High Quality Diversified Portfolio of 774
Service-Oriented Retail Net Lease Properties
Enhances HPT’s Cash Flow Stability and Overall
Property Level Rent Coverage
Expected to Be Accretive to Annualized
Normalized FFO per Share in 2020
Conference Call Scheduled for 10:00 a.m. ET
Today
Hospitality Properties Trust (Nasdaq:HPT) today announced it
entered into a definitive agreement to acquire a net lease
portfolio from Spirit MTA REIT (NYSE:SMTA) for $2.4 billion in
cash, excluding transaction costs. The portfolio consists of 774
service-oriented retail properties net leased to tenants in 22
different industries. The portfolio has a weighted average
remaining lease term of 8.6 years, a weighted average property
level rent coverage of 2.68x and annual cash rent of $172 million
as of March 31, 2019. This acquisition excludes SMTA’s assets
leased to certain bankrupt tenants.(1) HPT expects this transaction
to be accretive to annualized Normalized Funds From Operations, or
FFO, per share in 2020.
John Murray, President and Chief Executive Officer of HPT, made
the following statement:
“We believe that the acquisition of this
high-quality, net lease portfolio creates a stronger HPT. The
combination of this diversified portfolio with our unique lodging
structure and net lease travel centers, yields a REIT with greater
scale, a more secure financial profile, and greater diversity in
tenant base, property type and geography.
We expect this transaction to benefit our
shareholders and expect to maintain our investment grade
ratings.”
Certain highlights of the portfolio include:
- 774 net lease properties with
approximately 12 million rentable square feet.
- Geographically diverse portfolio across
43 states.
- 98% occupied with a weighted average
lease term of 8.6 years.
- Annual cash rents of $172 million as of
March 31, 2019 and weighted average rent coverage of 2.68x.
- Leases comprising 81% of the portfolio
have contractual rent increases and 52% of portfolio rents are from
master leases with cross default provisions.
- Tenants that span 22 different
industries and 164 brands that include quick service and casual
dining restaurants, movie theaters, health and fitness, specialty
retail, automotive parts and services, and other service-oriented
and necessity-based industries.
- Manageable near-term lease expirations
averaging 4% of contractual rents per year over the next six
years.
Certain expected benefits of the transaction include:
- Expected to be accretive to
shareholders.
- Strengthens HPT’s property level
rent coverage - HPT expects the acquisition will result in
stronger property level rent coverage for its consolidated
portfolio. On a pro forma basis, coverage for the consolidated
portfolio for the twelve-month period ending March 31, 2019 would
have increased from 1.21x to approximately 1.46x.
- Provides greater scale - The
number of HPT properties will increase from 506 properties to 1,280
properties, and HPT’s gross assets will increase from $10.2 billion
to $12.6 billion, before expected asset sales.
- Diversifies HPT’s tenant
concentration - HPT will have a more diverse and resilient
portfolio with the mix of net lease income increasing from 31% to
43%.
- Limited capital expenditure
requirements -Tenants under the leases bear the cost of
maintaining the portfolio.
Mr. Murray commented further,
“Since HPT’s inception, its hotel agreements
have functioned like triple net leases due to their strong credit
support, subordinated base management fees and all-or-none renewal
options. HPT’s 179 travel centers are leased under long-term triple
net leases and contain over 500 quick service restaurants and 179
casual dining restaurants, truck repair businesses, stores and
large gas stations. Beyond the improved coverage, diversity, scale,
and capital expenditure benefits, which today’s announced
acquisition is expected to create, the transaction also provides an
additional avenue for HPT’s growth. In the future, we expect to
invest in additional service and necessity-based retail properties
on a triple net basis, preferably in portfolios, in addition to our
continued focus on hotels and travel centers.”
Deal Structure, Approvals and TimingTo finance the
transaction, HPT has secured commitments from lenders for an up to
$2.0 billion unsecured term loan facility. HPT may use the proceeds
from this term loan facility, borrowings under its existing
revolving credit facility, proceeds from the sale of certain assets
and/or proceeds from the issuance of new unsecured notes to finance
the transaction. In addition to the $2.4 billion purchase price,
HPT has agreed to pay the prepayment penalties to extinguish the
existing mortgage debt on the portfolio, which are estimated to be
approximately $72 million. HPT intends to sell approximately $500
million of the acquired assets and approximately $300 million of
hotel and other assets following the closing of the acquisition in
order to reduce its debt levels to approximately 6.0 times Adjusted
EBITDA for real estate, or Adjusted EBITDAre.
