UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON DC 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ---
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-11527
HOSPITALITY PROPERTIES TRUST
(Exact name of registrant as specified in its charter)
Maryland 04-3262075
(State of Incorporation) (IRS Employer Identification No.)
400 Centre Street, Newton, Massachusetts 02158
(Address of principal executive office) (Zip Code)
(617) 964-8389
(Telephone number, including area code)
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 NO X
Number of Common Shares outstanding at the latest practicable date,
November 6, 1995: 12,600,000 shares of beneficial interest, $.01 par value.
HOSPITALITY PROPERTIES TRUST
FORM 10-Q
September 30, 1995
INDEX
PART I Financial Information Page
Item 1. Financial Statements (Unaudited)
Balance Sheet as of September 30, 1995 3
Statements of Income for the Quarter Ended
September 30, 1995 and the period from
February 7, 1995 (inception) to
September 30, 1995 4
Statement of Cash Flows for the period from
February 7, 1995 (inception) to
September 30, 1995 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial 10
Condition and Results of Operations
Signatures
HOSPITALITY PROPERTIES TRUST
BALANCE SHEET
(dollars in thousands)
September 30,
1995
ASSETS -------------
(Unaudited)
Real estate properties, at cost:
Land $ 62,311
Buildings and improvements 268,576
--------
330,887
Less accumulated depreciation 3,470
--------
327,417
Cash and cash equivalents 1,360
Rent receivable 99
FF&E reserve (restricted cash) 5,450
Other assets 2,573
--------
$336,899
========
LIABILITIES AND SHAREHOLDERS' EQUITY
Security deposits 32,900
Due to affiliates 2,173
Accounts payable and accrued expenses 3,955
Shareholders' equity:
Preferred shares of beneficial
interest, no par value,
100,000,000 shares authorized,
none issued --
Common shares of beneficial interest,
$.01 par value, 100,000,000 shares
authorized, 12,600,000 shares
issued and outstanding, 126
Additional paid-in capital 297,940
Cumulative net income 4,360
Dividends ( 4,555)
--------
Total shareholders' equity 297,871
$336,899
========
See accompanying notes
HOSPITALITY PROPERTIES TRUST
STATEMENTS OF INCOME
(amounts in thousands, except per share data)
(Unaudited)
February 7, 1995
Quarter Ended (Inception) to
September 30, 1995 September 30, 1995
Revenues:
Rental income $ 6,268 $11,142
FF&E reserve income 1,566 2,460
Interest income 1 42
------- -------
Total revenues 7,853 13,644
------- -------
Expenses:
Interest 1,840 5,039
Depreciation and amortization 1,860 3,470
General, administrative and
advisory 530 775
------- -------
Total expenses 4,230 9,284
------- -------
Net income $ 3,623 $ 4,360
======= =======
Weighted average shares
outstanding 5,115 2,027
======= =======
Net income per share: $ .71 $ 2.15
======= =======
See accompanying notes
HOSPITALITY PROPERTIES TRUST
STATEMENT OF CASH FLOWS
(dollars in thousands)
(Unaudited)
February 7, 1995
(Inception) to
September 30, 1995
Cash flows from operating activities:
Net income $ 4,360
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization 3,470
Funding of FF&E reserve, net (1,546)
Deferred finance costs ( 35)
Changes in assets and liabilities:
Increase in rent receivable and other assets ( 137)
Increase in accounts payable and accrued expenses 931
Increase in due to affiliate 642
---------
Cash provided by operating activities 7,685
---------
Cash flows from investing activities:
Real estate acquisitions (331,877)
Increase in security deposits 32,900
Payment of purchase option ( 4,500)
Investment in FF&E reserve ( 3,904)
---------
Cash used in investing activities (307,381)
---------
Cash flows from financing activities:
Proceeds from issuance of shares, net 198,066
Borrowings and advances from HRP 165,241
Payments on borrowings and advances from HRP (62,251)
---------
Cash provided by financing activities 301,056
---------
Increase in cash and cash equivalents 1,360
Cash and cash equivalents at beginning of period 0
---------
Cash and cash equivalents at end of period $ 1,360
=========
Supplemental cash flow information:
Interest paid $ 5,039
Non-cash activities:
Issuance of shares $ 100,000
Cancellation of indebtedness to HRP (100,000)
Property managers deposits in FF&E reserve 2,460
Purchases of fixed assets with FF&E reserve (914)
See accompanying notes
HOSPITALITY PROPERTIES TRUST
NOTES TO FINANCIAL STATEMENTS
September 30, 1995
(dollars in thousands, except per share data)
(Unaudited)
1. Basis of presentation
The financial statements of Hospitality Properties Trust ("the
Company") have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for interim periods are
not necessarily indicative of the results that may be expected for the full
year.
