HOSPITALITY PROPERTIES TRUST
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, 1997
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 02158
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 [ ]
Class Shares outstanding
Common shares of beneficial at May 5, 1997
interest $.01 par value per share 26,871,395
HOSPITALITY PROPERTIES TRUST
FORM 10-Q
MARCH 31, 1997
CERTAIN IMPORTANT FACTORS
The Company's quarterly report on Form 10-Q contains statements which constitute
forward looking statements within the meaning of the Securities Exchange Act of
1934, as amended. Those statements appear in a number of places in this Form
10-Q and include statements regarding the intent, belief or expectations of the
Company, its Trustees or its officers with respect to the declaration or payment
of dividends, the consummation of additional acquisitions, policies and plans of
the Company regarding investments, dispositions, financings, conflicts of
interest or other matters, the Company's qualification and continued
qualification as a real estate investment trust or trends affecting the
Company's or any hotel's financial condition or results of operations. Readers
are cautioned that any such forward looking statements are not guarantees of
future performance and involve risks and uncertainties, and that actual results
may differ materially from those contained in the forward looking statement as a
result of various factors. Such factors include without limitation changes in
financing terms, the Company's ability or inability to complete acquisitions and
financing transactions, results of operations of the Company's hotels and
general changes in economic conditions not presently contemplated. The
accompanying information contained in this Form 10-Q including the information
under the headings "Business" and " Management's Discussion and Analysis of
Financial Condition and Results of Operation," identifies other important
factors that could cause such differences.
THE AMENDED AND RESTATED DECLARATION OF TRUST OF THE COMPANY, DATED AUGUST 21,
1995 A COPY OF WHICH, TOGETHER WITH ALL AMENDMENTS THERETO (THE "DECLARATION"),
IS DULY FILED IN THE OFFICE OF THE DEPARTMENT OF ASSESSMENTS AND TAXATION OF THE
STATE OF MARYLAND, PROVIDES THAT THE NAME "HOSPITALITY PROPERTIES TRUST" REFERS
TO THE TRUSTEES UNDER THE DECLARATION COLLECTIVELY AS TRUSTEES, BUT NOT
INDIVIDUALLY OR PERSONALLY, AND THAT NO TRUSTEE, OFFICER, SHAREHOLDER, EMPLOYEE
OR AGENT OF THE TRUST SHALL BE HELD TO ANY PERSONAL LIABILITY, JOINTLY OR
SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM AGAINST, THE TRUST. ALL PERSONS
DEALING WITH THE TRUST, IN ANY WAY, SHALL LOOK ONLY TO THE ASSETS OF THE TRUST
FOR THE PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY OBLIGATION.
INDEX
PART I Financial Information (Unaudited) Page
Condensed Consolidated Balance Sheets - March 31, 1997 and
December 31, 1996 3
Consolidated Statements of Income - Three Months
Ended March 31, 1997 and March 31, 1996 4
Condensed Consolidated Statements of Cash Flows - Three
Months Ended March 31, 1997 and March 31, 1996 5
Notes to Condensed Consolidated Financial Statements 6
Management's Discussion and Analysis of Results of
Operations and Financial Condition 9
PART II Other Information 11
Item 2. Changes in Securities 11
Item 6. Exhibits and Reports on Form 8-K 11
2
HOSPITALITY PROPERTIES TRUST
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
December 31, March 31,
1996 1997
------------ -----------
(unaudited)
ASSETS
Real estate properties $ 842,687 $ 889,756
Accumulated depreciation (26,218) (32,991)
--------- ---------
816,469 856,765
Cash and cash equivalents 38,073 8,763
FF&E reserve (restricted cash) 7,277 8,177
Other assets 9,784 10,365
$ 871,603 $ 884,070
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Debt $ 125,000 $ 125,000
Security deposits 81,360 91,360
Other liabilities 20,035 7,129
Shareholders' equity
Common shares of beneficial interest 269 269
Additional paid-in capital 656,253 656,716
Cumulative net income 63,013 77,923
Dividends (74,327) (74,327)
Total shareholders' equity 645,208 660,581
--------- ---------
$ 871,603 $ 884,070
========= =========
See accompanying notes
3
HOSPITALITY PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(unaudited)
For the Three For the Three
Months Ended Months Ended
March 31, March 31,
1996 1997
------------- -------------
Revenues
Rental income $ 8,671 $21,894
FF&E reserve income 1,620 3,479
Interest income 43 104
Total revenues 10,334 25,477
------- -------
Expenses
