Fourth Quarter Net Loss Available for Common
Shareholders of $(0.66) Per Share
Fourth Quarter Normalized FFO Available for
Common Shareholders of $0.61 Per Share
Hospitality Properties Trust (Nasdaq: HPT) today announced its
financial results for the quarter and year ended December 31,
2018:
Three Months Ended Year Ended
December 31, December 31, 2018 2017 2018
2017 ($ in thousands, except per share and RevPAR data)
Net income (loss) available for common shareholders $
(108,860 ) $ 31,545 $ 185,734 $ 203,815 Net income (loss) available
for common shareholders per share $ (0.66 ) $ 0.19 $ 1.13 $ 1.24
Adjusted EBITDA (1) $ 149,773 $ 135,312 $ 805,303 $ 773,654
Normalized FFO available for common shareholders (1) $ 99,994 $
87,865 $ 605,708 $ 585,734 Normalized FFO available for common
shareholders per share (1) $ 0.61 $ 0.54 $ 3.69 $ 3.57
Portfolio
Performance
Comparable hotel RevPAR $ 86.24 $ 87.70 $ 96.22 $ 95.74 Change in
comparable hotel RevPAR (1.7 %) — 0.5 % — RevPAR (all hotels) $
86.53 $ 87.85 $ 95.14 $ 95.87 Change in RevPAR (all hotels) (1.5 %)
— (0.8 %) — Coverage of HPT’s minimum returns and rents for hotels
0.77x 0.90x 0.97x 1.06x Coverage of HPT's minimum rents for travel
centers 1.59x 1.46x 1.63x 1.50x (1) Reconciliations of net income
(loss) 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 (loss) 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 quarters
and years ended December 31, 2018 and 2017 appear later in this
press release.
John Murray, President and Chief Executive Officer of HPT, made
the following statement:
“HPT’s fourth quarter 2018 comparable hotel RevPAR declined 1.7%
compared to the prior year period due to occupancy decreases
associated with thirty-seven hotel renovations, non-recurring
business related to the hurricanes in Texas and Florida in the
prior year period that negatively impacted our Wyndham and IHG
portfolios in particular and competition from supply growth. For
hotels not impacted by renovations or hurricanes, comparable RevPAR
increased 2.0%. Looking ahead to 2019, we expect renovations will
occur at fewer of our hotels compared to 2018.
Our TA properties' total gross margin increased by $23.6
million, or 8.1%, for the fourth quarter 2018, versus the same
period last year driven by a 32.5% increase in fuel margin and a
1.9% increase in non-fuel margin. Travel center minimum rent
coverage was 1.63 times for the year ended 2018.
In January 2019, HPT completed the sale of 20 travel centers to
TA for $308.2 million for a significant gain. We used the proceeds
to repay amounts outstanding on our revolving credit facility and
for general business purposes, including to acquire the Kimpton®
Hotel Palomar in Washington, D.C. for $141.5 million in February
2019."
Results for the Quarter and Year Ended December 31, 2018
and Recent Activities:
- Net Income (Loss) Available for
Common Shareholders: Net loss available for common shareholders
for the quarter ended December 31, 2018 was $108.9 million, or
$0.66 per diluted share, compared to net income available for
common shareholders of $31.5 million, or $0.19 per diluted share,
for the quarter ended December 31, 2017. Net loss available
for common shareholders for the quarter ended December 31,
2018 includes $106.1 million, or $0.65 per diluted share, of
unrealized losses on equity securities and $53.6 million, or $0.33
per diluted share, of business management incentive fee expense.
