UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 1-11527
HOSPITALITY PROPERTIES TRUST
Maryland 04-3262075
(State of incorporation) (IRS Employer Identification No.)
400 Centre Street, Newton, Massachusetts 02458
617-964-8389
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Shares outstanding
Class at August 1, 2000
Common shares of beneficial
interest, $0.01 par value per share 56,463,512
HOSPITALITY PROPERTIES TRUST
FORM 10-Q
June 30, 2000
INDEX
PART I Financial Information (Unaudited) Page
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - June 30, 2000 and
December 31, 1999.............................................. 3
Consolidated Statements of Income - Three and Six Months Ended
June 30, 2000 and 1999......................................... 4
Condensed Consolidated Statements of Cash Flows - Six Months
Ended June 30, 2000 and 1999................................... 5
Notes to Condensed Consolidated Financial Statements............. 6
Item 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations.......................................... 10
Item 3.
Quantitative and Qualitative Disclosures About Market Risk....... 15
Certain Important Factors........................................ 16
PART II Other Information
Item 6.
Exhibits and Reports on Form 8-K................................. 17
Signature.......................................................... 18
2
HOSPITALITY PROPERTIES TRUST
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
June 30, December 31,
2000 1999
------------ ------------
(unaudited)
ASSETS
Real estate properties, at cost $ 2,416,542 $ 2,270,630
Accumulated depreciation (228,500) (187,631)
----------- -----------
2,188,042 2,082,999
Cash and cash equivalents 9,141 73,554
Restricted cash (FF&E reserve) 24,232 26,034
Other assets, net 11,762 12,265
----------- -----------
$ 2,233,177 $ 2,194,852
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Senior notes, net of discount $ 414,793 $ 414,780
Revolving credit facility 42,000 --
Security and other deposits 260,152 246,242
Other liabilities 17,896 14,115
Shareholders' equity:
Series A preferred shares, 9 1/2% cumulative redeemable; no
par value; 100,000,000 shares authorized; 3,000,000 shares
issued and outstanding 72,207 72,207
Common shares of beneficial interest, $0.01 par value,
100,000,000 shares authorized, 56,463,512 and 56,449,743
issued and outstanding, respectively 565 564
Additional paid-in capital 1,506,751 1,506,494
Cumulative net income 375,275 315,436
Cumulative preferred distributions (8,669) (5,106)
Cumulative common distributions (447,793) (369,880)
----------- -----------
Total shareholders' equity 1,498,336 1,519,715
----------- -----------
$ 2,233,177 $ 2,194,852
=========== ===========
The accompanying notes are an integral part of these financial statements.
3
HOSPITALITY PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts, unaudited)
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- ---------------------------
2000 1999 2000 1999
--------- -------- -------- --------
Revenues:
Rental income $ 56,188 $ 52,997 $111,310 $102,039
FF&E reserve income 6,599 4,954 12,566 9,068
Interest income 852 1,040 1,940 1,157
-------- -------- -------- --------
Total revenues 63,639 58,991 125,816 112,264
-------- -------- -------- --------
Expenses:
Interest (including amortization
of deferred financing costs
of $512, $645, $1,024 and
$1,199, respectively) 8,981 9,759 17,809 19,694
Depreciation and amortization 20,693 18,426 40,869 35,697
General and administrative 3,660 3,196 7,299 6,367
-------- -------- -------- --------
Total expenses 33,334 31,381 65,977 61,758
-------- -------- -------- --------
Net income 30,305 27,610 59,839 50,506
Preferred distributions 1,781 1,544 3,563 1,544
-------- -------- -------- --------
Net income available for common
shareholders $ 28,524 $ 26,066 $ 56,276 $ 48,962
======== ======== ======== ========
Weighted average common shares
outstanding 56,463 51,590 56,461 48,618
======== ======== ======== ========
Basic and diluted earnings per
common share:
Net income $ 0.54 $ 0.54 $ 1.06 $ 1.04
======== ======== ======== ========
Net income available for
common shareholders $ 0.51 $ 0.51 $ 1.00 $ 1.01
======== ======== ======== ========
The accompanying notes are an integral part of these financial statements.
4
HOSPITALITY PROPERTIES TRUST
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, unaudited)
Six Months Ended June 30,
-----------------------------
2000 1999
--------- ---------
Cash flows from operating activities:
Net income $ 59,839 $ 50,506
Adjustments to reconcile net income to cash provided by operating
activities:
Depreciation and amortization 40,869 35,697
Amortization of deferred financing costs as interest 1,024 1,199
FF&E reserve income (12,566) (9,068)
Deferred percentage rent 2,770 --
Net change in assets and liabilities 813 3,581
--------- ---------
Cash provided by operating activities 92,749 81,915
--------- ---------
Cash flows from investing activities:
Real estate acquisitions (131,596) (332,741)
Increase in security and other deposits 13,910 36,996
--------- ---------
Cash used in investing activities (117,686) (295,745)
--------- ---------
Cash flows from financing activities:
Distributions paid to common shareholders (77,913) (61,577)
Distributions paid to preferred shareholders (3,563) (1,544)
Draws on revolving credit facility 42,000 172,000
Repayment of credit facility -- (172,000)
Proceeds from issuance of common shares, net -- 274,595
Proceeds from issuance of preferred shares, net -- 72,438
--------- ---------
Cash (used in) provided by financing activities (39,476) 283,912
--------- ---------
(Decrease) increase in cash and equivalents (64,413) 70,082
Cash and cash equivalents at beginning of period 73,554 24,610
--------- ---------
Cash and cash equivalents at end of period $ 9,141 $ 94,692
========= =========
Supplemental cash flow information:
Cash paid for interest $ 16,752 $ 18,450
Non-cash investing and financing activities:
Property managers' deposits in FF&E reserve 11,064 8,115
Purchases of fixed assets with FF&E reserve (14,368) (4,934)
The accompanying notes are an integral part of these financial statements.