Interest (including amortization of deferred finance costs of
$45 and $309, respectively) 215 2,296
Depreciation and amortization of real estate assets 2,737 6,773
General and administrative 760 1,498
Total expenses 3,712 10,567
------- -------
Net income $ 6,622 $14,910
======= =======
Weighted average shares outstanding 12,601 26,862
======= =======
Earnings per share $0.53 $0.56
======= =======
See accompanying notes
4
HOSPITALITY PROPERTIES TRUST
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
For the Three For the Three
Months Ended Months Ended
March 31, March 31,
1996 1997
------------- -------------
Cash flows from operating activities
Net income $ 6,622 $ 14,910
Adjustments to reconcile to cash provided by operating activities
Depreciation and amortization of real estate assets 2,737 6,773
Amortization of deferred finance costs as interest 45 309
Funding of FF&E reserve (1,620) (3,479)
Change in assets and liabilities 365 2,513
Cash provided by operating activities 8,149 21,026
--------- ---------
Cash flows from investing activities
Real estate acquisitions and deposits (118,739) (44,490)
Increase in security deposits 9,160 10,000
Purchase of FF&E reserve (1,375) --
Cash used for investing activities (110,954) (34,490)
--------- ---------
Cash flows from financing activities
Draws on credit facility 115,650 --
Dividends paid (6,930) (15,846)
Cash provided by (used in) financing activities 108,720 (15,846)
--------- ---------
Increase (decrease) in cash and equivalents $ 5,915 $ (29,310)
========= =========
Supplemental cash flow information
Interest paid $ -- $ 674
Non-cash investing activities
Property managers' deposits in FF&E reserve 1,555 3,151
Purchases of fixed assets with FF&E reserve 3,109 2,579
See accompanying notes
5
HOSPITALITY PROPERTIES TRUST
NOTES TO FINANCIAL STATEMENTS
(dollars amounts in thousands, except per share amounts)
(unaudited)
1. The accompanying condensed consolidated financial statements of Hospitality
Properties Trust and its subsidiaries (the "Company") 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. The Company believes 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 included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1996. Operating results
for interim periods are not necessarily indicative of the results that may
be expected for the full year.
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.
2. The Company was incorporated on February 7, 1995. The Company commenced
operations on March 24, 1995 with the acquisition of 21 hotels. The Company
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 common shares (the "IPO").
3. Earnings per share is computed by dividing net income by the weighted
average number of outstanding common shares of beneficial interest.
In January 1997, the Company paid a $0.59 per share dividend to
shareholders for the quarter ended December 31, 1996. On March 31, 1997,
the Trustees declared a dividend of $0.59 per share be paid to shareholders
of record as of April 15, 1997, which will be distributed on or about May
15, 1997.
The Financial Accounting Standards Board has issued Financial Accounting
Standards Board Statement No. 128 "Earnings Per Share" ("FAS 128") and
Statement No. 129 "Disclosure of Information about Capital Structure" ("FAS
129"). These statements must be adopted for the Company's 1997 annual
financial statements. Management estimates that adoption of FAS 128 and FAS
129 will have no impact on reported results or disclosures.
4. The Company's properties are leased pursuant to long term leases. Each
lease requires the lessee to pay minimum rent, percentage rent (a
percentage of increases in total hotel sales over total hotel sales in a
base year), and all operating costs associated with the hotels. In
addition, 5% of hotel sales related to each lease are paid by the Company's
hotel operators into an escrow account to fund certain capital improvements
and ongoing renovations necessary to maintain the quality of the
properties. In the case of certain leases, this escrow account is
maintained by the Company.
On January 8, 1997, a subsidiary of the Company acquired a 381-room full
service hotel in Salt Lake City, Utah for $44 million. The hotel is leased
to Wyndham Hotel Corporation and operated as a Wyndham hotel.
5. In April 1997, the Company entered an agreement to acquire fourteen hotels
from Marriott International, Inc. for $149 million. As of May 6, 1997, the
acquisition of nine of these hotels was complete. The Company expects to
close on the remaining five hotels during 1997.