Based on estimated GAAP net operating income and pending
completion of HPT’s accounting analysis, HPT believes the
acquisition capitalization rate will be approximately 7.2%. HPT’s
accretion estimate for 2020 assumes that debt incurred with this
transaction is refinanced with longer term debt financing at
current market rates and is after expected asset sales.
HPT does not plan to issue common shares in connection with this
transaction.
The purchase price is subject to certain adjustments. The
transaction is subject to approval by SMTA shareholders and other
customary conditions and is expected to close in the third quarter
of 2019.
AdvisorsBofA Merrill Lynch is acting as exclusive
financial advisor and Hunton Andrews Kurth LLP is acting as legal
advisor to HPT in connection with this transaction. Joint Lead
Arrangers for the unsecured term loan are BofA Securities, Inc.,
Citigroup, Morgan Stanley Senior Funding, Inc., RBC Capital
Markets, and Wells Fargo Securities, LLC.
Conference CallOn Monday, June 3, 2019, at 10:00 a.m.
Eastern time, HPT will host a conference call to discuss the
acquisition. Following management's remarks, there will be a
question and answer period. HPT will also provide a presentation in
advance of the conference call regarding the transaction that will
be available at HPT’s website at www.hptreit.com and as an exhibit
to a Current Report on a Form 8-K furnished with the Securities and
Exchange Commission, or SEC.
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 for about one week after the
call. To hear the replay, dial 412-317-0088. The replay pass code
is 10132155.
A live audio webcast of the conference call will also be
available in a listen-only mode on HPT's website. To access the
webcast, participants 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, or retransmission in any way of HPT's
conference call is strictly prohibited without the prior written
consent of HPT. 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, Washington, DC, 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.
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 we use 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. Forward-looking
statements involve known and unknown risks, uncertainties and other
factors, some of which are beyond HPT’s control. For example:
- HPT has agreed to buy a
service-oriented retail net lease portfolio from SMTA for $2.4
billion, and expects the transaction to close in the third quarter
of 2019. This transaction is subject to approval by SMTA’s
shareholders and other closing conditions. As a result, this
transaction may not occur, may be delayed or the terms may
change.
- As a result of the transaction
announced today, HPT expects to realize certain benefits, including
less tenant concentration, more resiliency, stronger rent coverage,
greater scale, and limited capital expenditure requirements
associated with the SMTA portfolio. However, these expected
benefits depend on many factors that are beyond HPT’s control and
may not occur.
- HPT expects to remain investment grade
rated; however, remaining investment grade rated depends on many
factors, including reducing HPT’s leverage over time, which may not
occur. HPT’s investment grade rating may change, or HPT may lose
its investment grade rating.
- As a result of the transaction, HPT
expects that future cash flows and property level rent coverage
will increase and that the transaction will benefit HPT’s
shareholders. However, future cash flows and property level rent
coverage will depend on future operating and portfolio results,
which may decline and expected benefits of the transaction may not
be realized.
- HPT expects to refinance the term loan
it plans to obtain in connection with this transaction with a
combination of longer-term senior notes, bank debt, and the sale of
assets following closing of this transaction. HPT may not be able
to raise debt at attractive prices, sell the expected amount of
assets, or raise sufficient funds from selling such assets, and
HPT’s leverage may be further increased and interest costs may be
higher than expected.
- HPT estimates the prepayment penalties
to extinguish SMTA’s mortgage debt to be $72 million. This is an
estimate based on interest rate assumptions and timing of closing
which could increase or decrease the prepayment penalty
amount.
- HPT estimates this transaction will be
accretive to HPT’s Normalized FFO per share in 2020 on an
annualized basis assuming that debt incurred with this transaction
is refinanced with longer term debt at current market rates and
after expected asset sales. For many reasons, including, but not
limited to, HPT’s ability to finance the transaction on attractive
terms, the performance of the portfolio, and the impact of asset
sales, this transaction may not be accretive to Normalized FFO per
share at expected levels or at all.
- HPT does not plan to issue common
shares in connection with this transaction. However, circumstances
beyond HPT’s control may change and HPT may issue common shares in
connection with this transaction.
The information contained in HPT’s filings with 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.
(1) Excludes approximately 100 assets owned by SMTA
primarily leased to Shopko Stores Inc. as of December 31, 2018.
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/20190603005293/en/
Katie Strohacker, Senior Director, Investor Relations(617)
796-8232www.hptreit.com
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