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 March 31, 2001
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 May 8, 2001
- ------------------------------------------- --------------
Common shares of beneficial
interest, $0.01 par value per share 56,506,340
HOSPITALITY PROPERTIES TRUST
FORM 10-Q
March 31, 2001
INDEX
PART I Financial Information (Unaudited) Page
----
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - March 31, 2001 and
December 31, 2000..............................................3
Consolidated Statements of Income - Three Months Ended
March 31, 2001 and 2000 .......................................4
Condensed Consolidated Statements of Cash Flows - Three Months
Ended March 31, 2001 and 2000..................................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 2.
Changes in Securities...........................................17
Item 6.
Exhibits and Reports on Form 8-K................................17
Signature...........................................................18
2
Item 1. Financial Statements
HOSPITALITY PROPERTIES TRUST
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
March 31, December 31,
2001 2000
-------------- --------------
(unaudited)
ASSETS
Real estate properties, at cost .............................. $ 2,488,813 $ 2,429,421
Accumulated depreciation ..................................... (294,072) (271,934)
----------- -----------
2,194,741 2,157,487
Cash and cash equivalents .................................... 9,176 24,601
Restricted cash (FF&E reserves) .............................. 29,843 27,306
Other assets, net ............................................ 10,831 11,515
----------- -----------
$ 2,244,591 $ 2,220,909
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Senior notes, net of discount ................................ $ 464,756 $ 464,748
Revolving credit facility .................................... 27,000 --
Security and other deposits .................................. 263,333 257,377
Other liabilities ............................................ 17,024 15,844
Shareholders' equity:
Series A preferred shares, 9.5% cumulative redeemable at
$25/share, no par value; 3,000,000 shares issued and
outstanding ............................................ 72,207 72,207
Common shares of beneficial interest, $0.01 par value;
56,506,340 and 56,472,512 shares issued and outstanding,
respectively ........................................... 565 565
Additional paid-in capital ............................... 1,507,738 1,506,976
Cumulative net income .................................... 471,795 441,707
Cumulative preferred distributions ....................... (14,012) (12,231)
Cumulative common distributions .......................... (565,815) (526,284)
----------- -----------
Total shareholders' equity ............................. 1,472,478 1,482,940
----------- -----------
$ 2,244,591 $ 2,220,909
=========== ===========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
3
HOSPITALITY PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts, unaudited)
Three Months Ended March 31,
-----------------------------
2001 2000
------------ ----------
Revenues:
Rental income ..................................................... $59,402 $55,122
FF&E reserve income ............................................... 6,409 5,967
Interest income ................................................... 362 1,088
------- -------
Total revenues ................................................ 66,173 62,177
------- -------
Expenses:
Interest (including amortization of deferred financing costs
of $603 and $512, respectively) ................................... 10,186 8,828
Depreciation and amortization ..................................... 22,138 20,176
General and administrative ........................................ 3,761 3,639
------- -------
Total expenses ................................................ 36,085 32,643
------- -------
Net income ........................................................... 30,088 29,534
Preferred distributions .............................................. 1,781 1,781
------- -------
Net income available for common shareholders ......................... $28,307 $27,753
======= =======
Weighted average common shares outstanding ........................... 56,495 56,458
======= =======
Basic and diluted earnings per common share:
Net income ....................................................... $ 0.53 $ 0.52
======= =======
Net income available for common shareholders ..................... $ 0.50 $ 0.49
======= =======
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
4
HOSPITALITY PROPERTIES TRUST
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, unaudited)
Three Months Ended March 31,
----------------------------
2001 2000
--------- ----------
Cash flows from operating activities:
Net income .................................................................. $ 30,088 $ 29,534
Adjustments to reconcile net income to cash provided by operating
activities:
Depreciation and amortization ........................................... 22,138 20,176
Amortization of deferred financing costs as interest .................... 603 512
FF&E reserve income ..................................................... (6,409) (5,967)
Deferred percentage rent ................................................ 1,695 1,213
Net change in other assets and liabilities .............................. 737 (1,114)
-------- --------
Cash provided by operating activities ............................... 48,852 44,354
-------- --------
Cash flows from investing activities:
Real estate acquisitions .................................................... (55,520) --
Increase in security and other deposits ..................................... 5,956 --
-------- --------
Cash used in investing activities ................................... (49,564) --
-------- --------
Cash flows from financing activities:
Distributions to common shareholders ........................................... (39,531) (38,954)
Distributions to preferred shareholders ........................................ (1,781) (1,781)
Draws on revolving credit facility ............................................. 27,000 --
Finance costs .................................................................. (401) --
-------- --------
Cash used in financing activities ................................... (14,713) (40,735)
-------- --------
(Decrease) increase in cash and cash equivalents ............................... (15,425) 3,619
Cash and cash equivalents at beginning of period ............................... 24,601 73,554
-------- --------
Cash and cash equivalents at end of period ..................................... $ 9,176 $ 77,173
======== ========
Supplemental cash flow information:
Cash paid for interest .................................................. $ 13,312 $ 11,059
Non-cash investing and financing activities:
Property managers' deposits in FF&E reserve ............................. 5,962 5,196
Purchases of fixed assets with FF&E reserve ............................. (3,872) (10,940)
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
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, 2000. 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.
The Securities and Exchange Commission Staff Accounting Bulletin No. 101 ("SAB
101") generally requires us to recognize percentage rental income received for
the first, second and third quarters in the fourth quarter. Percentage rent
deferred for the three months ended March 31, 2001 and 2000, was $1,695 and
$1,213, respectively.
Note 2. Shareholders' Equity
In February 2001 we paid a $0.70 per share distribution to common shareholders
for the quarter ended December 31, 2000. On April 3, 2001, our Trustees declared
a distribution of $0.70 per share to be paid to common shareholders of record on
April 23, 2001, which will be distributed on or about May 24, 2001.
On March 30, 2001, 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 March 31, 2001, we had $27,000 outstanding on our $300,000 revolving
credit facility. During April and May 2001, these outstanding amounts were
repaid.
Note 4. Real Estate Properties
During the three months ended March 31, 2001, we purchased two hotels for
approximately $55,520 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 March 31, 2001, 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 twelve weeks
ended March 23, 2001, and March 24, 2000, 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.
Twelve weeks ended Twelve weeks ended
March 23, 2001 March 24, 2000
(unaudited) (unaudited)
------------------ -----------------
Revenues:
Rental income1 ..................................... $ 11,455 $ 11,661
Interest income .................................... 59 105
Amortization of deferred gain ...................... 664 664
Other income ....................................... 31
-------- --------
Total revenues .................................. 12,178 12,461
-------- --------
Expenses:
Base and percentage rent expense ................... 12,366 12,570
Corporate expenses ................................. 2 3
Other expenses ..................................... 39 2
-------- --------
Total expenses .................................. 12,407 12,575
-------- --------
Net (loss) income .................................. (229) (114)
======== ========
March 23, 2001
(unaudited) December 31, 2000
--------------- -----------------
Assets ............................................. $ 69,039 $ 68,120
Liabilities ........................................ 41,288 40,140
Equity ............................................. 27,751 27,980
<FN>
1 Percentage rental revenue of $2,291 and $1,972 for the twelve weeks ended March 23,
2001 and March 24, 2000, respectively, was deferred in accordance with SAB 101 and is
included in deferred rent on the balance sheet. 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 March 31, 2001, 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 twelve weeks ended March 23, 2001, and March 24, 2000, 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.
