UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-----------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported):
March 18, 2002 (March 15, 2002)
HOSPITALITY PROPERTIES TRUST
(Exact name of registrant as specified in charter)
MARYLAND 1-11527 04-3262075
(State or other jurisdiction (Commission (I.R.S. employer
of incorporation) file number) identification number)
400 CENTRE STREET, NEWTON, MASSACHUSETTS 02458
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: 617-964-8389
Item 5. Other Events
We are filing our consolidated balance sheets as of December 31, 2001 and 2000
and the related consolidated statements of income, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 2001.
Item 7. Financial Statements and Exhibits
(a) Financial Statements.
Page
Report of Independent Public Accountants........................................ F-1
Consolidated Balance Sheet as of December 31, 2001 and 2000..................... F-2
Consolidated Statement of Income for the three years ended December 31, 2001.... F-3
Consolidated Statement of Shareholders' Equity for the three years ended
December 31, 2001............................................................... F-4
Consolidated Statement of Cash Flows for the three years ended
December 31, 2001............................................................... F-5
Notes to Consolidated Financial Statements...................................... F-6
Report of Independent Public Accountants on Schedule............................ F-12
Schedule III - Real Estate and Accumulated Depreciation......................... F-13
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and therefore have
been omitted.
(b) Pro Forma Financial Information.
None.
(c) Exhibits.
Exhibit 23.1 Consent of Arthur Andersen LLP.
SIGNATURES
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 hereunto duly authorized.
HOSPITALITY PROPERTIES TRUST
By: /s/ John G. Murray
Name: John G. Murray
Title: President and Chief Operating Officer
Date: March 18, 2002
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Trustees and Shareholders of Hospitality Properties Trust:
We have audited the accompanying consolidated balance sheet of Hospitality
Properties Trust and subsidiaries (a Maryland real estate investment trust) (the
"Company") as of December 31, 2001 and 2000, and the related consolidated
statements of income, shareholders' equity and cash flows for each of the three
years in the period ended December 31, 2001. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Hospitality
Properties Trust and subsidiaries as of December 31, 2001 and 2000 and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2001, in conformity with accounting principles
generally accepted in the United States.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Vienna, Virginia
January 15, 2002
F-1
HOSPITALITY PROPERTIES TRUST
CONSOLIDATED BALANCE SHEET
(dollars in thousands, except share data)
As of December 31,
--------------------------
2001 2000
----------- -----------
ASSETS
Real estate properties, at cost:
Land ........................................................... $ 347,009 $ 319,219
Buildings, improvements and equipment .......................... 2,282,144 2,110,202
----------- -----------
2,629,153 2,429,421
Accumulated depreciation ....................................... (363,329) (271,934)
----------- -----------
2,265,824 2,157,487
Cash and cash equivalents ......................................... 38,962 24,601
Restricted cash (FF&E escrow) ..................................... 39,913 27,306
Other assets, net ................................................. 10,265 11,515
----------- -----------
$ 2,354,964 $ 2,220,909
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Senior notes, net of discounts .................................... $ 464,781 $ 464,748
Revolving credit facility ......................................... -- --
Security and other deposits ....................................... 263,983 257,377
Accounts payable and other ........................................ 19,964 15,071
Due to affiliate .................................................. 1,717 773
----------- -----------
Total liabilities .......................................... 750,445 737,969
----------- -----------
Shareholders' equity:
Series A preferred shares; 9 1/2% cumulative redeemable; no par
value; 3,000,000 shares issued and outstanding, aggregate ... 72,207 72,207
liquidation preference $75,000
Common shares of beneficial interest; $0.01 par value;
62,515,940 and 56,472,512 shares issued and outstanding,
respectively ................................................ 625 565
Additional paid-in capital .................................... 1,667,256 1,506,976
Cumulative net income ......................................... 573,663 441,707
Cumulative preferred distributions ............................ (19,356) (12,231)
Cumulative common distributions ............................... (689,876) (526,284)
----------- -----------
Total shareholders' equity .................................. 1,604,519 1,482,940
----------- -----------
$ 2,354,964 $ 2,220,909
=========== ===========
The accompanying notes are an integral part of these financial statements.
