Third Quarter Net Income Available for
Common Shareholders of $0.71 Per Share
Third Quarter Normalized FFO Available for
Common Shareholders of $1.06 Per Share
Hospitality Properties Trust (Nasdaq: HPT) today announced its
financial results for the quarter and nine months ended
September 30, 2018:
Three Months Ended Nine Months Ended
September 30, September 30, 2018 2017 2018
2017 ($ in thousands, except per share and RevPAR data)
Net income available for common shareholders $ 117,099 $
85,728 $ 294,594 $ 172,270 Net income available for common
shareholders per share $ 0.71 $ 0.52 $ 1.79 $ 1.05 Adjusted EBITDA
(1) $ 225,676 $ 223,469 $ 655,530 $ 638,342 Normalized FFO
available for common shareholders (1) $ 174,653 $ 175,458 $ 505,714
$ 497,869 Normalized FFO available for common shareholders per
share (1) $ 1.06 $ 1.07 $ 3.08 $ 3.03
Portfolio
Performance
Comparable hotel RevPAR $ 101.75 $ 102.28 $ 99.08 $ 98.07 Change in
comparable hotel RevPAR (0.5 %) — 1.0 %
—
RevPAR (all hotels) $ 100.29 $ 102.07 $ 98.00 $ 98.45 Change in
RevPAR (all hotels) (1.7 %) — (0.5 %)
—
Coverage of HPT’s minimum returns and rents for hotels 1.08x 1.18x
1.04x 1.11x Coverage of HPT's minimum rents for travel centers
1.68x 1.73x 1.64x 1.51x
(1)
Reconciliations of net income determined
in accordance with U.S. generally accepted accounting principles,
or GAAP, to earnings before interest, taxes, depreciation and
amortization, or EBITDA, and EBITDA as adjusted, or Adjusted
EBITDA, and net income available for common shareholders determined
in accordance with GAAP to funds from operations, or FFO, available
for common shareholders, and Normalized FFO available for common
shareholders, for the three and nine months ended September 30,
2018 and 2017 appear later in this press release.
John Murray, President and Chief Executive Officer of HPT, made
the following statement:
“HPT’s third quarter 2018 comparable hotel RevPAR declined 0.5%
compared to the prior year period due to occupancy declines
associated with renovations, competition from supply growth and the
negative impact from hurricane related activity. Excluding our
recently acquired hotels and the sixteen comparable hotels that
underwent renovation for all or part of the third quarter 2018,
RevPAR increased 0.4%. Additional returns for the third quarter
2018, in excess of our minimum returns, totaled $9.3 million, and
coverage of hotel minimum returns and rents for the third quarter
2018 was 1.08 times.
Our TA properties' total gross margin increased by $12.7
million, or 4.1%, versus the same period last year driven by a 9.9%
increase in fuel margin and a 2.6% increase in non-fuel margin.
Travel center minimum rent coverage was 1.68 times for the third
quarter 2018.”
Results for the Three and Nine Months Ended
September 30, 2018 and Recent Activities:
- Net Income Available for Common
Shareholders: Net income available for common shareholders for
the quarter ended September 30, 2018 was $117.1 million, or
$0.71 per diluted share, compared to net income available for
common shareholders of $85.7 million, or $0.52 per diluted share,
for the quarter ended September 30, 2017. Net income available
for common shareholders for the quarter ended September 30,
2018 includes $43.5 million, or $0.26 per diluted share, of
unrealized gains on equity securities. Net income available for
common shareholders for the quarter ended September 30, 2017
includes a $9.3 million, or $0.06 per diluted share, gain on sale
of real estate. The weighted average number of diluted common
shares outstanding was 164.3 million and 164.2 million for the
quarters ended September 30, 2018 and 2017, respectively.Net
income available for common shareholders for the nine months ended
September 30, 2018 was $294.6 million, or $1.79 per diluted
share, compared to net income available for common shareholders of
$172.3 million, or $1.05 per diluted share, for the nine months
ended September 30, 2017. Net income available for common
shareholders for the nine months ended September 30, 2018
includes $89.3 million, or $0.54 per diluted share, of unrealized
gains on equity securities. Net income available for common
shareholders for the nine months ended September 30, 2017
includes $38.2 million, or $0.23 per diluted share, of estimated
business management incentive fee expense and a $9.3 million, or
$0.06 per diluted share, gain on sale of real estate and was
reduced by $9.9 million, or $0.06 per diluted share, for the amount
by which the liquidation preference for HPT's 7.125% Series D
cumulative redeemable preferred shares that were redeemed during
the period exceeded the carrying value of those preferred shares as
of the date of the redemption. The weighted average number of
diluted common shares outstanding was 164.2 million for each of the
nine months ended September 30, 2018 and 2017.
- Adjusted EBITDA: Adjusted EBITDA
for the quarter ended September 30, 2018 compared to the same
period in 2017 increased 1.0% to $225.7 million.Adjusted EBITDA for
the nine months ended September 30, 2018 compared to the same
period in 2017 increased 2.7% to $655.5 million.