Twelve weeks ended Twelve weeks ended
March 23, 2001 March 24, 2000
(unaudited) (unaudited)
------------------ -----------------
Revenues:
Hotels:
Rooms ..................................... $ 50,162 $ 47,338
Food and beverage ......................... 3,459 3,383
Other ..................................... 1,616 2,013
-------- --------
Total hotel revenues .................. 55,237 52,734
-------- --------
Operating costs and expenses:
Hotels:
Property-level costs and expenses:
Rooms ................................. 11,061 10,695
Food and beverage ..................... 3,089 3,040
Other ................................. 19,290 18,072
Other operating costs and expenses:
System management fees ................ 1,657 1,582
Other management fees ................. 5,499 4,959
Lease expense ......................... 12,960 12,916
-------- --------
Total hotel expenses .................. 53,556 51,264
-------- --------
Operating profit ...................... 1,681 1,470
-------- --------
Corporate expenses ................................. (82) (78)
Interest expense ................................... (61) (65)
Interest income .................................... 5 2
-------- --------
Income before income taxes ......................... 1,543 1,329
Income taxes ....................................... (633) (545)
-------- --------
Net income ......................................... $ 910 $ 784
======== ========
March 23, 2001
(unaudited) December 31, 2000
--------------- -----------------
Assets ............................................. $ 32,914 $ 31,299
Liabilities ........................................ 9,816 9,111
Equity ............................................. 23,098 22,188
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:
Twelve weeks ended Twelve weeks ended
March 23, 2001 March 24, 2000
(unaudited) (unaudited)
------------------ -----------------
Total hotel sales:
Rooms ......................................... $50,162 $47,338
Food and beverage ............................. 3,459 3,383
Other ......................................... 1,616 2,013
------- -------
Total hotel sales ............................. 55,237 52,734
------- -------
Expenses:
Rooms ......................................... 11,061 10,695
Food and beverage ............................. 3,089 3,040
Other operating departments ................... 254 269
General and administrative .................... 5,738 5,678
Utilities ..................................... 2,408 1,940
Repairs, maintenance and accidents ............ 2,118 1,955
Marketing and sales ........................... 1,746 1,567
Chain services ................................ 1,160 1,171
FF&E escrow deposits .......................... 2,762 2,637
Real estate tax ............................... 2,136 1,944
Land rent ..................................... 505 558
System fees ................................... 1,657 1,582
Other costs ................................... 463 354
------- -------
Total ......................................... 35,097 33,390
------- -------
Hotel revenues in excess of property-level costs
and expenses ......................................... $20,140 $19,344
======= =======
Hotel revenues in excess of property-level costs and expenses, shown above,
represent hotel-level cash flows after costs which are paid in priority to
minimum rent due HPT for this lease of $11,816 and $11,722 in the 2001 and 2000
periods, respectively.
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 March 31, 2001 versus 2000
Rental income for the 2001 first quarter was $59,402, a 7.8% increase over
rental income of $55,122 for the 2000 first quarter. This increase was due to
the full quarter's impact of rent from the acquisition of hotels in 2000 and the
two hotels acquired in 2001. 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 2001 first quarter was $6,409, a
7.4% increase over FF&E reserve income of $5,967 for the 2000 first 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 2001
first quarter was $362, a 66.7% decrease from interest income of $1,088 for the
2000 first quarter. This decrease was due primarily to a lower average cash
balance in the 2001 period.
Interest expense for the 2001 first quarter was $10,186, a 15.4% increase over
interest expense of $8,828 for the 2000 first quarter. The increase was
primarily due to average borrowings which were $59,478 higher during the 2001
period. Depreciation and amortization expense for the 2001 first quarter was
$22,138, a 9.7% increase over depreciation and amortization expense of $20,176
for the 2000 first quarter. This increase was due principally to the full
quarter's impact of the depreciation of hotels acquired in 2000 and the partial
impact of hotels acquired in 2001 as well as the purchase of depreciable assets
with funds from FF&E reserve restricted cash accounts owned by us during 2000
and 2001. General and administrative expense for the 2001 first quarter was
$3,761, a 3.4% increase over general and administrative expense of $3,639 in the
2000 first quarter. This increase is due principally to the impact of additional
hotels purchased in 2000 and 2001.
Net income for the 2001 first quarter was $30,088, or $0.53 per share, a 1.9%
increase over net income for the 2000 first quarter of $29,534, or $0.52 per
share. The increase was due to higher rental income, the effects of which were
partially offset by the following: a decrease in interest income and increases
in depreciation, interest expense and general and administrative expenses
discussed above.