Net income available for common shareholders for the quarter ended
December 31, 2017 includes $36.3 million, or $0.22 per diluted
share, of business management incentive fee expense and a $5.4
million, or $0.03 per diluted share, tax benefit related to the
federal tax legislation referred to as the Tax Cuts and Jobs Act,
or the Tax Act. The weighted average number of diluted common
shares outstanding was 164.3 million and 164.2 million for the
quarters ended December 31, 2018 and 2017, respectively.Net
income available for common shareholders for the year ended
December 31, 2018 was $185.7 million, or $1.13 per diluted
share, compared to net income available for common shareholders of
$203.8 million, or $1.24 per diluted share, for the year ended
December 31, 2017. Net income available for common
shareholders for the year ended December 31, 2018 includes
$53.6 million, or $0.33 per diluted share, of business management
incentive fee expense and $16.7 million, or $0.10 per diluted
share, of unrealized losses on equity securities. Net income
available for common shareholders for the year ended
December 31, 2017 includes $74.6 million, or $0.45 per diluted
share, of business management incentive fee expense, a $9.3
million, or $0.06 per diluted share, gain on sale of real estate, a
$5.4 million, or $0.03 per diluted share, tax benefit related to
the Tax Act, 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 year 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 164.3
million and 164.2 million for the years ended December 31,
2018 and 2017, respectively.
- Adjusted EBITDA: Adjusted EBITDA
for the quarter ended December 31, 2018 compared to the same
period in 2017 increased 10.7% to $149.8 million.Adjusted EBITDA
for the year ended December 31, 2018 compared to the same
period in 2017 increased 4.1% to $805.3 million.
- Normalized FFO Available for Common
Shareholders: Normalized FFO available for common shareholders
for the quarter ended December 31, 2018 were $100.0 million,
or $0.61 per diluted share, compared to Normalized FFO available
for common shareholders of $87.9 million, or $0.54 per diluted
share, for the quarter ended December 31, 2017. Normalized FFO
available for common shareholders includes $53.6 million, or $0.33
per diluted share, and $74.6 million, or $0.45 per diluted share,
of business management incentive fee expense for the quarters ended
December 31, 2018 and 2017, respectively.Normalized FFO
available for common shareholders for the year ended
December 31, 2018 were $605.7 million, or $3.69 per diluted
share, compared to Normalized FFO available for common shareholders
of $585.7 million, or $3.57 per diluted share, for the year ended
December 31, 2017. Normalized FFO available for common
shareholders includes $53.6 million, or $0.33 per diluted share,
and $74.6 million, or $0.45 per diluted share, of business
management incentive fee expense for the years ended
December 31, 2018 and 2017, respectively.
- Hotel RevPAR (comparable
hotels): For the quarter ended December 31, 2018 compared
to the same period in 2017 for HPT’s 323 hotels that were owned
continuously since October 1, 2017: average daily rate, or
ADR, increased 0.8% to $126.45; occupancy decreased 1.7 percentage
points to 68.2%; and revenue per available room, or RevPAR,
decreased 1.7% to $86.24.For the year ended December 31, 2018
compared to the same period in 2017 for HPT’s 303 hotels that were
owned continuously since January 1, 2017: ADR increased 1.7%
to $128.64; occupancy decreased 0.9 percentage points to 74.8%; and
RevPAR increased 0.5% to $96.22.
- Hotel RevPAR (all hotels): For
the quarter ended December 31, 2018 compared to the same
period in 2017 for HPT’s 326 hotels that were owned as of
December 31, 2018: ADR increased 0.8% to $126.87; occupancy
decreased 1.6 percentage points to 68.2%; and RevPAR decreased 1.5%
to $86.53.For the year ended December 31, 2018 compared to the
same period in 2017 for HPT’s 326 hotels that were owned as of
December 31, 2018: ADR increased 1.7% to $129.80; occupancy
decreased 1.8 percentage points to 73.3%; and RevPAR decreased 0.8%
to $95.14.