- Normalized FFO Available for Common
Shareholders: Normalized FFO available for common shareholders
for the quarter ended September 30, 2018 were $174.7 million,
or $1.06 per diluted share, compared to Normalized FFO available
for common shareholders of $175.5 million, or $1.07 per diluted
share, for the quarter ended September 30, 2017.Normalized FFO
available for common shareholders for the nine months ended
September 30, 2018 were $505.7 million, or $3.08 per diluted
share, compared to Normalized FFO available for common shareholders
of $497.9 million, or $3.03 per diluted share, for the nine months
ended September 30, 2017.
- Hotel RevPAR (comparable
hotels): For the quarter ended September 30, 2018 compared
to the same period in 2017 for HPT’s 307 hotels that were owned
continuously since July 1, 2017: average daily rate, or ADR,
increased 1.8% to $130.79; occupancy decreased 1.8 percentage
points to 77.8%; and revenue per available room, or RevPAR,
decreased 0.5% to $101.75.For the nine months ended
September 30, 2018 compared to the same period in 2017 for
HPT’s 303 hotels that were owned continuously since January 1,
2017: ADR increased 2.0% to $129.52; occupancy decreased 0.7
percentage points to 76.5%; and RevPAR increased 1.0% to
$99.08.
- Hotel RevPAR (all hotels): For
the quarter ended September 30, 2018 compared to the same
period in 2017 for HPT’s 325 hotels that were owned as of
September 30, 2018: ADR increased 1.5% to $130.42; occupancy
decreased 2.5 percentage points to 76.9%; and RevPAR decreased 1.7%
to $100.29.For the nine months ended September 30, 2018
compared to the same period in 2017 for HPT’s 325 hotels that were
owned as of September 30, 2018: ADR increased 1.9% to $130.49;
occupancy decreased 1.8 percentage points to 75.1%; and RevPAR
decreased 0.5% to $98.00.
- Coverage of Minimum Returns and
Rents: For the quarter ended September 30, 2018, the
aggregate coverage ratio of (x) total hotel revenues minus all
hotel expenses and FF&E reserve escrows which are not
subordinated to minimum returns or rents due to HPT to (y) HPT’s
minimum returns or rents due from hotels decreased to 1.08x from
1.18x for the quarter ended September 30, 2017.For the nine
months ended September 30, 2018, the aggregate coverage ratio
of (x) total hotel revenues minus all hotel expenses and FF&E
reserve escrows which are not subordinated to minimum returns or
rents due to HPT to (y) HPT’s minimum returns or rents due from
hotels decreased to 1.04x from 1.11x for the nine months ended
September 30, 2017.For the quarter ended September 30,
2018, the aggregate coverage ratio of (x) total travel center
revenues less travel center expenses to (y) HPT’s minimum rent due
from leased travel centers decreased to 1.68x from 1.73x for the
quarter ended September 30, 2017.For the nine months ended
September 30, 2018, the aggregate coverage ratio of (x) total
travel center revenues less travel center expenses to (y) HPT’s
minimum rent due from leased travel centers increased to 1.64x from
1.51x for the nine months ended September 30, 2017.As of
September 30, 2018, approximately 74% of HPT’s aggregate
annual minimum returns and rents were secured by guarantees or
security deposits from HPT’s managers and tenants pursuant to the
terms of HPT’s operating agreements.
- Recent Property Acquisition
Activities: In October 2018, HPT acquired a hotel with 164
suites located in Scottsdale, AZ for a purchase price of $35.9
million, excluding acquisition related costs. HPT rebranded this
hotel to the Sonesta Suites® brand and added it to its management
agreement with Sonesta International Hotels Corporation, or
Sonesta.
Tenants and Managers: As of September 30, 2018, HPT
had eight operating agreements with six hotel operating companies
for 325 hotels with 50,379 rooms, which represented 67% of HPT’s
total annual minimum returns and rents, and five lease agreements
with one travel center operating company for 199 travel centers,
which represented 33% of HPT’s total annual minimum returns and
rents.
- Marriott Agreements: As of
September 30, 2018, 122 of HPT’s hotels were operated by
subsidiaries of Marriott International, Inc. (Nasdaq: MAR), or
Marriott, under three agreements. HPT’s Marriott No. 1 agreement
includes 53 hotels, and provides for annual minimum return payments
to HPT of $69.4 million as of September 30, 2018
(approximately $17.4 million per quarter). During the three months
ended September 30, 2018, HPT realized returns under its
Marriott No. 1 agreement of $19.9 million, of which $2.6 million
represents HPT's share of hotel cash flows in excess of the minimum
returns due to HPT for the period. Because there is no guarantee or
security deposit for this agreement, the minimum returns HPT
receives under this agreement are limited to available hotel cash
flows after payment of operating expenses and funding of a FF&E
reserve. HPT’s Marriott No. 234 agreement includes 68 hotels and
requires annual minimum returns to HPT of $107.1 million as of
September 30, 2018 (approximately $26.8 million per quarter).
During the three months ended September 30, 2018, HPT realized
returns under its Marriott No. 234 agreement of $26.8 million.
HPT’s Marriott No. 234 agreement is partially secured by a security
deposit and a limited guarantee from Marriott; during the three
months ended September 30, 2018, the available security
deposit was replenished by $2.7 million from a share of hotel cash
flows in excess of the minimum returns due to HPT during the
period. As of September 30, 2018, the available security
deposit from Marriott for the Marriott No. 234 agreement was $33.7
million and there was $30.7 million available under Marriott’s
guaranty for up to 90% of the minimum returns due to HPT to cover
future payment shortfalls if and after the available security
deposit is depleted. HPT's Marriott No. 5 agreement includes one
resort hotel in Kauai, HI which is leased to Marriott on a full
recourse basis. The contractual rent due to HPT for this hotel for
the three months ended September 30, 2018 of $2.6 million was
paid to HPT.