F-2
HOSPITALITY PROPERTIES TRUST
CONSOLIDATED STATEMENT OF INCOME
(in thousands, except per share data)
Year Ended December 31,
-------------------------------
2001 2000 1999
--------- --------- ---------
REVENUES:
Rental income:
Minimum rent ................................. $236,876 $228,733 $209,003
Percentage rent .............................. 3,414 5,644 3,666
-------- -------- --------
240,290 234,377 212,669
Hotel operating revenues ....................... 37,982 -- --
FF&E reserve income ............................ 24,652 25,753 20,931
Interest income ................................ 953 2,893 3,618
-------- -------- --------
Total revenues ............................... 303,877 263,023 237,218
-------- -------- --------
EXPENSES:
Hotel operating expenses ....................... 24,375 -- --
Interest (including amortization of deferred
financing costs of $2,417, $2,068 and $2,223,a
respectively) ................................ 41,312 37,682 37,352
Depreciation and amortization .................. 91,395 84,303 74,707
General and administrative ..................... 14,839 14,767 13,230
-------- -------- --------
Total expenses ............................... 171,921 136,752 125,289
-------- -------- --------
Net income ......................................... 131,956 126,271 111,929
Preferred distributions ............................ 7,125 7,125 5,106
-------- -------- --------
Net income available for common shareholders ....... $124,831 $119,146 $106,823
======== ======== ========
Weighted average common shares outstanding ......... 58,986 56,466 52,566
======== ======== ========
Basic and diluted earnings per common share:
Net income available for common shareholders ... $ 2.12 $ 2.11 $ 2.03
======== ======== ========
The accompanying notes are an integral part of these financial statements.
F-3
HOSPITALITY PROPERTIES TRUST
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(in thousands, except share data)
Preferred Shares Common Shares
----------------------------------------- -----------------------------------------
Cumulative Cumulative
Number Preferred Preferred Number of Common Common
of Shares Shares Distributions Shares Shares Distributions
------------ ----------- ------------- ----------- ----------- -------------
Balance at December 31, 1998 -- $-- $-- 45,595,539 $ 456 $ (260,955)
Issuance of shares, net .... 3,000,000 72,207 -- 10,812,400 108 --
Common share grants ........ -- -- -- 41,804 -- --
Net income ................. -- -- -- -- -- --
Distributions .............. -- -- (5,106) -- -- (108,925)
----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 1999 3,000,000 72,207 (5,106) 56,449,743 564 (369,880)
Common share grants ........ -- -- -- 22,769 1 --
Net income ................. -- -- -- -- -- --
Distributions .............. -- -- (7,125) -- -- (156,404)
----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 2000 3,000,000 72,207 (12,231) 56,472,512 565 (526,284)
Issuance of shares, net .... -- -- -- 6,000,000 60 --
Common share grants ........ -- -- -- 43,428 -- --
Net income ................. -- -- -- -- -- --
Distributions .............. -- -- (7,125) -- -- (163,592)
----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 2001 3,000,000 $ 72,207 $ (19,356) 62,515,940 $ 625 $ (689,876)
=========== =========== =========== =========== =========== ===========
Additional
Paid-in Cumulative
Capital Net Income Total
----------- ------------ ------------
Balance at December 31, 1998 $ 1,230,849 $ 203,507 $ 1,173,857
Issuance of shares, net .... 274,565 -- 346,880
Common share grants ........ 1,080 -- 1,080
Net income ................. -- 111,929 111,929
Distributions .............. -- -- (114,031)
----------- ----------- -----------
Balance at December 31, 1999 1,506,494 315,436 1,519,715
Common share grants ........ 482 -- 483
Net income ................. -- 126,271 126,271
Distributions .............. -- -- (163,529)
----------- ----------- -----------
Balance at December 31, 2000 1,506,976 441,707 1,482,940
Issuance of shares, net .... 159,250 -- 159,310
Common share grants ........ 1,030 -- 1,030
Net income ................. -- 131,956 131,956
Distributions .............. -- -- (170,717)
----------- ----------- -----------