2. Organization and Commencement of Operations
The Company was originally incorporated in the state of Delaware on
February 7, 1995. Subsequently, the Company became a Maryland real estate
investment trust and effected a 400-for-1 split of its common shares of
beneficial interest (the Shares). The Company, which invests in income producing
real estate, primarily hotel and lodging related properties, was a 100% owned
subsidiary of Health and Retirement Properties Trust (HRP) from its inception
through August 22, 1995 when it completed its initial public offering of Shares
(the IPO).
The Company commenced operations on March 24, 1995 by acquiring 21
hotels and related replacement and refurbishment reserves (the FF&E Reserves)
for approximately $179,400 from affiliates of Host Marriott Corporation of which
$17,940 was retained by the Company as a security deposit. The properties are
leased to a subsidiary (Host) of Host Marriott Corporation and are managed by a
subsidiary (Marriott) of Marriott International, Inc. The acquisition was
substantially funded by advances from HRP (the HRP loan).
On August 22, 1995, the Company received net proceeds of approximately
$199,000 and the cancellation of an additional $99,000 in indebtedness due to
HRP from its IPO of 7,500,000 Shares and the concurrent placement of 3,960,000
shares to HRP and 250,000 shares to HRPT Advisors, Inc. On September 18, 1995,
the Company received additional net proceeds of approximately $19,900 from the
sale of 850,000 Shares in connection with the exercise of the Underwriters'
over-allotment option. The proceeds were used to repay remaining loan amounts
due to HRP and to acquire 16 additional hotel properties (together with the 21
properties acquired on March 24, 1995, the Initial Hotels) and related FF&E
reserves for $149,600. These properties are also leased to Host and managed
by Marriott. At September 30, 1995 approximately $1,944 is due to HRP
representing costs and dividends related to HRP's ownership in the Company prior
to the IPO.
HOSPITALITY PROPERTIES TRUST
NOTES TO FINANCIAL STATEMENTS
September 30, 1995
(dollars in thousands, except per share data)
(Unaudited)
3. Tax status
The Company is a real estate investment trust under the
Internal Revenue Code of 1986, as amended. Accordingly, the Company expects not
to be subject to federal income taxes on amounts distributed to shareholders
provided it distributes at least 95% of its real estate investment trust taxable
income and meets certain other requirements for qualifying as a real estate
investment trust.
4. Dividends
The Trustees declared a dividend on the Company's Shares with respect
to the period August 22, 1995 through September 30, 1995, of $.24 per share,
which will be paid on or about November 14, 1995, to shareholders of record at
the close of business on October 13, 1995.
Dividends are based principally on cash available for distribution
which is net income plus depreciation and amortization less FF&E reserve income.
Cash available for distribution may not necessarily equal cash provided by
operating activities as the cash flow of the Company is affected by other
factors not included in the cash available for distribution calculation.
Dividends in excess of net income are a return of capital.