- InterContinental Agreement: As
of September 30, 2018, 100 of HPT’s hotels were operated by
subsidiaries of InterContinental Hotels Group, plc (LON: IHG; NYSE:
IHG (ADRs)), or InterContinental, under one agreement requiring
annual minimum returns and rents to HPT of $190.5 million as of
September 30, 2018 (approximately $47.6 million per quarter).
During the three months ended September 30, 2018, HPT realized
returns and rents under its InterContinental agreement of $54.3
million, of which $6.7 million represents HPT's share of hotel cash
flows in excess of the minimum returns due to HPT for the period.
HPT's InterContinental agreement is partially secured by a security
deposit. As of September 30, 2018, the available
InterContinental security deposit which HPT held to pay future
payment shortfalls remained at the contractually capped amount of
$100.0 million.
- Sonesta Agreement: As of
September 30, 2018, 50 of HPT’s hotels were operated under a
management agreement with Sonesta, requiring annual minimum returns
of $123.2 million as of September 30, 2018 (approximately
$30.8 million per quarter). During the three months ended
September 30, 2018, HPT realized returns under its Sonesta
agreement of $21.7 million. Because there is no guarantee or
security deposit for this agreement, the minimum returns HPT
receives under this agreement are limited to available hotel cash
flows after payment of operating expenses including management and
related fees.
- Wyndham Agreement: As of
September 30, 2018, 22 of HPT’s hotels were operated under a
management agreement with a subsidiary of Wyndham Hotels &
Resorts, Inc. (NYSE: WH), or Wyndham, requiring annual minimum
returns of $27.7 million as of September 30, 2018
(approximately $6.9 million per quarter). The guarantee provided by
Wyndham with respect to the management agreement was limited to
$35.7 million and was depleted during 2017. HPT's agreement
with the Wyndham subsidiary provides that if the hotels' cash flows
available after payment of hotel operating expenses are less than
the minimum returns due to HPT and if the guaranty is depleted, to
avoid default Wyndham is required to pay HPT the greater of the
available hotel cash flows after payment of hotel operating
expenses and 85% of the contractual minimum amount due. During the
three months ended September 30, 2018, HPT realized returns
under its Wyndham agreement of $5.9 million, which represents 85%
of the minimum returns due for the period. HPT also leases 48
vacation units in one of the hotels to a subsidiary of Wyndham
Destinations, Inc. (NYSE: WYND), or Destinations, which
requires annual minimum rent of $1.4 million (approximately $0.4
million per quarter). The guarantee provided by Destinations
with respect to the lease is unlimited. The contractual rent due to
HPT under the lease for Destinations' 48 vacation units during the
three months ended September 30, 2018 was paid to HPT.
- Hyatt Agreement: As of
September 30, 2018, 22 of HPT’s hotels were operated under a
management agreement with a subsidiary of Hyatt Hotels Corporation
(NYSE: H), or Hyatt, requiring annual minimum returns of $22.0
million as of September 30, 2018 (approximately $5.5 million
per quarter). During the three months ended September 30,
2018, HPT realized returns under its Hyatt agreement of $5.5
million. HPT’s Hyatt agreement is partially secured by a limited
guaranty from Hyatt. During the three months ended
September 30, 2018, the hotels under this agreement generated
cash flows that were less than the minimum returns due to HPT, and
Hyatt made $0.3 million of guaranty payments to cover the
shortfall. As of September 30, 2018, there was $23.5 million
available under Hyatt's guaranty.
- Radisson Agreement: As of
September 30, 2018, nine of HPT’s hotels were operated under a
management agreement with a subsidiary of Radisson Hospitality,
Inc., or Radisson, requiring annual minimum returns of $18.9
million as of September 30, 2018 (approximately $4.7 million
per quarter). During the three months ended September 30,
2018, HPT realized returns under its Radisson agreement of $4.7
million. HPT’s Radisson agreement is partially secured by a limited
guaranty from Radisson. During the three months ended
September 30, 2018, the available guaranty was replenished by
$1.6 million from a share of hotel cash flows in excess of the
minimum returns due to HPT during the period. As of
September 30, 2018, there was $43.6 million available under
Radisson's guaranty.
- Travel Center Agreements: As of
September 30, 2018, HPT’s 199 travel centers located along the
U.S. Interstate Highway system were leased to TravelCenters of
America LLC (Nasdaq: TA), or TA, under five lease agreements, which
require aggregate annual minimum rents of $288.2 million
(approximately $72.1 million per quarter). As of September 30,
2018, all payments due to HPT from TA under these leases were
current.
Conference Call:
At 1:00 p.m. Eastern Time this afternoon, President and Chief
Executive Officer, John Murray, and Chief Financial Officer and
Treasurer, Mark Kleifges, will host a conference call to discuss
HPT's third quarter 2018 financial results. They will be joined by
Brian Donley, who will assume his role as Chief Financial Officer
and Treasurer of the Company effective January 1, 2019. The
conference call telephone number is (877) 329-3720. Participants
calling from outside the United States and Canada should dial (412)
317-5434. No pass code is necessary to access the call from either
number. Participants should dial in about 15 minutes prior to the
scheduled start of the call. A replay of the conference call will
be available through Tuesday, November 13, 2018. To access the
replay, dial (412) 317-0088. The replay pass code is 10123839.