Net income available for common shareholders for the 2001 first quarter was
$28,307 or $0.50 per share, a 2.0% increase over net income available for common
shareholders of $27,753, or $0.49 per share, for the 2000 first quarter. This
change resulted from the investment and operating activity discussed above.
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 FF&E escrow payments which are not
included in revenue. FFO does not equal cash flow from operating activities as
defined by generally accepted accounting principals and should not be considered
an alternative to net income as an indication of performance or to cash as a
measure of liquidity. Cash available for distribution, or CAD, is FFO minus FF&E
escrow payments plus amortization of deferred financing costs and other non-cash
charges. For the 2001 first quarter FFO was $55,999, or $0.99 per share, and CAD
was $46,678, or $0.83 per share. For the 2000 first quarter FFO was $52,601, or
$0.93 per share, and CAD was $44,029, or $0.78 per share. Increases in FFO and
CAD are attributable to the effects on revenues and expenses of the operating,
investing and financing activities discussed above.
10
HOSPITALITY PROPERTIES TRUST
Liquidity and Capital Resources (dollar amounts in thousands, except per share
amounts)
Our total assets increased to $2,244,591 as of March 31, 2001, from $2,220,909
as of December 31, 2000. The increase resulted primarily from new investments in
hotels of approximately $55,520 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 minimum 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 $29,667 in addition
to the lease security deposits to secure their guaranty obligations. These
guarantee deposits are payable to the guarantors upon the achievement and
documentation of certain operating performance thresholds at the leased
properties.
At March 31, 2001, we had $9,176 of cash and cash equivalents and $27,000
outstanding on our $300,000 revolving credit facility. In April and May 2001 we
repaid the $27,000 outstanding on our revolving credit facility with cash on
hand. From time to time, including currently, we consider entering into or
pursuing transactions which would provide equity or debt capital of various
forms and on various terms. 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 $961,833 available on our shelf
registration statement. We believe that the capital available to us from time to
time will be sufficient for 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. In addition to
minimum and percentage rents, all of our leases require a percentage, usually
5%, of total hotel sales to be escrowed by the tenant or operator into a reserve
for future renovations and refurbishment ("FF&E Reserve"). As of March 31, 2001,
we and our tenants had approximately $48,848 on deposit in these refurbishment
escrow accounts. During the three months ended March 31, 2001, $10,268 was
deposited into these accounts and $5,121 was spent to renovate and refurbish our
properties. Certain of these accounts are held and owned by our tenants and not
reflected in our balance sheet.
To maintain our 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. In 1999 federal
legislation known as the REIT Modernization Act ("RMA") was enacted and became
effective on January 1, 2001. The RMA among other things, allows a REIT to lease
hotels to a so-called "taxable REIT subsidiary" if the hotel is managed by an
independent third party. We believe that this legislation may provide
opportunities for us to enter into transactions without the need to rely upon a
third-party tenant.
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.
A distribution of $0.59375 per preferred share for the first quarter 2001 was
paid in March 2001.
A distribution of $0.70 per common share related to fourth quarter 2000 was made
in February 2001. A distribution of $0.70 per common share related to first
quarter 2001 was declared in April 2001 and will be paid in May 2001.
Funding for current expenses and distributions is generally provided by our
operations, primarily leasing of our owned hotels.
11
HOSPITALITY PROPERTIES TRUST
Seasonality
Our hotels have historically experienced seasonal variations 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 variations.
Certain Considerations
The discussion and analysis of our financial condition and results of operations
requires us to make estimates and assumptions and contains statements of our
beliefs, intentions or expectations concerning projections, plans, future events
and performance. The estimates, assumptions and statements, such as those
relating to our ability to expand our portfolio, performance of our assets, the
ability of our operators to pay rent, remain competitive or improve hotel
operating revenues or results, our ability to make distributions, our tax status
as a "real estate investment trust," and our ability to appropriately balance
the use of debt and equity and to access capital markets, depend upon various
factors over which we and/or our lessees have or may have limited or no control.