5
HOSPITALITY PROPERTIES TRUST
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
Note 1. Basis of Presentation
The accompanying condensed consolidated financial statements of Hospitality
Properties Trust and its subsidiaries have been prepared without audit. Certain
information and footnote disclosures required by generally accepted accounting
principles for complete financial statements have been condensed or omitted. We
believe the disclosures made are adequate to make the information presented not
misleading. However, the accompanying financial statements should be read in
conjunction with the financial statements and notes thereto contained in our
Annual Report on Form 10-K for the year ended December 31, 1999. In the opinion
of management, all adjustments, which include only normal recurring adjustments
considered necessary for a fair presentation, have been included. All
intercompany transactions and balances between Hospitality Properties Trust and
its subsidiaries have been eliminated. Our operating results for interim periods
and those of our tenants are not necessarily indicative of the results that may
be expected for the full year.
In December 1999 the Securities and Exchange Commission released Staff
Accounting Bulletin No. 101 ("SAB 101"). SAB 101 is expected to have no impact
on our annual results of operations. SAB 101 requires us to defer recognition of
certain percentage rental income from the first, second and third quarters to
the fourth quarter within a year. We adopted SAB 101 beginning January 1, 2000,
without restatement of prior periods. If SAB 101 had been applicable for the
three and six months ended June 30, 1999, net income available for common
shareholders would have been $25,032 ($0.49/share) and $46,988 ($0.97/share),
respectively, and the deferred percentage rent balance would have been $1,974 at
June 30, 1999.
Note 2. Shareholders' Equity
In May 2000 we paid a $0.69 per share distribution to common shareholders for
the quarter ended March 31, 2000. On July 6, 2000, our Trustees declared a
distribution of $0.69 per share to be paid to common shareholders of record on
July 20, 2000: this amount will be distributed on or about August 24, 2000.
On June 30, 2000, we paid a $0.59375 per share distribution to preferred
shareholders.
We do not present diluted earnings per share because we have no dilutive
instruments.
Note 3. Indebtedness
As of June 30, 2000, we had $42,000 outstanding on our revolving credit
facility. Subsequent to June 30, 2000, we paid $42,000 to reduce the balance on
this revolving credit facility to zero.
In July 2000, we issued $50,000 of 9.125% unsecured Senior notes due 2010. Net
proceeds of $49,630 were used to repay amounts outstanding on our revolving
credit facility.
Note 4. Real Estate Properties
During the six months ended June 30, 2000, we purchased twelve hotels for
approximately $128,331 using cash on hand and borrowings under our revolving
credit facility.
6
HOSPITALITY PROPERTIES TRUST
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
Note 5. Significant Tenant
At June 30, 2000, HMH HPT Courtyard LLC, a 100% owned special purpose subsidiary
of Host Marriott Corporation ("Host") is the lessee of 53 Courtyard by
Marriott(R) properties which we own and which represent 22% of our investments,
at cost. The following results of operations for the twenty-four weeks ended
June 16, 2000, and June 18, 1999, and summarized balance sheet data of HMH HPT
Courtyard LLC as provided by the lessee's management are included here in
compliance with applicable accounting and disclosure regulations of the
Securities and Exchange Commission.
Twenty-four weeks Twenty-four weeks
ended ended
June 16, 2000 June 18, 1999
(unaudited) (unaudited)
------------------- ------------------
Revenues
Rental income1 ................. $ 23,356 $ 23,394
Interest income ................ 330 112
Amortization of deferred gain .. 1,328 1,328
Other income ................... 31 --
-------- --------
Total revenue ............... 25,045 24,834
Expenses
Base and percentage rent expense 25,898 24,713
Corporate expenses ............. 928 215
Other expenses ................. 16 14
-------- --------
Total expenses .............. 26,842 24,942
-------- --------
Income (loss) before taxes ... (1,797) (108)
Provision for income taxes ... -- 91
-------- --------
Net (loss) income ............ (1,797) (199)
======== ========
June 16, 2000
(unaudited) December 31, 1999
------------------ -------------------
Assets........................ $ 67,805 $ 67,821
Liabilities................... 45,453 43,672
Equity........................ 22,352 24,149
<FN>
1 The statement of operations for the twenty-four weeks ended June 18,
1999 has been restated by the lessee to reflect their retroactive
adoption of SAB 101 effective January 1, 1999. As a result of the
lessee's adoption of SAB 101, recognition of percentage rental
revenue for the twenty-four weeks ended June 18, 1999, of $4,675 was
deferred. Recognition of percentage rental revenue for the
twenty-four weeks ended June 16, 2000, of $5,193 was deferred and is
included in liabilities as deferred rent as of June 16, 2000.