Balance at December 31, 2001 $ 1,667,256 $ 573,663 $ 1,604,519
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
F-4
HOSPITALITY PROPERTIES TRUST
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
Year Ended December 31,
------------------------------------
2001 2000 1999
--------- ---------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................ $ 131,956 $ 126,271 $ 111,929
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation and amortization ....................... 91,395 84,303 74,707
Amortization of deferred financing costs as interest 2,417 2,068 2,223
FF&E reserve income and deposits .................... (26,540) (25,753) (20,931)
Changes in assets and liabilities:
(Increase) decrease in other assets ............... (498) (541) 1,172
Increase in accounts payable and other ............ 4,926 2,235 2,036
Increase (decrease) in due to affiliate ........... 1,706 (238) 485
--------- --------- ---------
Cash provided by operating activities ............... 205,362 188,345 171,621
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Real estate acquisitions .............................. (185,799) (134,353) (365,201)
Increase in security and other deposits ............... 6,606 16,410 40,224
Refund of other deposits .............................. -- (5,275) --
--------- --------- ---------
Cash used in investing activities ................... (179,193) (123,218) (324,977)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of preferred shares, net ....... -- -- 72,207
Proceeds from issuance of common shares, net .......... 159,310 -- 274,673
Debt issuance, net of discount ........................ -- 49,938 --
Draws on revolving credit facility .................... 150,000 42,000 172,000
Repayments of revolving credit facility ............... (150,000) (42,000) (172,000)
Deferred finance costs paid ........................... (401) (489) --
Distributions to preferred shareholders ............... (7,125) (7,125) (5,106)
Distributions to common shareholders .................. (163,592) (156,404) (139,474)
--------- --------- ---------
Cash (used in) provided by financing activities ..... (11,808) (114,080) 202,300
--------- --------- ---------
Increase (decrease) in cash and cash equivalents .......... 14,361 (48,953) 48,944
Cash and cash equivalents at beginning of period .......... 24,601 73,554 24,610
--------- --------- ---------
Cash and cash equivalents at end of period ................ $ 38,962 $ 24,601 $ 73,554
========= ========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest ................................ $ 39,025 $ 33,508 $ 35,028
Non-cash investing and financing activities:
Property managers deposits in FF&E reserve .......... 23,521 23,212 18,670
Purchases of fixed assets with FF&E reserve ......... (14,102) (24,698) (17,694)
The accompanying notes are an integral part of these financial statements.
F-5
HOSPITALITY PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
1. Organization
Hospitality Properties Trust ("HPT") is a Maryland real estate
investment trust organized on February 7, 1995, which invests in hotels. At
December 31, 2001, HPT, directly and through subsidiaries, owned 230 properties.
The properties of HPT and its subsidiaries (the "Company") are leased
to or managed by subsidiaries (the "Lessees" and the "Managers") of companies
unaffiliated with HPT: Host Marriott Corporation ("Host"); Marriott
International, Inc. ("Marriott"); Crestline Capital Corporation ("Crestline");
Wyndham International, Inc. ("Wyndham"); Prime Hospitality Corporation
("Prime"); Candlewood Hotel Company, Inc. ("Candlewood"); and BRE/Homestead
Village LLC ("Homestead").
2. Summary of Significant Accounting Policies
Consolidation. These consolidated financial statements include the
accounts of HPT and its subsidiaries, all of which are 100% owned directly or
indirectly by HPT. All intercompany transactions have been eliminated.
Real estate properties. Real estate properties are recorded at cost.
Depreciation is provided for on a straight-line basis over estimated useful
lives of 7 to 40 years. The Company periodically evaluates the carrying value of
its long-lived assets in accordance with Statement of Financial Accounting
Standards No. 121.