Those factors include, without limitation, the status of the economy, capital
market conditions (including prevailing interest rates), compliance with the
changes to regulations within the hospitality industry, competition, changes to
federal, state and local laws and other factors. We cannot predict the impact of
these factors. However, these factors could cause our actual results for
subsequent periods to be different from those stated, estimated or assumed in
this discussion and analysis of our financial condition and results of
operations. We believe that our estimates and assumptions are reasonable at this
time.
Property Leases
As of March 31, 2001, we owned 224 hotels which are grouped into combinations
and leased to 11 separate affiliates of publicly owned companies: Marriott
International, Inc. ("Marriott"), Host, Crestline, Wyndham International, Inc.
("Wyndham"), Security Capital Group, Inc. ("Security Capital"), Candlewood Hotel
Company ("Candlewood") and Prime Hospitality Corp. ("Prime").
The tables on the following pages summarize the key terms of our leases at March
31, 2001, and operating statistics of our tenants' operations of our hotels for
the first quarter of 2001 and 2000.
12
HOSPITALITY PROPERTIES TRUST
- ------------------------------------------------------------------------------------------------------------------------------------
Lease Pool Courtyard by Residence Inn by Residence Inn Residence Inn by Marriott(R)/Residence Wyndham(R)
Marriott(R) Marriott(R) by Marriott(R)/ Marriott(R)/Courtyard Inn by Marriott(R)/
Courtyard by by Marriott(R)/ Courtyard by
Marriott(R) TownePlace Suites Marriott(R)/
by Marriott(R)/ TownePlace Suites
SpringHill Suites by Marriott(R)
by Marriott(R)
- ------------------------------------------------------------------------------------------------------------------------------------
Number of Hotels 53 18 14 19 17 12
Number of Rooms 7,610 2,178 1,819 2,756 2,663 2,321
Number of States 24 14 7 14 7 8
Tenant Subsidiary of Subsidiary of Subsidiary of Subsidiary of Subsidiary of Subsidiary of
Host subleased Host subleased Marriott Crestline Marriott Wyndham
to subsidiary of to subsidiary of
Crestline Crestline
Manager Subsidiary of Subsidiary of Subsidiary of Subsidiary of Subsidiary of Subsidiary of
Marriott Marriott Marriott Marriott Marriott Wyndham
Investment at
March 31, 2001
(000s)(1) $512,025 $175,836 $148,812 $274,221 $203,643 $182,570
Security Deposits
(000s)(2) $50,540 $17,220 $14,881 $28,509 $21,322 $18,325
End of Initial
Lease Term 2012 2010 2014 2015 2013 2014
Renewal Options(3) 3 for 12 years 1 for 10 years, 1 for 12 years, 2 for 10 years 2 for 10 years 4 for 12
each 2 for 15 years 1 for 10 years each each years each
each
Current Annual
Minimum Rent
(000s) $51,202 $17,584 $14,881 $28,509 $21,322 $18,325
Percentage Rent(4) 5.0% 7.5% 7.0% 7.0% 7.0% 8.0%
First Quarter:
2001: Occupancy 75.2% 78.2% 77.7% 74.6%(5) 69.6% 70.9%
ADR $104.34 $107.12 $91.72 $112.38(5) $84.90 $104.76
RevPAR $78.46 $83.77 $71.27 $83.84(5) $59.09 $74.27
2000: Occupancy 76.1% 81.4% 78.5% 72.2%(5) 68.1% 71.4%
ADR $97.28 $101.77 $87.80 $103.20(5) $83.04 $98.09
RevPAR $74.03 $82.84 $68.92 $74.51(5) $56.55 $70.04
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Excludes expenditures made from FF&E Reserves subsequent to our initial purchase.
(2) Excludes other deposits totaling approximately $29.7 million retained by HPT to secure various guarantee obligations to us.
(3) Renewal options may be exercised by the tenant for all, but not less than all, of the hotels within a lease pool.