Percentage rent will be recognized as income during the year once
specified hotel sales thresholds are achieved.
</FN>
7
HOSPITALITY PROPERTIES TRUST
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
At June 30, 2000, CCMH Courtyard I LLC, a 100% owned special purpose subsidiary
of Crestline Capital Corporation ("Crestline") is the sublessee of the 53
Courtyard by Marriott(R) properties discussed above. The following results of
operations for the twenty-four weeks ended June 16, 2000, and June 18, 1999, and
summarized balance sheet data of CCMH Courtyard I LLC as provided by the
sublessee's management are included here in compliance with applicable
accounting and disclosure regulations of the Securities and Exchange Commission.
Twenty-four weeks Twenty-four weeks
ended ended
June 16, 2000 June 18, 1999
(unaudited) (unaudited)
------------------- ------------------
Revenues
Hotels
Rooms ............................ $ 100,962 $ 97,106
Food and beverage ................ 7,115 7,135
Other ............................ 3,942 3,859
--------- ---------
Total hotel revenue .......... 112,019 108,100
Operating costs and expenses
Hotels
Property-level costs and expenses
Rooms ........................ 22,098 20,969
Food and beverage ............ 6,302 6,147
Other ........................ 36,895 36,151
Other operating costs and expenses
Management fees .............. 14,404 13,487
Lease expense ................ 29,121 28,593
--------- ---------
Total hotel expense .......... 108,820 105,347
--------- ---------
Operating profit ............. 3,199 2,753
--------- ---------
Corporate expenses ........................ (146) (169)
Interest expense .......................... (131) (152)
Interest income ........................... 7 1
--------- ---------
Income before income taxes ................ 2,929 2,433
Income taxes .............................. (1,201) (997)
--------- ---------
Net income ................................ $ 1,728 $ 1,436
========= =========
June 16, 2000
(unaudited) December 31, 1999
------------------ -------------------
Assets .................................... $ 33,822 $ 30,157
Liabilities ............................... 10,698 8,761
Equity .................................... 23,124 21,396
8
HOSPITALITY PROPERTIES TRUST
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
Operating results for these 53 Courtyard by Marriott(R) properties derived from
data provided by management of HMH HPT Courtyard LLC (our tenant) and CCMH
Courtyard I LLC (Host's subtenant) are detailed below and present revenues in
excess of those expenses which are not subordinate to our rent:
Twenty-four weeks Twenty-four weeks
ended ended
June 16, 2000 June 18, 1999
(unaudited) (unaudited)
------------------ ------------------
Total hotel sales
Rooms ................................. $100,962 $ 97,106
Food and beverage ..................... 7,115 7,135
Other ................................. 3,942 3,859
-------- --------
Total hotel sales ..................... 112,019 108,100
Expenses
Rooms ................................. 22,098 20,969
Food and beverage ..................... 6,302 6,147
Other operating departments ........... 726 1,032
General and administrative ............ 11,445 11,386
Utilities ............................. 3,564 3,485
Repairs, maintenance and accidents .... 4,104 4,028
Marketing and sales ................... 3,357 2,979
Chain services ........................ 2,487 2,335
FF&E escrow deposits .................. 5,601 5,405
Real estate tax ....................... 3,826 3,638
Land rent ............................. 1,034 957
Other costs ........................... 752 905
-------- --------
Total departmental expenses ........... 65,296 63,266
-------- --------
Hotel revenues in excess of property-level
costs and expenses ..................... $ 46,723 $ 44,834
======== ========
9
HOSPITALITY PROPERTIES TRUST
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations (dollar amounts in thousands, except per share amounts)
Three Months Ended June 30, 2000 versus 1999
Rental income for the 2000 second quarter was $56,188, a 6.0% increase over
rental income of $52,997 for the 1999 second quarter. This increase was due to
the partial quarter's impact of rent from the acquisition of 12 hotels during
the 2000 second quarter, and the full quarter's impact of rent from the
acquisition of 13 hotels subsequent to the first quarter 1999. Rental income is
comprised principally of minimum rent, which was $56,188 for the 2000 second
quarter, a 8.1% increase over minimum rent of $51,963 for the 1999 second
quarter. Minimum rent increased principally because of the acquisitions
discussed above. Percentage rent was $1,557 and $1,034 in the 2000 and 1999
second quarter, respectively. Due to our adoption of SAB 101, recognition of
$1,557 of percentage rental income was deferred in the 2000 second quarter until
such time as annual thresholds are met. If we had not adopted SAB 101,
percentage rental income would have increased by 50.6%. This increase is the
result of hotels that began to yield percentage rent during the last 12 months
and to increases in total sales at our hotels. FF&E reserve income represents
amounts paid by our tenants into restricted accounts owned by us, the purpose of
which is to accumulate funds for future capital expenditures. The terms of our
leases require these amounts to be calculated as a percentage of total hotel
sales at our properties. The FF&E reserve income for the 2000 second quarter was
$6,599, a 33.2% increase over FF&E reserve income of $4,954 for the 1999 second
quarter. This increase is due principally to the impact of acquisitions and the
increased level of total sales experienced at our hotels. Interest income for
the 2000 second quarter was $852, an 18.1% decrease from interest income of
$1,040 for the 1999 second quarter. This decrease was due to a lower average
cash balance partially offset by a higher average interest rate in the 2000
period.