Cash and cash equivalents. Highly liquid investments with maturities of
three months or less at date of purchase are considered to be cash equivalents.
The carrying amount of cash and cash equivalents is equal to its fair value.
Deferred financing costs. Costs incurred to borrow are capitalized and
amortized over the term of the related borrowing. Deferred financing costs were
$6,627, $8,643 and $10,221 at December 31, 2001, 2000 and 1999, respectively,
net of accumulated amortization of $7,426, $5,009 and $2,941, respectively.
Financial instruments--interest rate cap agreements. The Company had
entered into interest rate protection agreements to limit exposure to risks of
rising interest rates. In May 1999 the Company sold these agreements for the
approximate carrying value at the time of the sale with no resulting gain or
loss. As of December 31, 2001, and 2000, the Company was not a party to any
interest rate cap or swap agreements.
Revenue recognition. Rental income from operating leases is recognized
on a straight line basis over the life of the lease agreements. Percentage rent
is recognized when all contingencies are met and rent is earned. Hotel operating
revenues, consisting primarily of room sales and sales of food, beverages and
telephone services are recognized when earned. Some of the Company's leases
provide that FF&E Reserve escrows are owned by the Company. All other leases
provide that FF&E Reserve escrows are owned by the tenant and the Company has a
security and remainder interest in the escrow account. When the Company owns the
escrow for leased properties, generally accepted accounting principles require
that payments into the escrow be reported as additional rent. When the Company
has a security and remainder interest in the escrow account, deposits are not
included in revenue.
Per common share amounts. Per common share amounts are computed using
the weighted average number of common shares outstanding during the period. The
Company has no common share equivalents, instruments convertible into common
shares or other dilutive instruments.
Use of estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect reported amounts. Actual results could
differ from those estimates.
F-6
HOSPITALITY PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
Segment Information. The Company derives its revenues from a single
line of business, hotel real estate ownership.
Income taxes. The Company is a real estate investment trust under the
Internal Revenue Code of 1986, as amended. The Company is not subject to Federal
income taxes on its net income provided it distributes its taxable income to
shareholders and meets certain other requirements. The characterization of the
distributions for 2001, 2000 and 1999 was 85.9%, 85.1% and 100% ordinary income,
respectively, and 14.1%, 14.9% and 0.0% return of capital, respectively.
As permitted by the REIT Modernization Act, or RMA, during 2001 the
Company formed a so-called "taxable REIT subsidiary," to act as lessee for some
of its hotels. The hotels leased to this subsidiary are operated by subsidiaries
of Marriott under a long-term operating agreement. For federal income tax
purposes, this subsidiary is a taxable entity separate from the Company's other
subsidiaries, which are generally not subject to federal taxes, as described
above. During 2001, the Company estimates that its taxable REIT subsidiary had
zero taxable income, and accordingly made no provision for federal income taxes.
As of December 31, 2001, the Company's taxable REIT subsidiary had no difference
between the bases of its assets or liabilities under generally accepted
accounting principles and their tax bases.
New accounting pronouncements. In August 2001 the Financial Accounting
Standards Board ("FASB") issued Statement No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("FAS 144"). The Company is
required to adopt FAS 144 on January 1, 2002, and does not expect the adoption
will have a material effect on the Company's financial position or results of
operations.
In June 2001 the FASB issued Statement No. 141, "Business Combinations"
("FAS 141") and Statement No. 142, "Goodwill and Other Intangible Assets" ("FAS
142"). Adoption of FAS 141 and FAS 142 did not have and is not expected to have
a material impact on the Company's financial position or results of operations.
FASB Statement No. 133 "Accounting for Derivative Instruments and Hedging
Activities" was adopted for the Company's 2001 financial statements and did not
have a material impact on the Company's financial condition or results of
operations.