(4) Each lease provides for payment to us as additional rent of a percentage of increases in total hotel sales over base year
levels.
(5) Includes the 13 hotels in this lease pool which were open for at least one year prior to January 1, 2001.
</FN>
13
HOSPITALITY PROPERTIES TRUST
- ------------------------------------------------------------------------------------------------------------------------------------
Lease Pool Summerfield AmeriSuites(R) Candlewood Candlewood Homestead Total /
Suites by Suites(R) Suites(R) Studio Suites(R) Range /
Wyndham(R) Average
- ------------------------------------------------------------------------------------------------------------------------------------
Number of Hotels 15 24 17 17 18 224
Number of Rooms 1,822 2,929 1,839 2,053 2,399 30,389
Number of States 8 13 14 14 5 36
Tenant Subsidiary of Subsidiary of Subsidiary of Subsidiary of Subsidiary of
Wyndham Prime Candlewood Candlewood Security
Capital
Manager Subsidiary of Subsidiary of Subsidiary of Subsidiary of Subsidiary of
Wyndham Prime Candlewood Candlewood Security
Capital
Investment at
March 31, 2001
(000s)(1) $240,000 $243,350 $118,500 $142,400 $145,000 $2,386,357
Security Deposits
(000s)(2) $15,000 $25,575 $12,081 $14,253 $15,960 $233,666
End of Initial 2010-2017
Lease Term 2017 2013 2011 2011 2015 (average 13
years)
Renewal Options(3) 4 for 12 3 for 15 3 for 15 3 for 15 2 for 15 20 - 45 years
years each years each years each years each years each
Current Annual
Minimum Rent
(000s) $25,000 $25,575 $12,081 $14,253 $15,960 $244,692
Percentage Rent(4) 7.5% 8.0% 10.0% 10.0% 10.0% 5% - 10%
First Quarter:
2001: Occupancy 78.2% 58.7% 75.4% 70.9% 77.8% 73.1%
ADR $131.45 $78.11 $57.06 $61.00 $56.59 $91.79
RevPAR $102.79 $45.85 $43.02 $43.25 $44.03 $67.10
2000: Occupancy 78.8% 57.4% 77.7% 78.9% 77.1% 73.5%
ADR $125.52 $78.36 $54.28 $55.09 $50.21 $86.17
RevPAR $98.91 $44.98 $42.18 $43.47 $38.71 $63.33
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Excludes expenditures made from FF&E Reserves subsequent to our initial purchase.
(2) Excludes other deposits totaling approximately $29.7 million retained by HPT to secure various guarantee obligations to us.
(3) Renewal options may be exercised by the tenant for all, but not less than all, of the hotels within a lease pool.
(4) Each lease provides for payment to us as additional rent of a percentage of increases in total hotel sales over base year
levels.
</FN>
14
HOSPITALITY PROPERTIES TRUST
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, 2000. 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 March 31, 2001,
our outstanding debt included four 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
$ 50,000 9.125% 2010 Semi-Annually $ 4,563
- --------- --------
$465,000 $ 37,301
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 $3,730. Changes in
the interest rate also affect the fair value of our debt obligations; increases
in market interest rates decrease the fair value of our fixed rate debt, while
decreases in market interest rates increase the fair value of our fixed rate
debt. Based on the balances outstanding as of March 31, 2001, a hypothetical
immediate 10% change in interest rates would change the fair value of our fixed
rate debt obligations by approximately $18,731.
Each of our fixed rate debt arrangements allows us to make repayments earlier
than the stated maturity date. Our $115 million 8.25% notes due 2005 are
callable by us at par any time after November 15, 2001. Our $150 million 8.5%
notes due 2009 are callable by us at par any time after December 15, 2002. 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
March 31, 2001, we had $27,000 outstanding and $273,000 available for drawing
under our revolving credit facility. Subsequent to the end of the 2001 first
quarter the amount outstanding was repaid and we currently have $300,000
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. 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 a 10% change in interest rates would have on our interest
expense for our floating rate debt outstanding at March 31, 2001:
Interest Debt Annualized Interest Impact of
Circumstance Rate Outstanding Expense Change
- ------------ ---- ----------- ------- ------
Conditions at March 31, 2001 6.3% $ 27,000 $1,701 --
A 10% increase 6.9% $ 27,000 $1,863 $162
A 10% decrease 5.7% $ 27,000 $1,539 ($162)
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.