Interest expense for the 2000 second quarter was $8,981, an 8.0% decrease over
interest expense of $9,759 for the 1999 second quarter. The decrease was due to
lower average borrowings during the 2000 period. Depreciation and amortization
expense for the 2000 second quarter was $20,693, a 12.3% increase over
depreciation and amortization expense of $18,426 for the 1999 second quarter.
This increase was due principally to the full quarter's impact of the
depreciation of 13 hotels acquired subsequent to first quarter 1999 and the
partial quarter's impact of the 12 hotels acquired during the second quarter
2000. General and administrative expense for the 2000 second quarter was $3,660,
a 14.5% increase over general and administrative expense of $3,196 in the 1999
second quarter. This increase is due principally to the impact of additional
hotels purchased in 1999 and 2000.
Net income for the 2000 second quarter was $30,305, a 9.8% increase over net
income for the 1999 second quarter. The increase was primarily due to higher
rental income and lower interest expense, the effects of which were partially
offset by an increase in depreciation expense. Increases in rental income and
depreciation were primarily the result of the hotel acquisitions during 1999 and
2000. Reduced interest expense was the result of lower average balances
outstanding under our credit facility during the 2000 second quarter.
Net income available for common shareholders for the 2000 second quarter was
$28,524, a 9.4% increase over net income available for common shareholders of
$26,066 for the 1999 second quarter. This change resulted from the factors
discussed above, partially offset by a full quarter of distributions on
preferred shares which were outstanding for the entire 2000 second quarter
versus only a partial quarter of distributions in the 1999 second quarter.
On a per common share basis, net income available for common shareholders for
the 2000 second quarter was $0.51, the same as for the 1999 second quarter. No
change in per common share net income available for common shareholders results
from the net 9.4% increase in net income available for common shareholders
discussed above, offset by the 9.4% increase in the weighted average number of
common shares outstanding resulting from common share issuances during 1999.
Funds from operations, or FFO, is defined as net income available for common
shareholders before extraordinary and non-recurring items plus depreciation and
amortization of real estate assets plus deferred percentage rent relating to
operations from the current periods plus deposits made into FF&E escrows which
are not included in revenue. Cash available for distribution, or CAD, is FFO
less FF&E escrows plus amortization of deferred financing costs and other
non-cash charges. For the 2000 second quarter FFO was $54,819 or $0.97 per share
and CAD was $45,029 or $0.80 per share. For the 1999 second quarter FFO was
$47,854 or $0.93 per share and CAD was $40,525 or $0.79 per share. Increases in
FFO and CAD are attributable to the effects on revenues and expenses of the
acquisition and financing activities discussed above.
10
HOSPITALITY PROPERTIES TRUST
Six Months Ended June 30, 2000 versus 1999
Rental income for the first six months of 2000 was $111,310, a 9.1% increase
over rental income of $102,039 for the 1999 period. This increase was due to the
full period's impact of 40 hotels purchased during 1999 and the partial period
impact of the 12 hotels purchased during the 2000 second quarter. Rental income
is comprised principally of minimum rent, which was $111,310 for the first six
months of 2000, an 11.2% increase over minimum rent of $100,065 for the same
period in 1999. Minimum rent increased principally because of the acquisitions
discussed above. Percentage rent was $2,770 and $1,974 for the first six months
of 2000 and 1999, respectively. Due to our adoption of SAB 101, recognition of
$2,770 of percentage rental income was deferred in 2000 until such time as
annual thresholds are met. If we had not adopted SAB 101, percentage rental
income would have increased by 40.3%. This increase is primarily the result of
hotels that began to yield percentage rent during the last 12 months, and to
increases in total sales at some of our hotels. FF&E reserve income for the
first six months of 2000 was $12,566 a 38.6% increase over FF&E reserve income
of $9,068 for the 1999 period. This increase is due principally to the impact of
acquisitions and the increased level of total sales experienced at our hotels.
Interest income for the first six months of 2000 was $1,940, a 67.7% increase
from interest income of $1,157 for the 1999 period. This increase was due to a
higher average cash balance and a higher average interest rate in the 2000
period.
Interest expense for the first six months of 2000 was $17,809, a 9.6% decrease
over interest expense of $19,694 for the first six months of 1999. The decrease
was due to lower average borrowings during the 2000 period. Depreciation and
amortization expense for the first six months of 2000 was $40,869, a 14.5%
increase over depreciation and amortization expense of $35,697 for the first six
months of 1999. This increase was due principally to the full period's impact of
the depreciation of 40 hotels acquired during 1999 and the partial impact of the
12 hotels acquired during the 2000 period. General and administrative expense
for the first six months of 2000 was $7,299, a 14.6% increase over general and
administrative expense of $6,367 for the first six months of 1999. This increase
is due principally to the impact of additional hotels purchased in 1999 and
2000.