A live audio webcast of the conference call will also be
available in a listen-only mode on HPT’s website, which is located
at www.hptreit.com. Participants wanting to access the webcast
should visit HPT’s website about five minutes before the call. The
archived webcast will be available for replay on HPT’s website for
about one week after the call. The transcription, recording and
retransmission in any way of HPT’s third quarter conference call is
strictly prohibited without the prior written consent of
HPT.
Supplemental Data:
A copy of HPT’s Third Quarter 2018 Supplemental Operating and
Financial Data is available for download at HPT’s website, which is
located at www.hptreit.com. HPT’s website is not incorporated as
part of this press release.
Hospitality Properties Trust is a real estate investment trust,
or REIT, which owns a diverse portfolio of hotels and travel
centers located in 45 states, Puerto Rico and Canada. HPT’s
properties are operated under long term management or lease
agreements. HPT is managed by the operating subsidiary of The RMR
Group Inc. (Nasdaq: RMR), an alternative asset management company
that is headquartered in Newton, Massachusetts.
Please see the pages attached hereto for a more detailed
statement of HPT’s operating results and financial condition and
for an explanation of HPT’s calculation of FFO available for common
shareholders and Normalized FFO available for common shareholders,
EBITDA and Adjusted EBITDA and a reconciliation of those amounts to
amounts determined in accordance with GAAP.
WARNING CONCERNING
FORWARD LOOKING STATEMENTS
THIS PRESS RELEASE CONTAINS STATEMENTS THAT CONSTITUTE FORWARD
LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995 AND OTHER SECURITIES LAWS. ALSO,
WHENEVER HPT USES WORDS SUCH AS “BELIEVE”, “EXPECT”, “ANTICIPATE”,
“INTEND”, “PLAN”, “ESTIMATE”, "WILL", “MAY” AND NEGATIVES OR
DERIVATIVES OF THESE OR SIMILAR EXPRESSIONS, HPT IS MAKING FORWARD
LOOKING STATEMENTS. THESE FORWARD LOOKING STATEMENTS ARE BASED UPON
HPT’S PRESENT INTENT, BELIEFS OR EXPECTATIONS, BUT FORWARD LOOKING
STATEMENTS ARE NOT GUARANTEED TO OCCUR AND MAY NOT OCCUR. ACTUAL
RESULTS MAY DIFFER MATERIALLY FROM THOSE CONTAINED IN OR IMPLIED BY
HPT’S FORWARD LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS.
FOR EXAMPLE:
- MR. MURRAY STATES IN THIS PRESS RELEASE
THAT HPT'S COMPARABLE HOTEL REVPAR, EXCLUDING RECENTLY ACQUIRED
HOTELS AND HOTELS UNDERGOING RENOVATIONS, GREW DURING THE THIRD
QUARTER OF 2018 COMPARED WITH THE PRIOR YEAR PERIOD, THAT COVERAGE
OF HPT'S HOTEL MINIMUM RETURNS AND RENTS WAS 1.08 TIMES, THAT TA
PROPERTIES' GROSS MARGIN IMPROVED DURING THE THIRD QUARTER OF 2018
COMPARED WITH THE PRIOR YEAR PERIOD AND THAT COVERAGE OF HPT'S
TRAVEL CENTER MINIMUM RENTS WAS 1.68 TIMES. THESE STATEMENTS MAY
IMPLY HOTEL REVPAR AT HPT'S COMPARABLE HOTELS THAT ARE NOT UNDER
RENOVATION MAY CONTINUE TO GROW, TA PROPERTIES' GROSS MARGIN WILL
CONTINUE TO INCREASE OR COVERAGE OF MINIMUM RETURNS AND RENTS WILL
REMAIN ABOVE 1.0 TIMES FOR HPT'S HOTELS OR TRAVEL CENTERS. IN FACT,
HOTEL REVPAR, EXCLUDING SUCH ITEMS, MAY NOT CONTINUE TO GROW AND
MAY DECLINE. IN ADDITION, TA'S IMPROVED PROPERTY RESULTS MAY NOT
CONTINUE AND ITS OPERATING RESULTS MAY DECLINE. IN ADDITION,
COVERAGE OF HPT'S MINIMUM RETURNS AND RENTS MAY DECLINE IN FUTURE
PERIODS.