3. Preferred Shares
Each of the Company's 3,000,000 outstanding Series A cumulative
redeemable preferred shares has a distribution rate of $2.375 per annum, payable
in equal quarterly amounts, and a liquidation preference of $25 ($75,000 in
aggregate). Series A preferred shares are redeemable, at the Company's option,
for $25 each plus accrued and unpaid distributions at any time on or after April
12, 2004.
4. Leases and Operating Agreements
Each of the Company's 230 hotel properties are leased to or operated by
a third party. The Company's agreements have initial terms expiring between 2010
and 2019. Each of these agreements is for a group or pool of between 12 and 53
of the Company's properties. The agreements contain renewal options for all, but
not less than all, of the related properties, and the renewal terms total 20-48
years. Each agreement requires the third-party lessee or operator to: pay all
operating costs associated with the property; deposit a percentage of total
hotel sales into reserves established for the regular refurbishment of the
Company's hotels ("FF&E Reserves"); make payments to the Company of minimum
rents or returns; and make payments to the Company of additional returns equal
to 5%-10% of increases in total hotel sales over a base year threshold amount.
Each third party has posted a security or performance deposit with the Company
generally equal to one year's minimum rent or return.
In 2001 some hotels which the Company previously leased and four hotels
which the Company purchased on June 15, 2001, began to be operated under a
management contract by an affiliate of their former tenant. A total of 16 hotels
are now leased to a taxable REIT subsidiary of the Company and operated by a
third party under a long-
F-7
HOSPITALITY PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
term agreement. As a result, hotel operating revenues and expenses from these
hotels are reflected in the Company's consolidated financial statements. These
hotels are pooled with 19 other hotels which will be leased under the prior
agreement until the third party operator elects to operate them under the new
management agreement during 2002.
The Company's leases and operating agreements provide for payments to
be received by the Company during the remaining initial terms as follows:
Total Minimum
Payments Under
Total Minimum Lease Operating
Payments from Third Agreements with
Parties Third Parties Total
----------------------------------------------------------------
2002 $236,092 $24,108 $260,200
2003 236,092 24,108 260,200
2004 236,092 24,108 260,200
2005 236,092 24,108 260,200
2006 236,092 24,108 260,200
Thereafter 1,976,234 313,404 2,289,638
--------- ------- ---------
$3,156,694 $433,944 $3,590,638
As of December 31, 2001, the weighted average remaining initial terms
of the Company's leases and operating agreements was approximately 14 years, and
the weighted average remaining total term was 51 years.
As further described in Note 8, a number of the Company's leases and
operating agreements are subject to guarantees by the parent company owner of
the Company's tenant or operator. In addition to the security deposits provided
by the lessee equal to one year's rent, two of the Company's lease guarantors,
as of December 31, 2001, have deposited an aggregate $26,565 with the Company to
secure their guarantee obligations. Generally, the Company is obligated to
refund these guarantee deposits if and when certain financial performance is
achieved at the related leased hotels. During the time the Company holds the
guarantee deposits, total net payments due from these tenants and guarantors to
the Company are reduced by $2,899 per annum.
5. Real Estate Properties
The Company's real estate properties, at cost, consisted of land of
$347,009, buildings and improvements of $1,984,287 and furniture, fixtures and
equipment of $297,857, as of December 31, 2001, and land of $319,219, buildings
and improvements of $1,837,888 and furniture, fixtures and equipment of
$272,314, as of December 31, 2000. During 2001, 2000 and 1999, the Company
purchased and leased 8, 12 and 40 properties, respectively, for aggregate
purchase prices of $185,487, $128,548 and $361,000 excluding closing costs,
respectively. As of December 31, 2001, the Company owned and leased 230 hotel
properties. During 2001, 2000 and 1999, the Company invested $2,507, $5,805 and
$1,787, respectively, in its existing hotels in excess of amounts funded from
FF&E Reserves. As a result of these additional investments, tenant obligations
to the Company for annual minimum lease payments increased $251, $581 and $179,
respectively.