Net income for the first six months of 2000 was $59,839, a 18.5% increase over
net income of $50,506 for the first six months of 1999. The increase was
primarily due to higher rental and interest income and lower interest expense,
the effects of which were partially offset by increases in depreciation and
general and administrative expenses. These changes, were primarily the result of
additional hotels purchased during 1999 and 2000.
Net income available for common shareholders for the first six months of 2000
was $56,276, a 14.9% increase over net income available for common shareholders
of $48,962 for the 1999 period. This increase resulted from the factors
discussed above, partially offset by a full quarter of distributions on
preferred shares which were outstanding for the entire 2000 period versus only a
partial quarter of distributions in the 1999 second quarter.
On a per share basis, net income available for common shareholders was $1.00,
which is a 1.0% decline from the 1999 period of $1.01. This decline results from
the 14.9% increase in net income available for common shareholders discussed
above, offset by a 16.1% increase in weighted average common shares outstanding.
Funds from operations, or FFO, is defined as net income available for common
shareholders before extraordinary and non-recurring items plus depreciation and
amortization of real estate assets plus deferred percentage rent relating to
operations from the current periods plus deposits made into refurbishment
escrows which are not included in revenue. Cash available for distribution, or
CAD, is FFO less refurbishment escrows plus amortization of deferred financing
costs and other non-cash charges. For the first six months of 2000, FFO was
$107,419 or $1.90 per share and CAD was $89,057 or $1.58 per share. For the
first six months of 1999, FFO was $91,052 or $1.87 per share and CAD was $77,434
or $1.59 per share. Changes in FFO and CAD are attributable to the effects on
revenues and expenses of acquisition and financing activities discussed above.
11
HOSPITALITY PROPERTIES TRUST
Liquidity and Capital Resources (dollar amounts in thousands, except per share
amounts)
Our total assets increased to $2,233,177 as of June 30, 2000 from $2,194,852 as
of December 31, 1999. The increase resulted primarily from new investments in
hotels of approximately $145,964 offset by reduced cash balances and
depreciation expense.
Each of our leases requires the tenant to post a security deposit, generally
equal to one year's rent. The security deposit is payable to each tenant at
lease expiration in the event the tenant elects not to exercise its lease
renewal options. Some of our leases are guaranteed by our tenant's affiliates
and these affiliates have deposited with us an aggregate of $32,442 in addition
to the lease security deposits to secure their guaranty obligations. These
guarantee deposits are payable to our tenants upon the achievement and
documentation of certain operating performance thresholds at the leased
properties; we expect that guarantee deposits of $5,275 will be returned during
2000.
At June 30, 2000, we had $9,141 of cash and cash equivalents and $42,000
outstanding on our $300,000 revolving credit facility. We have agreed, subject
to certain conditions, to purchase for $55,562 two hotels now under construction
by the seller. From time to time, including currently, we consider entering or
pursuing transactions which would provide equity or debt capital of various
forms and on various terms. On July 14, and July 28, 2000 we issued an aggregate
of $50,000 of senior unsecured notes due 2010. Net proceeds of approximately
$49,630 were used to reduce the outstanding balances on our line of credit to
zero and for general corporate purposes. On January 15, 1998, our shelf
registration statement for up to $2,000,000 of securities, including debt
securities, was declared effective by the Securities and Exchange Commission. An
effective shelf registration statement enables us to issue specific securities
to the public on an expedited basis by filing a prospectus supplement with the
Securities and Exchange Commission. Currently, we have $1,000,000 available on
our shelf registration statement. We believe that the capital available to us
from time to time will be sufficient to enable the execution of our business
plans.
All of our hotels are leased to and operated by third parties. All costs of
operating and maintaining our hotels are paid by our tenants. All of our leases
require a percentage, usually 5%, of total hotel sales to be escrowed by the
tenant or operator as a reserve for future renovations and refurbishment ("FF&E
Reserve"). As of June 30, 2000, we and our tenants had approximately $34,918 on
deposit in these refurbishment escrow accounts.
To maintain status as a real estate investment trust ("REIT") under the Internal
Revenue Code, we must meet certain requirements including the distribution of a
substantial portion of our taxable income to our shareholders. As a REIT, we
expect not to pay federal income taxes.
Distributions are based principally on cash available for distribution, which is
net income available for common shareholders plus deferred percentage rent,
depreciation and amortization of real estate assets and certain non-cash
charges, less FF&E Reserve income. Cash available for distribution may not equal
cash provided by operating activities because cash flow provided by operating
activities is affected by other factors not included in the cash available for
distribution calculation.
On May 16, 2000, our Trustees declared a distribution on preferred shares of
$0.59375 per preferred share to be paid to preferred shareholders of record as
of June 15, 2000, which was distributed on June 30, 2000.