- Coverage of Minimum Returns and
Rents: For the quarter ended December 31, 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 0.77x from
0.90x for the quarter ended December 31, 2017.For the year
ended December 31, 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 0.97x from 1.06x for the year ended December 31,
2017.For the quarter ended December 31, 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 1.59x from 1.46x for the quarter ended
December 31, 2017.For the year ended December 31, 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 1.63x from 1.50x for the year
ended December 31, 2017.As of December 31, 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.In February 2019, HPT acquired the 335 room Hotel Palomar
located in Washington, D.C. for a purchase price of $141.5 million,
excluding acquisition related costs. HPT added this Kimpton®
branded hotel to its management agreement with InterContinental
Hotels Group, plc (LON: IHG; NYSE: IHG (ADRs)), or IHG.
- Transaction with TravelCenters of
America: As previously announced, on January 16, 2019, HPT
entered agreements with TravelCenters of America LLC (Nasdaq: TA),
or TA, to sell 20 travel centers to TA that HPT owned and leased to
TA, and to amend their leases.HPT completed the sale of 20 travel
centers in 15 states to TA for $308.2 million in January 2019. HPT
expects to realize a gain of approximately $160.0 million from
these sales in the first quarter of 2019. HPT used the proceeds
from these sales to repay borrowings under its revolving credit
facility and for general business purposes, including hotel
acquisitions. The aggregate annual minimum rents due from TA for
the remaining 179 travel centers HPT leases to TA was $246.1
million upon completion of the sales.Under the terms of the amended
leases, HPT will receive an aggregate of $70.5 million of
previously deferred rents in 16 equal quarterly installments
beginning on April 1, 2019. Timing of the repayment was
accelerated from the previously staggered due dates between June
2024 and December 2030 in exchange for the deferred rent amounts
being discounted, HPT will receive additional potential percentage
rent beginning in 2020 equal to 0.5% of the excess of nonfuel
revenues over nonfuel revenues in 2019 at the leased travel
centers. This percentage rent is in addition to any percentage rent
amounts HPT is already receiving from TA. In addition, the lease
term under each of the five TA leases was extended three
years.
Tenants and Managers: As of December 31, 2018, HPT
had eight operating agreements with six hotel operating companies
for 326 hotels with 50,543 rooms, which represented 67% of HPT’s
total annual minimum returns and rents, and five lease agreements
with TA for 199 travel centers, which represented 33% of HPT’s
total annual minimum returns and rents.
- Marriott Agreements: As of
December 31, 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 $70.1 million as of December 31, 2018 (approximately
$17.5 million per quarter). During the three months ended
December 31, 2018, HPT realized returns under its Marriott No.
1 agreement of $16.7 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 and funding of a FF&E
reserve. HPT’s Marriott No. 234 agreement includes 68 hotels and
requires annual minimum returns to HPT of $107.4 million as of
December 31, 2018 (approximately $26.8 million per quarter).
During the three months ended December 31, 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 guaranty from Marriott; during the three
months ended December 31, 2018, HPT reduced the available
security deposit by $0.9 million to cover shortfalls in hotel cash
flows available to pay the minimum returns due to HPT during the
period. As of December 31, 2018, the available security
deposit from Marriott for the Marriott No. 234 agreement was $32.7
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 December 31, 2018 of $2.6 million was
paid to HPT.
- IHG Agreement: As of
December 31, 2018, 100 of HPT’s hotels were operated by
subsidiaries of IHG, under one agreement requiring annual minimum
returns and rents to HPT of $193.7 million as of December 31,
2018 (approximately $48.4 million per quarter). During the three
months ended December 31, 2018, HPT realized returns and rents
under its IHG agreement of $39.3 million. HPT's IHG agreement is
partially secured by a security deposit. As of December 31,
2018, the available IHG security deposit which HPT held to pay
future payment shortfalls remained at the contractually capped
amount of $100.0 million. In connection with the February
acquisition of the Hotel Palomar described above, IHG will provide
HPT $5.0 million to supplement the existing security deposit.