F-8
HOSPITALITY PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
6. Indebtedness As of December 31,
--------------------------------
2001 2000
--------------- -------------
Unsecured revolving credit facility............ $-- $--
7% Senior Notes, due 2008...................... 150,000 150,000
8.25% Senior Notes, due 2005................... 115,000 115,000
8.5% Senior Notes, due 2009.................... 150,000 150,000
9.125% Senior Notes, due 2010.................. 50,000 50,000
Unamortized discounts.......................... (219) (252)
--------------- -------------
$464,781 $464,748
=============== =============
All of the Company's senior notes are prepayable prior to their
maturity date. Notes due in 2008 and 2010 are prepayable at anytime at par plus
a premium equal to a make-whole amount, as defined, generally designed to
preserve a stated yield to the note holder. Notes due 2005 are prepayable at
anytime at par. Notes due 2009 are not prepayable until December 15, 2002, after
which they are prepayable at anytime at par.
Interest on the Company's notes due 2008 and 2010 is payable
semi-annually in arrears. Interest on the Company's notes due 2005 and 2009 is
payable monthly in arrears.
The Company's $300 million revolving credit facility is available for
draw and repayment until March 2002, at which time any outstanding amounts are
due. The revolving credit facility carries interest at floating rates. During
2001, 2000 and 1999, the weighted average interest rate on the amounts
outstanding under the revolving credit facility was 5.5%, 8.3% and 6.2%,
respectively. As of December 31, 2001 and 2000, no amounts were outstanding
under the facility.
The company's credit agreement and note indentures contain financial
covenants which, among other things, restrict the ability of the Company to
incur indebtedness and require the Company to maintain financial ratios and
minimum net worth. The Company was in compliance with these covenants during the
periods presented.
As of December 31, 2001, none of the Company's assets were pledged or
mortgaged. The estimated aggregate market value of the Company's indebtedness
based on a combination of their observable trading prices and quotations from
financial institutions for similar obligations were:
As of December 31,
------------------------------------
2001 2000
---------------- ----------------
7% Senior Notes, due 2008............ $151,130 $137,685
8.25% Senior Notes, due 2005......... 122,293 112,735
8.5% Senior Notes, due 2009.......... 159,427 147,210
9.125% Senior Notes, due 2010........ 56,356 50,000
---------------- ----------------
$489,206 $447,630
================ ================
7. Transactions with Affiliates
REIT Management & Research LLC ("RMR") provides investment, management
and administrative services to the Company. The Company's contract with RMR for
such services has a one-year term, and currently extends to December 31, 2002.
RMR is compensated at an annual rate equal to 0.7% of the Company's average real
estate investments, as defined, up to the first $250,000 of such investments and
0.5% thereafter plus an incentive fee based upon increases in cash available for
distribution per share, as defined. Advisory fees excluding incentive fees
earned for the years ended 2001, 2000 and 1999 were $12,702, $11,851 and
$10,949, respectively. Incentive
F-9
HOSPITALITY PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
advisory fees are paid in restricted common shares based on a formula. The
Company accrued $619, $762 and $237 in incentive fees during 2001, 2000 and
1999, respectively. The Company issued 33,828 and 12,869 restricted common
shares in satisfaction of the 2000 and 1999 incentive fees, respectively. As of
December 31, 2001, RMR and its affiliates owned 413,592 common shares of the
Company. In 2002 the Company issued 21,658 restricted common shares in
satisfaction of the 2001 incentive fee. RMR is owned by Gerard M. Martin and
Barry M. Portnoy, who also serve as Managing Trustees of the Company.
8. Concentration
At December 31, 2001, the Company's 230 hotels contained 31,691 rooms
and were located in 37 states in the United States, with between 5% and 13% of
its hotels, by investment, in each of California, Texas, Virginia, Georgia,
Florida, and Arizona.
All of the Company's third party tenants or operators are subsidiaries
of other companies. Many of the Company's agreements include guarantees of
minimum rents or returns by the parent company of the third-party tenant or
operator. The percentage of the Company's investment in each pool of hotels
shown below as of December 31, 2001, is approximately equal to the Company's
percentage of minimum rent and return payments shown in Note 4 and reflected in
the accompanying financial statements for 2001.