6. As of March 31, 1997, the Company had $0 outstanding under its $200,000
revolving acquisition credit facility (the "Credit Facility") which
provides for borrowings at one month LIBOR plus a spread. Borrowings may be
repaid and reborrowed as necessary until December 31, 1998, at which time
the outstanding balance may, at the Company's option (with lender
approval), be either repaid or converted into a 10-year loan. In April
1997, the Company borrowed $94,000 from the Credit Facility in connection
with the acquisition of nine hotels noted above. Certain subsidiaries of
the Company are carrying $125,000 of long-term mortgages payable (Notes).
The Notes require payment of interest only through their maturity in
December 2001, at which time the principal balance is due. The Notes are
prepayable at any time without penalty. Interest on the Notes is equal to
one month LIBOR plus a spread.
6
7. At March 31, 1997, all of the 53 Courtyard by Marriott(R) properties of the
Company and its subsidiary were leased to a special purpose subsidiary of
Host Marriott Corporation and managed by a subsidiary of Marriott
International, Inc. The results of operations for the twelve weeks ended
March 28, 1997 and March 22, 1996 and summarized balance sheet data of the
Host Marriott subsidiary to which the Company's Courtyard by Marriott(R)
hotels are leased are as follows:
Twelve weeks ended Twelve weeks ended
March 28, 1997(1) March 22, 1996(2)
------------------- ------------------
(unaudited)
Revenues $ 24,132 $ 15,513
Investment expenses
Base and percentage rent 12,106 7,733
FF&E contribution 2,389 1,555
Management fees 5,149 3,006
Other 1,921 1,676
--------
Total investment expenses 21,565 13,970
-------- --------
Income before taxes 2,567 1,543
Provision for income taxes (1,026) (496)
Net income $ 1,541 $ 1,047
======== ========
March 28, 1997
---------------
(unaudited)
Assets $59,993
Liabilities 43,694
Equity 16,299
Revenues in the statements of income above represent house profit. 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
(included in other investment expenses) and management fees presented
above, and the expenses detailed below represent all the costs incurred
directly, allocated or charged to the properties by their management. The
comparable details of total hotel sales and reconciliations to revenue for
the twelve weeks ended March 28, 1997 and March 22, 1996 are as follows:
Twelve weeks ended Twelve weeks ended
March 28, 1997(1) March 22, 1996(2)
------------------- ------------------
(unaudited)
Total hotel sales
Rooms $42,456 $27,316
Food and beverage 3,511 2,496
Other 1,815 1,283
Total hotel sales 47,782 31,095
------- -------
Departmental Expenses
Rooms 8,623 5,874
Food and beverage 2,827 2,050
Other operating departments 534 428
General and administrative 5,188 3,300
Utilities 2,141 1,305
Repairs, maintenance and accidents 2,042 1,147
Marketing and sales 594 380
Chain services 1,701 1,098
Total departmental expenses 23,650 15,582
Revenues $24,132 $15,513
======= =======
(1) Includes results for all 53 Courtyard by Marriott(R) properties.
(2) As of March 22, 1996, 37 courtyard by Marriott(R)properties were owned by
the Company and leased to Host I. These results of operations include only
these 37 properties' results.
7
8. At March 31, 1997, all of the 18 Residence Inn by Marriott(R) properties of
a Company subsidiary were leased to a special purpose subsidiary of Host
Marriott Corporation and managed by a subsidiary of Marriott International,
Inc. The results of operations for the twelve weeks ended March 28, 1997
and summarized balance sheet data of the Host Marriott Corporation
subsidiary to which the Residence Inn by Marriott(R) hotels are leased are
presented below. These properties were not owned for the comparable 1996
period.
Twelve weeks ended
March 28, 1997
-------------------
(unaudited)
Revenues $ 8,107
Investment expenses
Base and percentage rent 4,099
FF&E contribution 762
Management fees 1,899
Other 1,261
Total investment expenses 8,021
-------
Income before taxes 86
Provision for income taxes (34)
Net income $ 52
=======
March 28, 1997
--------------
(unaudited)
Assets $21,042
Liabilities $16,599
Equity $ 4,443
Revenues in the statement of income above represent house profit. 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
(included in other investment expenses) and management fees presented
above, and the expenses detailed below represent all the costs incurred
directly, allocated or charged to the properties by their management. The
detail of total hotel sales and a reconciliation to revenues for the twelve
weeks ended March 28, 1997.