5. Real estate properties
The leases for the Initial Hotels provide for annual rent payable to
the Company of $32,900 in base rent plus percentage rent equal to 5% increases
in total hotel sales over 1994 total hotel sales. Host is required to pay
substantially all operating costs of the properties. Host is also required to
deposit 5% of total hotel sales into the Company's FF&E Reserve, which will be
used to maintain the properties. The leases expire in December 2006. Thereafter,
Host has the option to renew for one seven year term and three consecutive ten
year terms. The security deposit equals a full year's base rent. The Company has
also purchased for $4,500 the option to purchase and/or rights of first refusal
and rights of first negotiation to acquire certain additional properties from
Host Marriott Corporation. The option agreement expires August 31, 2002.
6. Indebtedness
The Company has entered into a $200,000 revolving credit acquisition
facility which provides for borrowings at a spread over LIBOR. The facility will
mature on February 22, 1997, unless extended by the parties. As of September 30,
1995, the Company had not drawn on the credit facility.
HOSPITALITY PROPERTIES TRUST
NOTES TO FINANCIAL STATEMENTS
September 30, and 1995
(dollars in thousands, except per share data)
(Unaudited)
7. Concentration of Credit Risk
At September 30, 1995, 100% of the Company's real estate properties, net,
were in properties leased to Host and managed by Marriott. The combined
financial position and results of operations and summarized balance sheet data
of Host for the Company's 37 hotels were as follows:
Twelve weeks Twenty four Weeks
ended September ended September
8, 1995 8, 1995
---------------- -----------
Revenues $10,054 $18,690
Investment expenses:
Base and percentage rent 4,907 9,083
FF&E contribution 1,000 1,854
Management fees 1,427 2,832
Other 1,263 3,063
------- -------
Total investment expenses 8,597 16,832
------- -------
Income before taxes 1,457 1,858
Provision for income taxes 598 762
------- -------
Net income $ 859 $ 1,096
======= =======
September 8,1995
----------------
Assets $39,088
Liabilities 13,909
Equity 25,179
Revenues in the statements of income above represent house profit from the
Hotels. House profit represents total hotel sales less property level expenses
excluding depreciation and amortization, system fees, real and personal property
taxes, ground rent, insurance and management fees. The system fees and
management fees presented represent all the costs incurred directly, allocated
or charged to the properties. The detail of total hotel sales and a
reconciliation to revenue follows:
Twelve weeks Twenty four Weeks
ended September ended September
8, 1995 8, 1995
---------------- ----------------
Hotel Sales:
Rooms: $17,606 $32,666
Food and beverage 1,639 2,982
Other 757 1,430
------- -------
Total hotel sales 20,002 37,078
------- -------
Departmental Expenses:
Rooms 3,868 7,117
Food and beverage 1,300 2,365
Other operating departments 229 432
General and administrati 1,877 3,579
Utilities 835 1,412
Repairs, maintenance and
accidents 787 1,478
Marketing and sales 282 578
Chain services 770 1,427
------- -------
Total departmental expenses 9,948 18,388
------- -------
Revenues $10,054 $18,690
======= =======
HOSPITALITY PROPERTIES TRUST
NOTES TO FINANCIAL STATEMENTS
September 30, and 1995
(dollars in thousands, except per share data)
(Unaudited)
8.Pro forma information
The following unaudited pro forma income statement gives effect to: (i)
the completion of Hospitality Properties Trust's initial public offering and the
concurrent placement to HRP and HRPT Advisors, Inc.; (ii) the acquisition of 16
additional hotels; (iii) repayment of amounts due HRP; (iv) and the exercise of
the underwriters' over-allotment option as though such transactions occurred at
July 1, 1995.
In the opinion of management, all adjustments necessary to reflect the
effects of the transactions discussed above have been reflected in the pro forma
data.
The following unaudited pro forma data is not necessarily indicative of
what the actual results of operations for the Company would have been for the
quarter indicated, nor does it purport to represent the results of operations
for the Company for future periods.