- AS OF SEPTEMBER 30, 2018,
APPROXIMATELY 74% OF HPT’S AGGREGATE ANNUAL MINIMUM RETURNS AND
RENTS WERE SECURED BY GUARANTEES OR SECURITY DEPOSITS FROM HPT’S
MANAGERS AND TENANTS. THIS MAY IMPLY THAT THESE MINIMUM RETURNS AND
RENTS WILL BE PAID. IN FACT, CERTAIN OF THESE GUARANTEES AND
SECURITY DEPOSITS ARE LIMITED IN AMOUNT AND DURATION AND ALL THE
GUARANTEES ARE SUBJECT TO THE GUARANTORS’ ABILITIES AND WILLINGNESS
TO PAY. HPT CANNOT BE SURE OF THE FUTURE FINANCIAL PERFORMANCE OF
HPT’S PROPERTIES AND WHETHER SUCH PERFORMANCE WILL COVER HPT’S
MINIMUM RETURNS AND RENTS, WHETHER THE GUARANTEES OR SECURITY
DEPOSITS WILL BE ADEQUATE TO COVER FUTURE SHORTFALLS IN THE MINIMUM
RETURNS OR RENTS DUE TO HPT WHICH THEY GUARANTY OR SECURE, OR
REGARDING HPT’S MANAGERS’, TENANTS’ OR GUARANTORS’ FUTURE ACTIONS
IF AND WHEN THE GUARANTEES AND SECURITY DEPOSITS EXPIRE OR ARE
DEPLETED OR THEIR ABILITIES OR WILLINGNESS TO PAY MINIMUM RETURNS
AND RENTS OWED TO HPT. MOREOVER, THE SECURITY DEPOSITS HPT HOLDS
ARE NOT SEGREGATED FROM HPT’S OTHER ASSETS AND THE APPLICATION OF
SECURITY DEPOSITS TO COVER PAYMENT SHORTFALLS WILL RESULT IN HPT
RECORDING INCOME, BUT WILL NOT RESULT IN HPT RECEIVING ADDITIONAL
CASH. THE BALANCE OF HPT’S ANNUAL MINIMUM RETURNS AND RENTS AS OF
SEPTEMBER 30, 2018 WAS NOT SECURED BY GUARANTEES OR SECURITY
DEPOSITS.
- WYNDHAM'S $35.7 MILLION LIMITED
GUARANTY WAS DEPLETED DURING THE YEAR ENDED DECEMBER 31, 2017 AND
CONTINUES TO BE DEPLETED. HPT DOES NOT HOLD A SECURITY DEPOSIT WITH
RESPECT TO AMOUNTS DUE UNDER THE WYNDHAM AGREEMENT. WYNDHAM HAS
PAID 85% OF THE MINIMUM RETURNS DUE TO HPT FOR EACH OF THE THREE
AND NINE MONTHS ENDED SEPTEMBER 30, 2018. HPT CAN PROVIDE NO
ASSURANCE AS TO WHETHER WYNDHAM WILL CONTINUE TO PAY AT LEAST THE
GREATER OF AVAILABLE HOTEL CASH FLOWS AFTER PAYMENT OF HOTEL
OPERATING EXPENSES AND 85% OF THE MINIMUM RETURNS DUE TO HPT OR IF
WYNDHAM WILL DEFAULT ON ITS PAYMENTS.
- HPT HAS NO GUARANTEES OR SECURITY
DEPOSITS FOR THE MINIMUM RETURNS DUE TO HPT FROM HPT'S MARRIOTT NO.
1 OR SONESTA AGREEMENTS. ACCORDINGLY, HPT MAY RECEIVE AMOUNTS THAT
ARE LESS THAN THE CONTRACTUAL MINIMUM RETURNS STATED IN THESE
AGREEMENTS.
THE INFORMATION CONTAINED IN HPT’S FILINGS WITH THE SECURITIES
AND EXCHANGE COMMISSION, OR THE SEC, INCLUDING UNDER THE CAPTION
“RISK FACTORS” IN HPT’S PERIODIC REPORTS, OR INCORPORATED THEREIN,
IDENTIFIES OTHER IMPORTANT FACTORS THAT COULD CAUSE DIFFERENCES
FROM HPT’S FORWARD LOOKING STATEMENTS. HPT’S FILINGS WITH THE SEC
ARE AVAILABLE ON THE SEC’S WEBSITE AT WWW.SEC.GOV.
YOU SHOULD NOT PLACE UNDUE RELIANCE UPON FORWARD LOOKING
STATEMENTS.
EXCEPT AS REQUIRED BY LAW, HPT DOES NOT INTEND TO UPDATE OR
CHANGE ANY FORWARD LOOKING STATEMENTS AS A RESULT OF NEW
INFORMATION, FUTURE EVENTS OR OTHERWISE.