Twelve weeks ended
March 28, 1997
-------------------
(unaudited)
Total hotel sales
Rooms $14,438
Other 796
Total hotel sales 15,234
-------
Departmental Expenses
Rooms 2,838
Other operating departments 288
General and administrative 1,266
Utilities 766
Repairs, maintenance and accidents 832
Marketing and sales 806
Chain services 331
Total departmental expenses 7,127
Revenues $ 8,107
=======
8
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
References below to the Company and to items comprising the Company's results of
operations are collective references to the Company and its subsidiaries and to
consolidated items of the Company's consolidated results of operations.
Overview
Hospitality Properties Trust (the "Company") acquires, owns and leases hotel
properties to unaffiliated hotel operators. The Company owned 53 Courtyard by
Marriott(R)hotels, 11 Wyndham Garden(R)hotels, one Wyndham(R)hotel, and 18
Residence Inn by Marriott(R)hotels as of March 31, 1997.
The Company's 53 Courtyard by Marriott(R) hotels are all leased to a subsidiary
of Host Marriott Corporation ("Host Marriott") and managed by a subsidiary of
Marriott International, Inc. ("Marriott International"). Annual base rent on
these 53 properties totals $50.5 million and percentage rent equals 5% of
increases in total hotel sales over base year levels. The 53 hotels have a total
of 7,610 guest rooms and are located in 23 states. During the first three months
of 1997 these hotels had average occupancy, average daily rate ("ADR") and room
revenue per available room ("RevPAR") of 79.5%, $83.55 and $66.42, respectively.
The Company's 18 Residence Inn by Marriott(R) properties are all leased to a
subsidiary of Host Marriott and managed by a subsidiary of Marriott
International. Annual base rent on these 18 properties totals $17.2 million and
percentage rent equals 7.5% of increases in total hotel sales over 1996 levels.
The 18 properties have a total of 2,178 guest suites and are located in 14
states. During the first three months of 1997 these properties had average
occupancy, ADR and RevPar of 80.1%, $97.58 and $78.91, respectively.
The Company's 11 Wyndham Garden(R)hotels are all leased to and operated by
subsidiaries of the Wyndham Hotel Corporation. Annual base rent on these 11
properties totals $13.6 million and percentage rent equals 8% of increases in
total hotel sales over 1996 levels. The 11 properties have a total of 1,940
guest rooms and are located in seven states. During the first three months of
1997 these hotels had average occupancy, ADR and RevPAR of 76.4%, $95.22 and
$72.80, respectively.
In January of 1997 the Company acquired a 381-room full service hotel (the "Salt
Lake Hotel") in Salt Lake City, Utah. The hotel is leased to Wyndham Hotel
Corporation and is operated as a Wyndham hotel. Annual base rent on this hotel
is $3.8 million. The Company will begin receiving percentage rent, in 1998,
equal to 5% of increases in total hotel sales over 1997 levels and thereafter
annually at 8% of increases in total hotel sales over 1998 levels. During the
first three months of 1997 the property had average occupancy, ADR and RevPAR of
75.7%, $102.86, and $77.88, respectively.
In April of 1997 the Company announced plans to acquire 14, existing and to be
built, hotels from Marriott International, Inc. for approximately $149 million.
The 14 hotels are comprised of ten Residence Inn by Marriott(R) hotels and four
Courtyard by Marriott(R) hotels. These Courtyard and Residence Inn properties
are or will be leased to and operated by a wholly owned subsidiary of Marriott
International for annual base rent of approximately $14.9 million and, beginning
after a two year period, percentage rent equal to 7% increases in total sales
over levels achieved in the second full year of operation. The Company has
acquired nine of the hotels and expects to acquire the five remaining hotels
later this year.
All of the Company's leases require a percentage (usually 5%) of total hotel
sales to be escrowed by the tenant or operator as a reserve for renovations and
refurbishment ("FF&E").