Common share distributions with respect to the first quarter 2000 results of
$0.69 per common share were made in May 2000. Common share distributions
declared with respect to second quarter 2000 results of $0.69 per common share
will be paid to shareholders in August 2000.
Funding for current expenses and distributions is provided by our operations,
primarily leasing of our owned hotels.
Property Leases
As of June 30, 2000, we own or have committed to purchase 224 hotels which are
grouped into combinations and leased to 11 separate affiliates of publicly owned
companies: Marriott International, Inc., Host, Crestline, Wyndham International,
Inc., Security Capital Group, Inc., Candlewood Hotel Company and ShoLodge, Inc
("ShoLodge").
12
HOSPITALITY PROPERTIES TRUST
On July 11, 2000, we announced our consent to the assignment of a lease for 24
hotels then leased to ShoLodge to Prime Hospitality Corp. (NYSE: PDQ). All 24
hotels, which are now branded as Sumner Suites(R), will be re-branded as
AmeriSuites(R)hotels. In connection with the lease assignment to Prime
Hospitality Corp. the initial lease term was extended two years to 2013.
The tables on this and the following page summarize the key terms of our leases
at June 30, 2000, and recent comparative operating statistics of our tenants'
hotels for the first six months ended June 30, 2000 and 1999. These tables do
not reflect our consent to the assignment of lease to Prime Hospitality Corp.
discussed above.
Lease Pool Courtyard by Residence Inn by Residence Residence Marriott(R)/Residence
Marriott(R) Marriott(R) Inn(R)/Courtyard Inn(R)/Courtyard Inn(R)/Courtyard(R)/
by Marriott(R) by Marriott(R)/ TownePlace Suites(R)
TownePlaceSuites(R)
/SpringHill Suites(R)(1)
- --------------------------------------------------------------------------------------------------------------------------
Number of Hotels 53 18 14 19 17
Number of Rooms 7,610 2,178 1,819 2,756 2,663
Number of States 24 14 7 14 7
Tenant Subsidiary of Subsidiary of Subsidiary of Subsidiary of Subsidiary of
Host subleased Host subleased Marriott Crestline Marriott
to subsidiary of to subsidiary of
Crestline Crestline
Manager Subsidiary of Subsidiary of Subsidiary of Subsidiary of Subsidiary of
Marriott Marriott Marriott Marriott Marriott
Investment at
June 30, 2000
(000s) $510,093 $175,776 $148,812 $218,815 $201,643
Security Deposits
(000s) $50,540 $17,220 $14,881 $22,552 $21,322
End of Initial
Lease Term 2012 2010 2014 2015 2013
Renewal Options (2) 3 for 12 years 1 for 10 years, 1 for 12 years, 2 for 10 years 2 for 10 years
each 2 for 15 years 1 for 10 years each each
each
Current Annual
Minimum Rent (000s)
$51,009 $17,523 $14,881 $28,525 $21,322
Percentage Rent (3) 5.0% 7.5% 7.0% 7.0% 7.0%
First Six Months:
2000: Occupancy 79.8% 84.4% 82.2% 80.8% (4) 73.3%
ADR $98.99 $103.77 $89.45 $107.82 (4) $83.24
RevPAR $78.99 $87.58 $73.53 $87.12 (4) $61.01
1999: Occupancy 81.3% 83.3% 82.5% 77.0% (4) 69.4%
ADR $93.44 $101.47 $87.43 $103.31 (4) $83.90
RevPAR $75.97 $84.52 $72.13 $79.55 (4) $58.23
<FN>
(1) Includes our second quarter 2000 acquisition of 8 hotels and commitment to purchase 2 additional hotels.
(2) Renewal options may be exercised by the tenant for all, but not less than all, of the hotels within a lease pool.
(3) Each lease provides for payment to us as additional rent of a percentage of increases in total hotel sales over
base year levels.
(4) Includes the 9 hotels in this lease pool which were open for at least one year prior to January 1, 2000. Also,
includes information for periods prior to our acquisition of certain properties.