Pro Forma Income Statement Data (unaudited):
Three Months Ended
September 30, 1995
(Unaudited)
Revenues:
Rental income $ 8,347
FF&E reserve income 1,745
Interest income 19
Total revenues 10,110
Expenses:
Interest expense --
Depreciation expense 2,361
General, administrative and advisory 711
----------
Total expenses 3,072
----------
Net income $ 7,038
==========
Weighted average shares
outstanding 12,600,000
----------
Net income per share $ .56
==========
HOSPITALITY PROPERTIES TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
Overview
Hospitality Properties Trust (the "Company") owns 37 hotels, acquired for
$329 million, which are leased to a subsidiary of Host Marriott Corporation
("Host") and are managed by a subsidiary of Marriott International Inc.
("Marriott"). The annual rent payable to the Company totals $32.9 million in
base rent plus percentage rent equal to 5% of increases in total hotel sales
over 1994 levels. In addition, 5% of total hotel sales is required to be
escorted periodically by Host or Marriott as a reserve for renovations and
refurbishment's. The 37 hotels are all Courtyard by Marriott(R) hotels, have a
total of 5,286 guest rooms, are located in 20 states, have an average age of
approximately five years and, through the third quarter of 1995, had average
occupancy and an Average Daily Rate of 82.2% and $72.38 respectively.
Results of Operations
The Company was organized on February 7, 1995, commenced operations on
March 24, 1995 with the acquisition of the first 21 of its initial 37 hotels,
and completed its initial public offering of shares of beneficial interest on
August 22, 1995. The Company has been recently formed and accordingly has
limited historical financial data available. Management believes it is
meaningful and relevant to an understanding of its present and ongoing
operations to discuss pro forma quarterly results as well as historical results
of operations.
Quarter Ended September 30, 1995 - Historical Results
Total revenue for the quarter ended September 30, 1995 was $7,853,000 of
which base and percentage rent comprised $6,268,000 and FF&E reserve rent was
$1,566,000. Total expenses for the quarter were $4,230,000 which consists
principally of interest expense and depreciation and amortization of
$1,840,000 and $1,860,000, respectively. Net income was $3,623,000 ($.71 per
share). Funds from operations and cash available for distribution related to the
quarter were $5,483,000 ($1.07 per share) and $3,917,000 ($.77 per share).
Average outstanding common shares of beneficial interest for the quarter were
5,115,000.
The Company was a wholly owned subsidiary of Health and Retirement
Properties Trust from the date of inception until August 22, 1995, the date of
the Company's initial public offering. Net income from inception through August
22, 1995, of $1,531,000 was distributed to HRP during the quarter. Accordingly,
only earnings and cash flows from August 22, 1995 through September 30, 1995 are
available to the Company's current shareholders. The Company bases its dividend
primarily on cash available for distribution which is net income, plus
depreciation and amortization less FF&E reserve. Cash available for distribution
may not necessarily equal cash provided by operating activities as the cash flow
of the Company is affected by other factors not included in the cash available
HOSPITALITY PROPERTIES TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
Quarter Ended September 30, 1995 - Historical Results - continued
for distribution calculation. Net income for the period from August 22,
1995 to September 30, 1995 was $2,829,000. Funds from operations and cash
available for distribution related to this period were $3,888,000 ($.32 per
share) and $3,145,000 ($.26 per share). The dividend declared which relates to
the period from August 22, 1995, to September 30, 1995, is $3,024,000 or $.24
per share. The Company intends to make regular quarterly distributions beginning
with the quarter ended December 31, 1995 at the initial rate of $.55 per share,
or $2.20 per annum. Average outstanding common shares of beneficial interest for
this period were 12,600,000.