Quarter Ended March 31, 1997 (dollar amounts in thousands except per share
amounts)
Total revenues for the quarter ended March 31, 1997 increased to $25,477 from
$10,334 for the quarter ended March 31, 1996. Base and percentage rent increased
to $21,894 from $8,671 during the comparable period. The increase primarily is a
result of the Company's investment of forty-five hotels acquired between March
and May of 1996.
9
Total expenses for the quarter ended March 31, 1997 increased to $10,567 from
$3,712 for the quarter ended March 31, 1996. The increase is the result of
increases in depreciation, interest, and general and administrative expenses of
$4,036, $2,081, $738, respectively. Depreciation and general and administrative
increased as a result of new investments since March 31, 1996. Interest expense
increased due to the issuance of the Notes, in late 1996.
Net Income for the quarter ended March 31, 1997 increased to $14,910 ($0.56 per
share) from $6,622 ($0.53 per share) from the quarter ended March 31, 1996. The
increase is primarily a result of increased base and percentage rent of $13,200
primarily from new investments offset by an increase in total expenses of $6,855
during the comparable period.
Funds from operations (defined as net income plus depreciation and amortization
of real estate assets) and cash available for distribution (defined as funds
from operations less FF&E Reserve plus amortization of deferred financing costs
and other non-cash charges) related to the quarter were $21,683 ($0.81 per
share) and $18,684 ($0.70 per share), respectively, compared to funds from
operations and cash available for distribution of $9,359 ($0.74 per share) and
$7,847 ($0.62 per share), respectively, for the quarter ended March 31, 1996.
Liquidity and Capital Resources (dollar amounts in thousands except per share
amounts)
Assets of the Company increased to $884,070 at March 31, 1997 from $466,901 from
the quarter ended March 31, 1996. The increase is primarily due to new real
estate acquisitions.
At March 31, 1997 the Company had $8,763 of cash and cash equivalents, the
ability to borrow up to an additional $200,000 under its Credit Facility
("credit facility"), and also the ability to issue up to $500,000 of equity
and/or debt securities from the Company's Shelf Registration.
In January 1997 the Company purchased the Salt Lake Hotel with cash on hand. In
April 1997 the Company borrowed $94,000 from the credit facility for the purpose
of acquiring nine hotels, and the Company has committed to purchase an
additional five hotels from Marriott International, Inc. for an additional
investment of approximately $49,353.
The Company continues to actively pursue other acquisition opportunities to
diversify and expand its portfolio of hotel properties and expects to utilize
funds available under its acquisition line or the Shelf Registration 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.
Pursuant to the terms of the lease and management agreements, the Company's
tenants and operators are required to fund FF&E reserve accounts in amounts
equal to a percentage of total hotel sales. Funds escrowed in the FF&E reserve
accounts are used for capitalized improvements and replacements to, and
refurbishment of, the hotels. The Company believes that these funds will be
adequate to maintain the competitiveness of its hotels.
Funding for current expenses and dividends is provided for by operations. To
maintain its status as a real estate investment trust ("REIT") under the
Internal Revenue Code of 1986, as amended, the Company must meet certain
requirements including the distribution of at least 95% of its taxable income to
its shareholders. As a REIT, the Company expects not to be subject to federal
income taxes.
Dividends are based principally on cash available for distribution which is net
income plus 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 the cash flow of the
Company is affected by other factors not included in the cash available for
distribution calculation.
Dividends declared in 1996 of $0.59 per share were distributed in 1997.
Dividends declared with respect to first quarter 1997 results of $0.59 per share
will be paid to shareholders on or about May 15, 1997. Dividends in a year in
excess of REIT taxable income for that year constitute return of capital.
10
Seasonality
Most of the Company's hotels experience seasonal variation in operating results
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 its
hotels will be sufficient to pay rents on a regular basis notwithstanding
seasonal fluctuations.
PART II Other Information
Item 2. Changes in Securities
(c) In February 1997 the Company issued 14,595 common shares of
beneficial interest, par value $.01 per share, ("Common
Shares") to HRPT Advisors, Inc., ("Advisors") in satisfaction
of 1996 incentive fees of $463,403 payable under the existing
advisory agreement between the Company and Advisors, based
upon a per Common Share price of $31.75. These restricted
securities were issued 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
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
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 15, 1997
11