</FN>
13
HOSPITALITY PROPERTIES TRUST
Lease Pool Wyndham(R) Summerfield Sumner Candlewood Candlewood Homestead
Suites by Suites(R) Suites(R) Suites(R) Village(R)
Wyndham(R)
- --------------------------------------------------------------------------------------------------------------------------
Number of Hotels 12 15 24 17 17 18
Number of Rooms 2,321 1,822 2,929 1,839 2,053 2,399
Number of States 8 8 13 14 14 5
Tenant Subsidiary of Subsidiary of Subsidiary of Subsidiary of Subsidiary of Subsidiary of
Wyndham Wyndham ShoLodge Candlewood Candlewood Homestead
Manager Subsidiary of Subsidiary of Subsidiary of Subsidiary of Subsidiary of Subsidiary of
Wyndham Wyndham ShoLodge Candlewood Candlewood Homestead
Investment at
June 30, 2000
(000s) $182,570 $240,000 $243,350 $118,500 $142,400 $145,000
Security Deposits
(000s) $18,325 $15,000 $25,575 $12,081 $14,253 $15,960
End of Initial
Lease Term 2014 2017 2011 2011 2011 2015
Renewal Options (1) 4 for 12 4 for 12 5 for 10 3 for 15 3 for 15 2 for 15
years each years each years each years each years each years each
Current Annual
Minimum Rent
(000s) $18,325 $25,000 $25,575 $12,081 $14,253 $15,960
Percentage Rent (2) 8.0% 7.5% 8.0% 10.0% 10.0% 10.0%
First Six Months:
2000: Occupancy 73.6% 82.3% 61.8% (3) 79.6% 80.7% 80.7%
ADR $94.28 $126.46 $78.42 (3) $55.11 $55.95 $50.10
RevPAR $69.39 $104.08 $48.46 (3) $43.87 $45.15 $40.43
1999: Occupancy 71.2% 81.3% (4) 56.9% (3) 66.7% (4) 67.1% (4) 74.0% (4)
ADR $99.47 $121.56 (4) $79.59 (3) $59.62 (4) $59.94 (4) $52.46 (4)
RevPAR $70.82 $98.83 (4) $45.29 (3) $39.77 (4) $40.22 (4) $38.82 (4)
<FN>
(1) Renewal options may be exercised by the tenant for all, but not less than all, of the hotels within a lease pool.
(2) Each lease provides for payment to us as additional rent of a percentage of increases in total hotel sales over
base year levels.
(3) Includes 20 hotels open for at least one year prior to January 1, 2000, and includes information for periods in
1999 prior to our acquisition of certain properties.
(4) Includes information for periods prior to our acquisition of certain properties.
</FN>
14
HOSPITALITY PROPERTIES TRUST
Seasonality
Our hotels have historically experienced seasonal differences typical of the
hotel industry with higher revenues in the second and third quarters of calendar
years compared with the first and fourth quarters. This seasonality is not
expected to cause fluctuations in our rental income because we believe that the
revenues generated by our hotels will be sufficient for the tenants to pay our
rents on a regular basis notwithstanding seasonal fluctuations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk (dollar
amounts in thousands)
We are exposed to risks associated with market changes in interest rates.
We manage our exposure to this market risk by monitoring available financing
alternatives. Our strategy to manage exposure to changes in interest rates is
unchanged since December 31, 1999. Other than as described below we do not
foresee any significant changes in our exposure to fluctuations in interest
rates or in how we manage this exposure in the near future. At June 30, 2000,
our outstanding debt included three issues of fixed rate, senior unsecured notes
as follows:
Interest Rate Total Interest
Principal Balance Per Year Maturity Interest Payments Due Expense Per Year
- ----------------- -------- -------- --------------------- ----------------
$115,000 8.25% 2005 Monthly $ 9,488
$150,000 7.00% 2008 Semi-Annually 10,500
$150,000 8.50% 2009 Monthly 12,750
No principal repayments are due under these notes until maturity. Because these
notes bear interest at fixed rates, changes in market interest rates during the
term of this debt will not effect our operating results. If at maturity these
notes are refinanced at interest rates which are 10% higher than shown above,
our per annum interest cost would increase by approximately $3,274. Based on the
balances outstanding as of June 30, 2000, a hypothetical immediate 10% change in
interest rates would change the fair value of our fixed rate debt obligations by
approximately $17,385.
Each of our fixed rate debt arrangements allow us to make repayments earlier
than the stated maturity date. In some cases, we are allowed to make early
repayment at par after a set date and in other cases we are allowed to make
prepayments only at a premium to face value. These prepayment rights may afford
us the opportunity to mitigate the risk of refinancing at maturity at higher
rates by refinancing prior to maturity.
Our line of credit bears interest at floating rates and matures in 2002. As of
June 30, 2000, there was $42,000 outstanding and $258,000 available for drawing
under our revolving credit facility. Our revolving credit facility is available
to finance our commitments and for general business purposes. Our exposure to
fluctuations in interest rates may in the future increase if we incur debt to
fund future acquisitions or otherwise. Repayments under the revolving credit
agreement may be made at any time without penalty. A change in interest rates
would not affect the value of our floating rate debt obligations but would
affect the interest which we must pay on this debt. The following table shows
the impact of a 10% change in interest rates would have on our interest expense
for our floating rate outstanding at June 30, 2000.
Interest Debt Annualized Impact of
Circumstance Rate Outstanding Interest Expense Change
- ------------ ---- ----------- ---------------- ------
Conditions at June 30, 2000 7.81% $42,000 $3,281 --
A 10% increase 8.59% 42,000 3,609 328
A 10% decrease 7.03% 42,000 2,953 (328)
The foregoing table shows the impact of an immediate change in floating interest
rates. If these changes occurred gradually over time the impact would be spread
over time.
We prepaid all of the floating rate debt after the close of the second quarter
and issued $50,000 of new unsecured fixed rate notes due in 2010, bearing
interest at 9.125% per annum.
The interest rate market which has an impact upon us is the U.S. dollar interest
rate for corporate obligations, including floating rate LIBOR based obligations
and fixed rate obligations.