HOSPITALITY PROPERTIES TRUST
CONDENSED CONSOLIDATED STATEMENTS OF
INCOME
(amounts in thousands, except share
data)
(Unaudited)
Three Months EndedSeptember 30,
Nine Months EndedSeptember 30,
2018 2017 2018 2017 Revenues: Hotel operating revenues (1) $
521,250 $ 495,550 $ 1,496,125 $ 1,392,995 Rental income (2) 80,690
80,896 243,701 240,274 FF&E reserve income (3) 1,213
1,142 3,911 3,524 Total revenues 603,153
577,588
1,743,737 1,636,793 Expenses: Hotel operating
expenses (1) 366,994 343,274 1,056,057 965,546 Depreciation and
amortization 101,007 98,205 300,308 286,811
General and administrative (4)
13,425 13,404 38,280 76,097
Total expenses
481,426 454,883 1,394,645 1,328,454 Gain on sale of real
estate (5) — 9,348 — 9,348 Dividend income 626 626 1,878 1,878
Unrealized gains on equity securities (6) 43,453 — 89,348 —
Interest income 478 211 1,093 590 Interest expense (including
amortization of debt issuance costs and debt discounts and premiums
of $2,570, $2,194, $7,607 and $6,541, respectively) (49,308 )
(46,574 ) (145,589 ) (135,329 ) Loss on early extinguishment of
debt (7) — — (160 ) — Income before income
taxes and equity in earnings of an investee 116,976 86,316 295,662
184,826 Income tax expense (707 ) (619 ) (1,949 ) (1,761 ) Equity
in earnings of an investee 830 31 881 533
Net income 117,099 85,728 294,594 183,598 Preferred
distributions — — — (1,435 )
Excess of liquidation preference over
carrying value of preferred shares redeemed (8)
— — — (9,893 ) Net income available for common
shareholders $ 117,099 $ 85,728 $ 294,594 $
172,270 Weighted average common shares outstanding
(basic) 164,232 164,149 164,212 164,131
Weighted average common shares outstanding (diluted) 164,274
164,188 164,242 164,168 Net income
available for common shareholders per common share (basic and
diluted) $ 0.71 $ 0.52 $ 1.79 $ 1.05
HOSPITALITY PROPERTIES TRUST
RECONCILIATIONS OF FUNDS FROM
OPERATIONS,
NORMALIZED FUNDS FROM OPERATIONS,
EBITDA AND ADJUSTED EBITDA
(amounts in thousands, except share
data)
(Unaudited)
Three Months EndedSeptember 30,
Nine Months EndedSeptember 30,
2018 2017 2018 2017 Calculation of FFO
and Normalized FFO available for common shareholders: (9) Net
income available for common shareholders $ 117,099 $ 85,728 $
294,594 $ 172,270
Add (Less):
Depreciation and amortization
101,007 98,205 300,308 286,811 Gain on sale of real estate (5) —
(9,348 ) — (9,348 )
FFO available for common shareholders
218,106 174,585 594,902 449,733
Add (Less):
Estimated business management incentive
fees (4)
— 873 — 38,243 Loss on early extinguishment of debt (7) — — 160 —
Excess of liquidation preference over carrying value of preferred
shares redeemed (8) — — — 9,893 Unrealized gains on equity
securities (6) (43,453 ) — (89,348 ) — Normalized FFO
available for common shareholders $ 174,653 $ 175,458
$ 505,714 $ 497,869 Weighted average common
shares outstanding (basic) 164,232 164,149 164,212
164,131 Weighted average common shares outstanding
(diluted) 164,274 164,188 164,242 164,168
Basic and diluted per common share amounts: FFO
available for common shareholders $ 1.33 $ 1.06 $ 3.62 $ 2.74
Normalized FFO available for common shareholders $ 1.06 $ 1.07 $
3.08 $ 3.03 Distributions declared per share $ 0.53 $ 0.52 $ 1.58 $
1.55
Three Months EndedSeptember 30,
Nine Months EndedSeptember 30,
2018 2017 2018 2017
Calculation of EBITDA and Adjusted EBITDA:
(10)
Net income
$ 117,099 $ 85,728 $ 294,594 $ 183,598
Add:
Interest expense
49,308 46,574 145,589 135,329 Income tax expense 707 619 1,949
1,761 Depreciation and amortization 101,007 98,205
300,308 286,811
EBITDA
268,121 231,126 742,440 607,499
Add (Less):
General and administrative expense paid in
common shares (11)
1,008 818 2,278 1,948 Estimated business management incentive fees
(4) — 873 — 38,243 Loss on early extinguishment of debt (7) — — 160
— Gain on sale of real estate (5) — (9,348 ) — (9,348 ) Unrealized
gains on equity securities (6) (43,453 ) — (89,348 ) —
Adjusted EBITDA
$ 225,676 $ 223,469 $ 655,530 $ 638,342
(1) As of September 30, 2018, HPT owned 325
hotels; 323 of these hotels were managed by hotel operating
companies and two hotels were leased to hotel operating companies.
As of September 30, 2018, HPT also owned 199 travel centers; all
199 of these travel centers were leased to a travel center
operating company under five lease agreements. HPT’s condensed
consolidated statements of income include hotel operating revenues
and expenses of managed hotels and rental income from its leased
hotels and travel centers. Certain of HPT's managed hotels had net
operating results that were, in the aggregate, $9,216 and $5,699
less than the minimum returns due to HPT for the three months ended
September 30, 2018 and 2017, respectively, and $31,030 and $18,971
less than the minimum returns due to HPT for the nine months ended
September 30, 2018 and 2017, respectively. When managers of these
hotels are required to fund the shortfalls under the terms of HPT’s
management agreements or their guarantees, HPT reflects such
fundings (including security deposit applications) in its condensed
consolidated statements of income as a reduction of hotel operating
expenses. The reduction to hotel operating expenses was $299 for
the three months ended September 30, 2018 and $2,377 and $2,689 for
the nine months ended September 30, 2018 and 2017, respectively.
