quarterly installments beginning on April 1, 2019. Timing of the repayment was accelerated from the previous staggered due dates between June 2024 and December 2030 in exchange for the deferred rent amounts being discounted.
  • HPT will receive additional potential percentage rent beginning in 2020 equal to 0.5% of the excess of nonfuel revenues over nonfuel revenues in 2019. This percentage rent is in addition to any percentage rent amounts HPT is already receiving from TA.
  • The lease term under each of the five TA leases was extended three years.

John Murray, HPT’s President and Chief Executive Officer, made the following statement:

“I am pleased with the agreements announced today and believe they benefit HPT in several ways. First, the agreed upon sales are at an attractive cap rate and are expected to result in a significant gain for HPT. Furthermore, the sales unlock value in our existing asset base and provide liquidity for additional hotel investments. Second, these agreements enable HPT to improve the quality of its travel center portfolio by materially improving the aggregate coverage of minimum rents for the portfolio. As we move into the tenth year of this economic recovery, materially improving rent coverage for a tenant that accounts for approximately one third of HPT’s returns helps HPT maintain secure, steady cash flows and provides our largest tenant financial flexibility to help weather any potential economic downturns in the future. Third, the acceleration of payment of the previously deferred rent obligations at a discounted value addresses potential uncertainty relating to our collection of these deferred rents.”

The terms of the agreements between HPT and TA were negotiated and approved by special committees of HPT's Independent Trustees and TA's Independent Directors who were represented by separate counsel.

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.

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:

  • THIS PRESS RELEASE STATES THAT HPT HAS AGREED TO SELL 20 TRAVEL CENTERS TO TA AND EXPECTS TO RECOGNIZE A GAIN OF $160.0 MILLION. THESE SALES ARE SUBJECT TO CONDITIONS. AS A RESULT, THESE SALES MAY NOT OCCUR, MAY BE DELAYED OR THEIR TERMS MAY CHANGE AND ANY GAIN HPT MAY RECOGNIZE MAY BE LESS THAN THE AMOUNT IT CURRENTLY EXPECTS.
  • THIS PRESS RELEASE STATES THAT HPT EXPECTS TO USE THE PROCEEDS FROM THE SALES OF 20 TRAVEL CENTERS TO TA TO REPAY BORROWINGS UNDER ITS REVOLVING CREDIT FACILITY AND FOR GENERAL BUSINESS PURPOSES. THIS MAY IMPLY THAT HPT’S LEVERAGE WILL BE REDUCED. HPT MAY REBORROW AMOUNTS UNDER ITS CREDIT FACILITY OR MAY OBTAIN ADDITIONAL DEBT FINANCING IN THE FUTURE. FOR THESE AND OTHER POSSIBLE REASONS, HPT’S LEVERAGE MAY NOT BE REDUCED.
  • THIS PRESS RELEASE STATES THAT, AS A RESULT OF THE AGREEMENTS ANNOUNCED TODAY, HPT EXPECTS THE COVERAGE RATIO FROM HPT’S TRAVEL CENTER PORTFOLIO WILL IMPROVE AND THAT THE COVERAGE RATIO WOULD HAVE CHANGED FROM 1.60X to APPROXIMATELY 1.80X ON A PRO FORMA BASIS FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 2018. HOWEVER, THE COVERAGE RATIO IN THE FUTURE WILL DEPEND ON TA’S OPERATING RESULTS AND MAY DECLINE.
  • THIS PRESS RELEASE STATES THAT HPT WILL RECEIVE $70.5 MILLION OF PREVIOUSLY DEFERRED RENTS IN 16 EQUAL QUARTERLY INSTALLMENTS BEGINNING ON APRIL 1, 2019. HPT’S RECEIPT OF THESE DEFERRED RENT AMOUNTS WILL DEPEND ON TA’S ABILITY TO PAY. TA HAS REALIZED OPERATING LOSSES IN PAST PERIODS AND ITS DEFERRED RENT WAS AGREED TO PREVIOUSLY BECAUSE OF TA’S THEN FINANCIAL CONDITION. AS A RESULT, HPT CANNOT BE SURE THAT IT WILL RECEIVE THE DEFERRED RENT AMOUNTS IN ACCORDANCE WITH THE TIMING ANNOUNCED TODAY OR AT ALL. THESE AGREEMENTS MAY ALSO IMPLY THAT WE WILL REALIZE A CORRESPONDING BENEFIT IN OUR OPERATING RESULTS AS THE PAYMENTS ARE MADE. UNDER GENERALLY ACCEPTED ACCOUNTING PRINCIPLES, WE ARE REQUIRED TO RECORD RENTAL INCOME FROM OUR OPERATING LEASES ON A STRAIGHT-LINE BASIS OVER THE TERMS OF THE AGREEMENTS, WHICH EXTEND BEYOND WHEN THE PAYMENTS ARE DUE. FURTHER, WE HAD PREVIOUSLY RECORDED AS RENTAL INCOME ON A STRAIGHT-LINE BASIS SOME OF THE PREVIOUS $150.0 MILLION DEFERRED RENT OBLIGATION. THOSE AMOUNTS THAT WE ALREADY RECOGNIZED AS RENTAL INCOME WILL REDUCE FUTURE RENTAL INCOME AMOUNTS WE RECORD FOR THESE RENT OBLIGATION PAYMENTS.
  • THIS PRESS RELEASE STATES THAT BEGINNING IN 2020, HPT WILL BEGIN TO RECEIVE ADDITIONAL PERCENTAGE RENTS. THE PERCENTAGE RENT PAYABLE TO HPT BY TA IS BASED UPON INCREASES IN CERTAIN REVENUES OVER CERTAIN THRESHOLD AMOUNTS AT THE SITES LEASED BY TA FROM HPT. THERE IS NO GUARANTEE THAT TA’S REVENUES WILL INCREASE OR THAT THE PERCENTAGE RENT PAYABLE BY TA TO HPT WILL INCREASE AS A RESULT OR AT ALL.
  • HPT’S PRESIDENT AND CHIEF EXECUTIVE OFFICER, MR. JOHN MURRAY, STATES IN THIS PRESS RELEASE THAT THE AGREEMENTS ANNOUNCED TODAY PROVIDE LIQUIDITY FOR ADDITIONAL HOTEL INVESTMENTS. THIS MAY IMPLY THAT HPT WILL BE SUCCESSFUL IN MAKING ADDITIONAL HOTEL INVESTMENTS IN THE FUTURE AND THAT ITS OPERATING RESULTS MAY IMPROVE AS A RESULT. HPT’S ABILITY TO MAKE FUTURE HOTEL INVESTMENTS WILL DEPEND ON VARIOUS FACTORS, INCLUDING FACTORS NOT WITHIN ITS CONTROL. ALSO, HOTEL INVESTMENTS ARE SUBJECT TO RISKS AND ANY FUTURE HOTEL INVESTMENTS MAY NOT IMPROVE ITS OPERATING RESULTS.
  • HPT’S PRESIDENT AND CHIEF EXECUTIVE OFFICER, MR. JOHN MURRAY, STATES IN THIS PRESS RELEASE THAT THE AGREEMENTS ANNOUNCED TODAY HELP HPT MAINTAIN SECURE, STEADY CASH FLOWS AND PROVIDE HPT’S LARGEST TENANT, TA, FINANCIAL FLEXIBILITY TO HELP WEATHER ANY POTENTIAL ECONOMIC DOWNTURNS IN THE FUTURE. THESE STATEMENTS MAY IMPLY THAT HPT WILL MAINTAIN SECURE, STEADY CASH FLOWS IN THE FUTURE. HOWEVER, HPT’S BUSINESS IS SUBJECT TO RISKS, INCLUDING RISKS THAT ARE NOT WITHIN ITS CONTROL. ACCORDINGLY, HPT MAY BE UNABLE TO MAINTAIN SECURE, STEADY CASH FLOWS IN THE FUTURE. IN ADDITION, THE AGREEMENTS ANNOUNCED TODAY MAY NOT PROVIDE TA WITH SUFFICIENT FINANCIAL FLEXIBILITY TO WEATHER FUTURE ECONOMIC DOWNTURNS OR OTHER CHALLENGES TO ITS BUSINESS.
  • THIS PRESS RELEASE STATES THAT THE TERMS OF THE AGREEMENTS DESCRIBED IN THIS PRESS RELEASE WERE NEGOTIATED AND APPROVED BY SPECIAL COMMITTEES OF HPT’S INDEPENDENT TRUSTEES AND TA’S INDEPENDENT DIRECTORS WHO WERE REPRESENTED BY SEPARATE COUNSEL. AN IMPLICATION OF THESE STATEMENTS MAY BE THAT THESE AGREEMENTS ARE EQUIVALENT TO “ARM’S LENGTH” AGREEMENTS BETWEEN UNRELATED PARTIES. HPT AND TA ARE AFFILIATED BECAUSE THEY HAVE A COMMON BOARD MEMBER, BECAUSE BOTH HAVE CERTAIN MANAGEMENT CONTRACTS WITH THE SAME COMPANY AND OTHERWISE. ALSO, AN AGREEMENT WHICH WAS ENTERED BY HPT AND TA AT THE TIME TA WAS SPUN OUT OF HPT TO BECOME A SEPARATE PUBLIC COMPANY GRANTS HPT CERTAIN RIGHTS OF FIRST REFUSAL REGARDING TA’S REAL ESTATE AGREEMENTS. ACCORDINGLY, HPT CAN PROVIDE NO ASSURANCE THAT THE TERMS OF THE AGREEMENTS ANNOUNCED TODAY ARE EQUIVALENT TO “ARM’S LENGTH” AGREEMENTS.

THE INFORMATION CONTAINED IN HPT’S FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION, OR THE 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.

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.

Katie Strohacker, Senior Director, Investor Relations
(617) 796-8232
www.hptreit.com

Source: Hospitality Properties Trust