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 CONSTITUTE FORWARD-
LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995. THOSE STATEMENTS APPEAR IN A NUMBER OF PLACES IN THIS FORM
10-Q AND INCLUDE STATEMENTS REGARDING OUR INTENT, BELIEF OR EXPECTATION, OR THE
INTENT, BELIEF OR EXPECTATION OF OUR TRUSTEES OR OUR OFFICERS WITH RESPECT TO
THE DECLARATION, TIMING OR PAYMENT OF DISTRIBUTIONS OR OBLIGATIONS, OUR POLICIES
AND PLANS REGARDING OUR TAXATION AND REIT QUALIFICATION, MANAGING INTEREST RATE
RISK, INVESTMENTS, FINANCING, SEASONALITY OR OTHER MATTERS, TRENDS AFFECTING OUR
OR OUR TENANTS' FINANCIAL CONDITION OR RESULTS OF OPERATIONS OR FACTORS WHICH
AFFECT OUR HOTELS' QUALITY, OPERATIONS, FINANCIAL RESULTS OR COMPETITIVENESS.
READERS ARE CAUTIONED THAT ANY SUCH FORWARD-LOOKING STATEMENTS ARE NOT
GUARANTEES OF FUTURE PERFORMANCE AND INVOLVE RISKS AND UNCERTAINTIES. ACTUAL
RESULTS MAY DIFFER MATERIALLY FROM THOSE CONTAINED IN THE FORWARD-LOOKING
STATEMENTS AS A RESULT OF VARIOUS FACTORS. SUCH FACTORS INCLUDE WITHOUT
LIMITATION CHANGES IN FINANCING TERMS, OUR ABILITY OR INABILITY TO COMPLETE
ACQUISITIONS AND FINANCING TRANSACTIONS, RESULTS OF OPERATIONS OF OUR HOTELS OR
OUR TENANTS AND GENERAL CHANGES IN TECHNOLOGICAL, INDUSTRY OR GENERAL ECONOMIC
CONDITIONS NOT PRESENTLY CONTEMPLATED. THE ACCOMPANYING INFORMATION CONTAINED IN
THIS FORM 10-Q, AND INFORMATION IN OUR ANNUAL REPORT ON FORM 10-K INCLUDING THE
INFORMATION UNDER THE HEADINGS "BUSINESS AND PROPERTIES" AND "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS,"
IDENTIFIES OTHER IMPORTANT FACTORS THAT COULD CAUSE DIFFERENCES BETWEEN
FORWARD-LOOKING STATEMENTS AND ACTUAL FUTURE RESULTS.
OUR AMENDED AND RESTATED DECLARATION OF TRUST, DATED AUGUST 21, 1995, A COPY OF
WHICH, TOGETHER WITH ALL AMENDMENTS THERETO (THE "DECLARATION"), IS 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.
16
PART II Other Information
Item 2. Changes in Securities
In January 2001 we issued 33,828 common shares in payment of an incentive fee of
$762,294 for services rendered by REIT Management & Research, Inc. ("RMR")
during 2000 based upon a per common share price of $22.5344. As further
described in our Form 10-K, the Company has an agreement with RMR whereby RMR
provides investment, management and administrative services to the Company.
These restricted securities were issued to RMR pursuant to the exemption from
registration provided under Section 4(2) of the Securities Act of 1933, as
amended.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
12.1 Computation of Ratio of Earnings to Fixed Charges
12.2 Computation of Ratio of Earnings to Combined Fixed Charges
and Preferred Distributions
(b) Reports on Form 8-K
None.
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: May 9, 2001
18