There was no reduction to hotel operating expenses for the three
months ended September 30, 2017. When HPT reduces the amounts of
the security deposit it holds for any of its operating agreements
for payment deficiencies, it does not result in additional cash
flows to HPT of the deficiency amounts, but reduces the refunds due
to the respective tenants or managers who have provided HPT with
these deposits upon expiration of the respective operating
agreement. The security deposits are non-interest bearing and are
not held in escrow. HPT had shortfalls at certain of its managed
hotel portfolios not funded by the managers of these hotels under
the terms of its management agreements of $9,818 and $28,653 for
the three and nine months ended September 30, 2018, respectively,
which represent the unguaranteed portions of HPT's minimum returns
from its Sonesta and Wyndham agreements. HPT had shortfalls at
certain of its managed hotel portfolios not funded by the managers
of these hotels under the terms of its management agreements of
$5,699 and $16,282 for the three and nine months ended September
30, 2017, respectively, which represents the unguaranteed portion
of HPT's minimum returns from its Sonesta agreement. Certain of
HPT’s managed hotel portfolios had net operating results that were,
in the aggregate, $21,321 and $31,355 more than the minimum returns
due to HPT for the three months ended September 30, 2018 and 2017,
respectively, and $47,901 and $67,052 more than the minimum returns
due to HPT for the nine months ended September 30, 2018 and 2017,
respectively. Certain of HPT's guarantees and its security deposits
may be replenished by a share of future cash flows from the
applicable hotel operations in excess of the minimum returns due to
HPT pursuant to the terms of the respective agreements. When HPT's
guarantees and security deposits are replenished by cash flows from
hotel operations, HPT reflects such replenishments in its condensed
consolidated statements of income as an increase to hotel operating
expenses. HPT had $5,204 and $10,099 of guarantee and security
deposit replenishments for the three months ended September 30,
2018 and 2017, respectively, and $14,299 and $26,319 of guarantee
and security deposit replenishments for the nine months ended
September 30, 2018 and 2017, respectively. (2) Rental income
includes $3,136 and $3,087 in the three months ended September 30,
2018 and 2017, respectively, and $9,359 and $9,208 in the nine
months ended September 30, 2018 and 2017, respectively, of
adjustments necessary to record scheduled rent increases under
certain of HPT’s leases, the deferred rent obligations under HPT’s
travel center leases and the estimated future payments to HPT under
its travel center leases for the cost of removing underground
storage tanks on a straight line basis. (3) Various
percentages of total sales at certain of HPT’s hotels are escrowed
as reserves for future renovations or refurbishment, or FF&E
reserve escrows. HPT owns all the FF&E reserve escrows for its
hotels. HPT reports deposits by its tenants into the escrow
accounts under its hotel leases as FF&E reserve income. HPT
does not report the amounts which are escrowed as FF&E reserves
for its managed hotels as FF&E reserve income. (4)
Incentive fees under HPT’s business management agreement with The
RMR Group LLC are payable after the end of each calendar year, are
calculated based on common share total return, as defined, and are
included in general and administrative expense in HPT’s condensed
consolidated statements of income. In calculating net income in
accordance with GAAP, HPT recognizes estimated business management
incentive fee expense, if any, in the first, second and third
quarters. Although HPT recognizes this expense, if any, in the
first, second and third quarters for purposes of calculating net
income, HPT does not include these amounts in the calculation of
Normalized FFO available for common shareholders or Adjusted EBITDA
until the fourth quarter, which is when the business management
incentive fee expense amount for the year, if any, is determined.
General and administrative expense includes $873 and $38,243 of
estimated business management incentive fee expense for the three
and nine months ended September 30, 2017, respectively. No business
management incentive fee expense was recorded for the three and
nine months ended September 30, 2018. (5) HPT recorded a
$9,348 gain on sale of real estate during the three months ended
September 30, 2017 in connection with the sales of three hotels.
(6) Unrealized gains on equity securities represent the
adjustment required to adjust the carrying value of HPT's
investments in The RMR Group Inc. and TA common shares to their
fair value as of September 30, 2018 in accordance with new GAAP
standards effective January 1, 2018. (7) HPT recorded a loss
of $160 on early extinguishment of debt in the three months ended
June 30, 2018 in connection with the amendment of its revolving
credit facility and term loan. (8) In February 2017, HPT
redeemed all 11,600,000 of its outstanding 7.125% Series D
cumulative redeemable preferred shares at the stated liquidation
preference of $25.00 per share plus accrued and unpaid
distributions to the date of redemption (an aggregate of $291,435).
The liquidation preference of the redeemed shares exceeded the
carrying amount for the redeemed shares as of the date of
redemption by $9,893, or $0.06 per share, and HPT reduced net
income available to common shareholders in the three months ended
March 31, 2017 by that excess amount. (9) HPT calculates FFO
available for common shareholders and Normalized FFO available for
common shareholders as shown above. FFO available for common
shareholders is calculated on the basis defined by The National
Association of Real Estate Investment Trusts, or Nareit, which is
net income available for common shareholders calculated in
accordance with GAAP, excluding any gain or loss on sale of
properties and loss on impairment of real estate assets, if any,
plus real estate depreciation and amortization, as well as certain
other adjustments currently not applicable to HPT. HPT’s
calculation of Normalized FFO available for common shareholders
differs from Nareit’s definition of FFO available for common
shareholders because HPT includes business management incentive
fees, if any, only in the fourth quarter versus the quarter when
they are recognized as expense in accordance with GAAP due to their
quarterly volatility not necessarily being indicative of HPT’s core
operating performance and the uncertainty as to whether any such
business management incentive fees will be payable when all
contingencies for determining such fees are known at the end of the
calendar year, and HPT excludes the loss on early extinguishment of
debt, excess of liquidation preference over carrying value of
preferred shares redeemed and unrealized gains on equity
securities. HPT considers FFO available for common shareholders and
Normalized FFO available for common shareholders to be appropriate
supplemental measures of operating performance for a REIT, along
with net income and net income available for common shareholders.