December 31,
Lessee/operator is a Number of 2001 % of Guarantee of Rent / Minimum Returns to
subsidiary of: Properties Investment Total Company Provided by:
- ------------------------------ --------------------------------------------------------------------------------------
Host (lease no. 1) 53 $513,126 20% --
Host (lease no. 2) 18 177,784 7% --
Marriott 35 453,954 18% Marriott International, Inc. (NYSE: MAR)
Crestline 19 274,222 11% Crestline Capital, Inc. (NYSE: CLJ) and
Marriott International, Inc. (NYSE: MAR)
Wyndham (lease no. 1) 15 240,000 10% --
Wyndham (lease no. 2) 12 182,570 7% --
Homestead 18 145,000 6% BRE/Homestead Village LLC
Candlewood 36 289,750 11% Candlewood Hotel Company (NYSE: CNDL)
Prime 24 243,350 10% Prime Hospitality, Inc. (NYSE: PDQ)
-- ------- ---
Total 230 $2,519,756 100%
=== ========== ====
Guarantees provided to the Company from Marriott and Crestline are
limited, in the case of 35 hotels to $48.3 million, and in the case of 19
hotels, to $31.2 million. These guarantees expire in 2005, or earlier if and
when the related hotels reach negotiated net operating results levels. Other
guarantees are unlimited as to amounts, and do not expire with the passage of
time. These other guarantees are subject to release when the related hotels
reach negotiated annual net operating results levels, except that if the 18
Homestead hotels reach their negotiated annual net operating results for three
years, the guarantee from BRE/Homestead Village LLC may only be released if
additional cash or a letter of credit is posted with the Company.
Each of the Company's hotels is combined as a part of a single lease or
operating agreement, as outlined in the above table. During a portion of 2001,
16 hotels in the 35 hotel combination operated by Marriott began to be leased to
the Company's taxable REIT subsidiary, but remained operated by Marriott, under
an arrangement which provides the Company with aggregate minimum rents and
returns for all 35 hotels of $48.3 million per annum. The aggregate net
operating results of all 35 hotels were in excess of the aggregate minimum
return to the Company during 2001 and no payments under the guarantee were due.
However, the 16 hotels leased to the Company's taxable REIT subsidiary generated
net operating results which were $1.9 million less than the minimum returns due
to the Company. This amount has been reflected in the accompanying statement of
income as a net reduction to hotel operating expenses.
F-10
HOSPITALITY PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
During 2001, 2000 and 1999 total hotel sales for each group of
properties reflected above were in excess of the aggregate of total hotel
expenses and minimum rent or returns due to and paid to the Company except in
the case of 24 hotels leased to a subsidiary of Prime. Shortfalls representing
3.1%, 2.3% and 3.0% of total 2001, 2000 and 1999 total revenue were paid to the
Company as and when due by this tenant or its affiliates.
9. Selected Quarterly Financial Data (Unaudited)
2001
-----------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
-----------------------------------------------------------
Revenues..................................................... $66,173 $70,139 $83,188 $84,377
Net income available for common shareholders................. 28,307 29,647 31,493 35,385
Net income available for common shareholders per share (1)... .50 .52 .52 .57
Distributions per common share (2)........................... .70 .71 .71 .71
2000
-----------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
-----------------------------------------------------------
Revenues..................................................... $62,177 $63,639 $65,824 $71,383
Net income available for common shareholders................. 27,753 28,524 28,659 34,211
Net income available for common shareholders per share (1)... .49 .51 .51 .61
Distributions per common share (2)........................... .69 .69 .70 .70
<FN>
(1) The sum of per common share amounts for the four quarters differs from
annual per share amounts due to the required method of computing weighted
average number of shares in interim periods and rounding.
(2) Amounts represent distributions declared with respect to the periods shown.