Quarter Ended September 30, 1995 - Pro Forma
The following pro forma discussion assumes that the Company's initial
public offering, purchase of 16 additional hotels, repayment of HRP, exercise of
the underwriters' over-allotment option and related transactions had occurred as
of July 1, 1995. Pro Forma total revenues for the quarter ended September 30,
1995 would have been $10,110,000 and would have been comprised principally of
pro forma base and percentage rent of $8,347,000 and FF&E reserve income of
$1,745,000. Pro forma total expenses would have been $3,072,000 and would have
been comprised of depreciation expense of $2,361,000 and general, administrative
and advisory fees of $711,000. Pro forma net income would have been $7,038,000
for $.56 per share. Pro forma average outstanding common shares of beneficial
interest for the quarter were 12,600,000.
February 7, 1995 (inception) through September 30, 1995 - Historical
Total revenues for the period from February 7, 1995 to September 30, 1995
were $13,644,000. Base and percentage rental income was $11,142,000 and FF&E
reserve income was $2,460,000. Total expenses for this same period were
$9,284,000 which consists principally of interest expense and depreciation and
amortization expense of $5,039,000 and $3,470,000, respectively. Net income was
$4,360,000 or $2.15 per share.
Funds from operations were $7,830,000 or $3.86 per share. Cash
available for distribution was $5,370,000 or $2.65 per share. The average number
of shares outstanding for this period was 2,027,000.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1995 total assets of the Company were $336,899,000.
This consists primarily of net real estate assets of $327,417,000.
At September 30, 1995, the Company had $1,360,000 of cash and cash
equivalents, and the ability to borrow up to an additional $200,000,000 under
its revolving credit facility. The facility provides for availability of up to
$200 million in borrowings at a spread above LIBOR.
HOSPITALITY PROPERTIES TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES - continued
The acquisition line matures on February 22, 1997. Currently, the Company has no
outstanding indebtedness for borrowed money and an equity market capitalization
of approximately $326 million. As a result, the Company believes it will have
access to various types of financing in addition to or in place of the current
acquisition line, including debt or equity securities with which to finance
acquisitions and to otherwise meet its long term funding requirements.
Pursuant to the terms of the lease and management agreements, Host or
Marriott is required to fund an FF&E reserve account in amounts equal to 5% of
Total Hotel Sales. Funds escrowed in the FF&E reserve account will be used by
Marriott for capitalized improvements, replacements and refurbishment of the
hotels. The Company believes that the FF&E Reserve will be adequate to maintain
the competitiveness of its initial hotels. As of September 30, 1995, the amount
of the FF&E reserve for the hotels was approximately $5,450,000.
The Company is actively pursuing acquisition opportunities to diversify and
expand its portfolio of hotel properties and expects to utilize undistributed
cash generated from operations and funds available under its acquisition line or
other borrowings, if any, to complete such acquisitions. The Company intends to
balance the use of debt and equity in such a manner that the long term cost of
funds borrowed to acquire facilities is appropriately matched, to the extent
practicable, to the terms of the investments made with such borrowed funds.
Current expenses and dividends are provided for by funds from operations.
Seasonality
The initial 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 presently expected to cause fluctuations in the Company's
rental income because the Company believes that the revenues generated by the
initial hotels will be sufficient for Host to pay rents on a regular basis
notwithstanding seasonal fluctuations.
Inflation
The Company believes that inflation should not have a material adverse
effect on the Company. Although increases in the rate of inflation may tend to
increase interest rates which the Company may be required to pay on borrowed
funds, the Company intends to implement a policy of obtaining interest rate caps
in appropriate circumstances to protect it from interest rate increases. In
addition, the Leases for the Initial Hotels provide for the payment of
percentage rent to the Company based on increases in total hotel sales of the
Initial Hotels and such rent should increase with inflation.
HOSPITALITY PROPERTIES TRUST
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 duly authorized.
HOSPITALITY PROPERTIES TRUST
(Registrant)
DATE November 14, 1995 BY /s/ Gerard M. Martin
Gerard M. Martin, President
DATE November 14, 1995 BY /s/ John G. Murray
John G. Murray, Treasurer
and Chief Financial Officer