- Sonesta Agreement: As of
December 31, 2018, 51 of HPT’s hotels were operated under a
management agreement with Sonesta, requiring annual minimum returns
of $127.1 million as of December 31, 2018 (approximately $31.8
million per quarter). During the three months ended
December 31, 2018, HPT realized returns under its Sonesta
agreement of $16.5 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
December 31, 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 $27.8 million as of December 31, 2018
(approximately $6.9 million per quarter). The guaranty provided by
Wyndham with respect to the management agreement was limited to
$35.7 million and has been depleted since 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 December 31, 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 $1.5 million (approximately $0.4 million per
quarter). The guaranty 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
December 31, 2018 was paid to HPT.
- Hyatt Agreement: As of
December 31, 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 December 31, 2018 (approximately $5.5 million
per quarter). During the three months ended December 31, 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 December 31, 2018,
the hotels under this agreement generated cash flows that were less
than the minimum returns due to HPT, and Hyatt made $1.6 million of
guaranty payments to cover the shortfall. As of December 31,
2018, there was $21.9 million available under Hyatt's
guaranty.
- Radisson Agreement: As of
December 31, 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 December 31, 2018 (approximately $4.7 million
per quarter). During the three months ended December 31, 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 December 31,
2018, the hotels under this agreement generated cash flows that
were less than the minimum returns due to HPT, and Radisson made
$1.0 million of guaranty payments to cover the shortfall. As of
December 31, 2018, there was $42.6 million available under
Radisson's guaranty.
- Travel Center Agreements: As of
December 31, 2018, HPT’s 199 travel centers located along the
U.S. Interstate Highway system were leased to TA under five lease
agreements, which require aggregate annual minimum rents of $289.2
million (approximately $72.3 million per quarter). As of
December 31, 2018, all payments due to HPT from TA under these
leases were current. See above regarding transactions we completed
with TA in January 2019.
Conference Call:
At 10:00 a.m. Eastern Time this morning, President and Chief
Executive Officer, John Murray, and Chief Financial Officer and
Treasurer, Brian Donley, will host a conference call to discuss
HPT's fourth quarter and full year 2018 financial results. 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 Wednesday, March 6, 2019. To access the
replay, dial (412) 317-0088. The replay pass code is 10127677.
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 fourth quarter conference call
is strictly prohibited without the prior written consent of
HPT.
Supplemental Data:
A copy of HPT’s Fourth 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, the District of Columbia, 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 FOR HOTELS NOT IMPACTED BY
RENOVATIONS OR HURRICANES GREW DURING THE FOURTH QUARTER OF 2018
COMPARED WITH THE PRIOR YEAR PERIOD, THAT TA PROPERTIES' GROSS
MARGIN IMPROVED DURING THE FOURTH QUARTER OF 2018 COMPARED WITH THE
PRIOR YEAR PERIOD AND THAT COVERAGE OF HPT'S TRAVEL CENTER MINIMUM
RENTS WAS 1.63 TIMES FOR THE YEAR ENDED 2018. MR. MURRAY ALSO
STATES IN THIS PRESS RELEASE THAT HPT EXPECTS RENOVATIONS WILL
OCCUR AT FEWER OF HPT'S HOTELS IN 2019. THESE STATEMENTS MAY IMPLY
HOTEL REVPAR AT HPT'S COMPARABLE HOTELS THAT ARE NOT UNDER
RENOVATION OR NOT IMPACTED BY HURRICANES 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
TRAVEL CENTERS. IN FACT, COMPARABLE HOTEL REVPAR, EXCLUDING SUCH
ITEMS OR OTHERWISE, MAY NOT GROW AND MAY DECLINE. FURTHER, THE
NUMBER OF HOTELS HPT MAY RENOVATE IN 2019 MAY EXCEED ITS
EXPECTATIONS DUE TO VARIOUS POSSIBLE REASONS, INCLUDING CHANGED
CONDITIONS AND COMPETITIVE DEMANDS. IN ADDITION, TA'S IMPROVED
PROPERTY RESULTS MAY NOT CONTINUE AND ITS OPERATING RESULTS MAY
DECLINE, AND COVERAGE OF HPT'S MINIMUM RETURNS AND RENTS MAY
DECLINE IN FUTURE PERIODS. IN ADDITION, RENOVATIONS MAY NOT OCCUR
AT FEWER OF HPT'S HOTELS THAN IN 2018.