</FN>
F-11
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Trustees and Shareholders of Hospitality Properties Trust:
We have audited in accordance with auditing standards generally
accepted in the United States the consolidated financial statements of
Hospitality Properties Trust included in this Form 8-K and have issued our
report thereon dated January 15, 2002. Our audit was made for the purpose of
forming an opinion on those statements taken as a whole. The schedule and
related notes on pages F-13 and F-14 are the responsibility of Hospitality
Properties Trust's management and are presented for the purpose of complying
with the Securities and Exchange Commission's rules and are not part of the
basic financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Vienna, Virginia
January 15, 2002
F-12
HOSPITALITY PROPERTIES TRUST
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2001
(dollars in millions)
Costs
Capitalized
Initial Subsequent Gross Amount at which
Cost to Company to Acquisition Carried at Close of Period
--------------------- -------------- ------------------------------
Buildings & Buildings &
Encumbrances Land Improvements Improvements Land Improvements Total
71 Courtyards $-- $120 $589 $10 $120 $599 $719
36 Candlewood Hotels -- 32 233 -- 32 233 265
37 Residence Inns -- 69 322 4 69 326 395
24 AmeriSuites -- 25 194 -- 25 194 219
18 Homestead Village -- 28 106 -- 28 106 134
15 Summerfield Suites -- 23 196 -- 23 196 219
12 Wyndham Hotels -- 16 154 1 16 155 171
3 Marriott Full Service -- 14 82 -- 14 82 96
12 TownePlace Suites -- 17 78 -- 17 78
95
2 SpringHill Suites -- 3 15 -- 3 15 18
-- --- ------ ---- ---- ------ ------
Total (230 hotels) $-- $347 $1,969 $15 $347 $1,984 $2,331
=== ==== ====== ==== ==== ====== ======
Life on which
Depreciation in Latest
Accumulated Date of Date Income Statement is
Depreciation Construction Acquired Computed
------------- ------------------- -------------------- ----------------------
71 Courtyards $(75) 1987 through 2000 1995 through 2001 15 - 40 Years
36 Candlewood Hotels (20) 1996 through 2000 1997 through 2001 15 - 40 Years
37 Residence Inns (37) 1989 through 2001 1996 through 2001 15 - 40 Years
24 AmeriSuites (17) 1992 through 2000 1997 through 2000 15 - 40 Years
18 Homestead Village (9) 1996 through 1998 1999 15 - 40 Years
15 Summerfield Suites (20) 1989 through 1993 1998 15 - 40 Years
12 Wyndham Hotels (21) 1987 through 1990 1996 through 1997 15 - 40 Years
3 Marriott Full Service (6) 1972 through 1995 1998 through 2001 15 - 40 Years
12 TownePlace Suites (4) 1997 through 2000 1998 through 2001 15 - 40 Years
2 SpringHill Suites (1) 1997 through 2000 2000 through 2001 15 - 40 Years
------
Total (230 hotels) $(210)
======
F-13
HOSPITALITY PROPERTIES TRUST
NOTES TO SCHEDULE III
DECEMBER 31, 2001
(dollars in thousands)
(A) The change in accumulated depreciation for the period from January 1, 1999,
to December 31, 2001, is as follows:
2001 2000 1999
---- ---- ----
Balance at beginning of period $159,867 $112,321 $ 68,289
Additions: depreciation expense 50,572 47,546 44,032
-------- -------- --------
Balance at close of period $210,439 $159,867 $112,321
======== ======== ========
(B) The change in total cost of properties for the period from January 1, 1999,
to December 31, 2001, is as follows:
2001 2000 1999
---- ---- ----
Balance at beginning of period $2,157,107 $2,035,934 $1,698,457
Additions: hotel acquisitions and
capital expenditures 174,189 121,173 337,477
---------- ---------- ----------
Balance at close of period $2,331,296 $2,157,107 $2,035,934
========== ========== ==========
(C) The net tax basis for federal income tax purposes of the Company's real
estate properties was $2,120,921 on December 31, 2001.
F-14