15
HOSPITALITY PROPERTIES TRUST
CERTAIN IMPORTANT FACTORS
THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS STATEMENTS WHICH ARE FORWARD LOOKING
IN NATURE WITHIN THE MEANING OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
THOSE STATEMENTS APPEAR IN A NUMBER OF PLACES IN THIS FORM 10-Q AND INCLUDE
STATEMENTS REGARDING OUR INTENT, BELIEF OR EXPECTATIONS, ACTIONS, POSSIBLE
ACTIONS, OR INACTION BY OUR TRUSTEES OR OFFICERS WITH RESPECT TO THE DECLARATION
OR PAYMENT OF DISTRIBUTIONS AND OR THE TIMING THEREOF, OUR POLICIES AND PLANS
REGARDING INVESTMENTS, THE RE-BRANDING OF CERTAIN HOTELS AS AMERISUITES(R),
FINANCINGS, PAYMENT OF OBLIGATIONS, TAXATION AND OTHER MATTERS, THE EFFECT OF
SEASONALITY AND POSSIBLE CHANGES IN FINANCIAL MARKETS, INCLUDING BUT NOT LIMITED
TO CHANGES IN INTEREST RATES, OUR QUALIFICATION AND CONTINUED QUALIFICATION AS A
REAL ESTATE INVESTMENT TRUST OR TRENDS AFFECTING US OR RESULTS OF OPERATIONS.
READERS ARE CAUTIONED THAT FORWARD LOOKING STATEMENTS ARE NOT GUARANTEES OF
FUTURE PERFORMANCE AND INVOLVE RISKS AND UNCERTAINTIES, AND THAT ACTUAL RESULTS
MAY DIFFER MATERIALLY FROM THOSE CONTAINED IN THE FORWARD LOOKING STATEMENT AS A
RESULT OF VARIOUS FACTORS. THESE FACTORS INCLUDE, WITHOUT LIMITATION, CHANGES IN
FINANCING TERMS OR METHODS, OUR ABILITY OR INABILITY TO COMPLETE NEW
INVESTMENTS, TO REFINANCE EXISTING DEBT AND COMPLETE NEW FINANCING TRANSACTIONS,
RESULTS OF OPERATIONS OF OUR TENANTS AND HOTELS, CHANGES TO OUR BUSINESS PLAN OR
OUR POLICIES AND GENERAL CHANGES IN ECONOMIC CONDITIONS NOT PRESENTLY EXPECTED.
THE ACCOMPANYING INFORMATION CONTAINED IN THIS FORM 10-Q AND INFORMATION IN OUR
ANNUAL REPORT ON FORM 10-K, INCLUDING THE INFORMATION UNDER THE HEADING
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS," IDENTIFIES OTHER IMPORTANT FACTORS THAT COULD CAUSE THESE
DIFFERENCES.
THE AMENDED AND RESTATED DECLARATION OF TRUST OF THE COMPANY, DATED AUGUST 21,
1995, A COPY OF WHICH, TOGETHER WITH ALL AMENDMENTS THERETO (THE "DECLARATION"),
IS DULY FILED IN THE OFFICE OF THE DEPARTMENT OF ASSESSMENTS AND TAXATION OF THE
STATE OF MARYLAND, PROVIDES THAT THE NAME "HOSPITALITY PROPERTIES TRUST" REFERS
TO THE TRUSTEES UNDER THE DECLARATION COLLECTIVELY AS TRUSTEES, BUT NOT
INDIVIDUALLY OR PERSONALLY, AND THAT NO TRUSTEE, OFFICER, SHAREHOLDER, EMPLOYEE
OR AGENT OF THE TRUST SHALL BE HELD TO ANY PERSONAL LIABILITY, JOINTLY OR
SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM AGAINST, THE TRUST. ALL PERSONS
DEALING WITH THE TRUST, IN ANY WAY, SHALL LOOK ONLY TO THE ASSETS OF THE TRUST
FOR THE PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY OBLIGATION.
PART II Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
12. Ratio of Earnings to Fixed Charges
27. Financial Data Schedule.
(b) Reports on Form 8-K
(i) Current Report on Form 8-K, dated May 16, 2000, (a) reporting
updated information on officers of HPT and members of the
Board of Trustees, issuance of incentive shares, re-election
of Trustees and amendments to Bylaws and (b) filing as
exhibits Amended and Restated Bylaws of Hospitality Properties
Trust (Items 5 and 7).
(ii) Current report on Form 8-K, dated July 11, 2000, filing as
exhibits (a) underwriting agreement, supplemental indenture of
trust and opinion of counsel relating to issuance of $35
million of 9.125% senior notes due 2010 and (b) ratio of
earnings to fixed charges (Item 7).
16
(iii) Current report on Form 8-K, dated July 24, 2000, filing as
exhibits underwriting agreement and supplemental indenture of
trust and opinion of counsel relating to issuance of $15
million of 9.125% senior notes due 2010 (Item 7).
17
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HOSPITALITY PROPERTIES TRUST
/S/ Thomas M. O'Brien
Thomas M. O'Brien
Treasurer and Chief Financial Officer
(authorized officer and principal financial officer)
Dated: August 9, 2000
18