- AS OF DECEMBER 31, 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 GUARANTEE 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
DECEMBER 31, 2018 WAS NOT SECURED BY GUARANTEES OR SECURITY
DEPOSITS.
- WE EXPECT TO RECOGNIZE A GAIN OF
APPROXIMATELY $160.0 MILLION FROM OUR SALE OF 20 TRAVEL CENTERS TO
TA IN THE FIRST QUARTER OF 2019. ANY GAIN WE MAY RECOGNIZE MAY BE
LESS THAN THE AMOUNT WE CURRENTLY EXPECT.
- WYNDHAM'S $35.7 MILLION LIMITED
GUARANTY HAS BEEN DEPLETED SINCE 2017. 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 THE
QUARTER AND YEAR ENDED DECEMBER 31, 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 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
CONSOLIDATED STATEMENTS OF
INCOME
(amounts in thousands, except share
data)
(Unaudited)
Three Months EndedDecember 31,
Year EndedDecember 31,
2018 2017 2018 2017 Revenues: Hotel operating revenues (1) $
464,833 $ 450,506 $ 1,960,958 $ 1,843,501 Rental income (2) 84,745
83,490 328,446 323,764 FF&E reserve income (3) 1,221
1,146 5,132 4,670 Total revenues 550,799
535,142 2,294,536 2,171,935 Expenses: Hotel operating
expenses (1) 336,298 314,001 1,392,355 1,279,547 Depreciation and
amortization 102,769 99,848 403,077 386,659 General and
administrative (4) 66,582 49,305 104,862
125,402 Total expenses 505,649 463,154 1,900,294 1,791,608
Gain on sale of real estate (5) — — — 9,348 Dividend income
876 626 2,754 2,504 Unrealized losses on equity securities (6)
(106,085 ) — (16,737 ) — Interest income 435 208 1,528 798 Interest
expense (including amortization of debt issuance costs and debt
discounts and premiums of $2,570, $2,331, $10,177 and $8,871,
respectively) (49,624 ) (46,250 ) (195,213 ) (181,579 ) Loss on
early extinguishment of debt (7) — (146 ) (160 ) (146 )
Income (loss) before income taxes and equity in earnings (losses)
of an investee (109,248 ) 26,426 186,414 211,252 Income tax benefit
(expense) (8) 754 5,045 (1,195 ) 3,284 Equity in earnings (losses)
of an investee (366 ) 74 515 607 Net income
(loss) (108,860 ) 31,545 185,734 215,143 Preferred distributions —
— — (1,435 ) Excess of liquidation preference over carrying value
of preferred shares
redeemed (9)
— — — (9,893 ) Net income (loss) available for
common shareholders $ (108,860 ) $ 31,545 $ 185,734 $
203,815 Weighted average common shares outstanding
(basic) 164,278 164,192 164,229 164,146
Weighted average common shares outstanding (diluted) 164,278
164,205 164,258 164,175 Net income
(loss) available for common shareholders per common share (basic
and diluted) $ (0.66 ) $ 0.19 $ 1.13 $ 1.24
See Notes on pages 11 and 12
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 EndedDecember 31,
Year EndedDecember 31,
2018 2017 2018 2017 Calculation of FFO
and Normalized FFO available for common shareholders: (10) Net
income (loss) available for common shareholders $ (108,860 ) $
31,545 $ 185,734 $ 203,815
Add (Less):
Depreciation and amortization
102,769 99,848 403,077 386,659 Gain on sale of real estate (5) —
— — (9,348 ) FFO available for common
shareholders (6,091 ) 131,393 588,811 581,126
Add (Less):
Business management incentive fees (4)
— (38,243 ) — — Loss on early extinguishment of debt (7) — 146 160
146 Excess of liquidation preference over carrying value of
preferred shares redeemed (9) — — — 9,893 Unrealized losses on
equity securities (6) 106,085 — 16,737 — Deferred tax benefit (8) —
(5,431 ) — (5,431 ) Normalized FFO available for
common shareholders 99,994 $ 87,865 $ 605,708
$ 585,734 Weighted average common shares outstanding
(basic) 164,278 164,192 164,229 164,146
Weighted average common shares outstanding (diluted) 164,278
164,205 164,258 164,175 Basic and
diluted per common share amounts: FFO available for common