HPT believes that FFO available for common shareholders and
Normalized FFO available for common shareholders provide useful
information to investors because by excluding the effects of
certain historical amounts, such as depreciation expense, FFO
available for common shareholders and Normalized FFO available for
common shareholders may facilitate a comparison of HPT’s operating
performance between periods and with other REITs. FFO available for
common shareholders and Normalized FFO available for common
shareholders are among the factors considered by HPT’s Board of
Trustees when determining the amount of distributions to its
shareholders. Other factors include, but are not limited to,
requirements to maintain HPT’s qualification for taxation as a
REIT, limitations in its credit agreement and public debt
covenants, the availability to HPT of debt and equity capital,
HPT’s expectation of its future capital requirements and operating
performance and HPT’s expected needs for and availability of cash
to pay its obligations. FFO available for common shareholders and
Normalized FFO available for common shareholders do not represent
cash generated by operating activities in accordance with GAAP and
should not be considered alternatives to net income or net income
available for common shareholders as indicators of HPT’s operating
performance or as measures of HPT’s liquidity. These measures
should be considered in conjunction with net income and net income
available for common shareholders as presented in HPT’s condensed
consolidated statements of income. Other real estate companies and
REITs may calculate FFO available for common shareholders and
Normalized FFO available for common shareholders differently than
HPT does. (10) HPT calculates EBITDA and Adjusted EBITDA as
shown above. HPT considers EBITDA and Adjusted EBITDA to be
appropriate supplemental measures of its operating performance,
along with net income and net income available for common
shareholders. HPT believes that EBITDA and Adjusted EBITDA provide
useful information to investors because by excluding the effects of
certain historical amounts, such as interest, depreciation and
amortization expense, EBITDA and Adjusted EBITDA may facilitate a
comparison of current operating performance with HPT’s past
operating performance. In calculating Adjusted EBITDA, HPT includes
business management incentive fees only in the fourth quarter
versus the quarter when they are recognized as expense in
accordance with GAAP due to their quarterly volatility not
necessarily being indicative of HPT’s core operating performance
and the uncertainty as to whether any such business management
incentive fees will be payable when all contingencies for
determining such fees are known at the end of the calendar year.
EBITDA and Adjusted EBITDA do not represent cash generated by
operating activities in accordance with GAAP and should not be
considered alternatives to net income or net income available for
common shareholders as indicators of operating performance or as
measures of HPT’s liquidity. These measures should be considered in
conjunction with net income and net income available for common
shareholders as presented in HPT’s condensed consolidated
statements of income. Other real estate companies and REITs may
calculate EBITDA and Adjusted EBITDA differently than HPT does.
(11) Amounts represent the equity compensation for HPT’s
trustees, its officers and certain other employees of HPT’s
manager.
HOSPITALITY PROPERTIES TRUST
CONDENSED CONSOLIDATED BALANCE
SHEETS
(amounts in thousands, except share
data)
(Unaudited)
September 30, December 31, 2018 2017
ASSETS Real estate properties: Land $ 1,673,113 $ 1,668,797
Buildings, improvements and equipment 7,964,429 7,758,862
Total real estate properties, gross 9,637,542 9,427,659
Accumulated depreciation (2,998,741 ) (2,784,478 ) Total real
estate properties, net 6,638,801 6,643,181 Cash and cash
equivalents 19,849 24,139 Restricted cash 65,644 73,357 Due from
related persons 88,164 78,513 Other assets, net 439,095
331,195 Total assets $ 7,251,553 $ 7,150,385
LIABILITIES AND SHAREHOLDERS’ EQUITY Unsecured revolving
credit facility $ 143,000 $ 398,000 Unsecured term loan, net
397,143 399,086 Senior unsecured notes, net 3,596,275 3,203,962
Security deposits 133,770 126,078 Accounts payable and other
liabilities 178,321 184,788 Due to related persons 10,473
83,049 Total liabilities 4,458,982 4,394,963
Commitments and contingencies Shareholders’ equity:
Common shares of beneficial interest, $.01 par value; 200,000,000
shares authorized; 164,442,379 and 164,349,141 shares issued and
outstanding, respectively 1,644 1,643 Additional paid in capital
4,544,449 4,542,307 Cumulative net income 3,684,167 3,310,017
Cumulative other comprehensive income (loss) (108 ) 79,358
Cumulative preferred distributions (343,412 ) (343,412 ) Cumulative
common distributions (5,094,169 ) (4,834,491 ) Total shareholders’
equity 2,792,571 2,755,422 Total liabilities and
shareholders’ equity $ 7,251,553 $ 7,150,385
A Maryland Real Estate Investment Trust with
transferable shares of beneficial interest listed on the Nasdaq.No
shareholder, Trustee or officer is personally liable for any act or
obligation of the Trust.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20181106005199/en/
Hospitality Properties TrustKatie Strohacker, 617-796-8232Senior
Director, Investor Relations
Hospitality Properties (NASDAQ:HPT)
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