shareholders $ (0.04 ) $ 0.80 $ 3.59 $ 3.54 Normalized FFO
available for common shareholders $ 0.61 $ 0.54 $ 3.69 $ 3.57
Distributions declared per share $ 0.53 $ 0.52 $ 2.11 $ 2.07
Three Months EndedDecember 31,
Year EndedDecember 31,
2018 2017 2018 2017
Calculation of EBITDA and Adjusted EBITDA:
(11)
Net income (loss)
$ (108,860 ) $ 31,545 $ 185,734 $ 215,143
Add (Less):
Interest expense
49,624 46,250 195,213 181,579 Income tax expense (benefit) (8) (754
) (5,045 ) 1,195 (3,284 ) Depreciation and amortization 102,769
99,848 403,077 386,659
EBITDA
42,779 172,598 785,219 780,097
Add (Less):
General and administrative expense paid in
common shares (12)
909 811 3,187 2,759 Business management incentive fees (4) —
(38,243 ) — — Loss on early extinguishment of debt (7) — 146 160
146 Gain on sale of real estate (5) — — — (9,348 ) Unrealized
losses on equity securities (6) 106,085 — 16,737
— Adjusted EBITDA $ 149,773 $ 135,312 $
805,303 $ 773,654
See Notes on pages 11 and 12
(1) As of December 31, 2018, HPT owned 326 hotels; 324 of
these hotels were managed by hotel operating companies and two
hotels were leased to hotel operating companies. As of December 31,
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 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, $31,610 and $14,138 less than the minimum returns due to
HPT for the three months ended December 31, 2018 and 2017,
respectively, and $50,203 and $31,477 less than the minimum returns
due to HPT for the years ended December 31, 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 consolidated statements of income as a
reduction of hotel operating expenses. The reduction to hotel
operating expenses was $6,748 and $2,885 for the three months ended
December 31, 2018 and 2017, respectively, and $5,569 and $4,673 for
the years ended December 31, 2018 and 2017, respectively. 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 $15,981 and $44,634 for the three months and year
ended December 31, 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 $10,522 and $26,804 for
the three months and year ended December 31, 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,
$2,918 more than the minimum returns due to HPT for the three
months ended December 31, 2017 and $35,464 and $68,338 more than
the minimum returns due to HPT for the years ended December 31,
2018 and 2017, respectively. The net operating results of HPT's
managed hotel portfolios did not exceed the minimum returns due to
HPT for the three months ended December 31, 2018. 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 consolidated statements of income as an
increase to hotel operating expenses. HPT had $10,743 and $25,419
of guaranty and security deposit replenishments for the years ended
December 31, 2018 and 2017, respectively. There were no
replenishments for either of the three months ended December 31,
2018 or 2017. (2) Rental income includes $3,150 and $3,170
for the three months ended December 31, 2018 and 2017,
respectively, and $12,509 and $12,378 for the years ended December
31, 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. Rental income also includes $3,695 and $2,106 in both the
three months and years ended December 31, 2018 and 2017,
respectively, of percentage rental income. (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
consolidated statements of income. In calculating net income (loss)
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 (loss), 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
$53,635 of business management incentive fee expense for both the
three months and year ended December 31, 2018 and $36,330 and
$74,573 of business management incentive fee expense for the three
months and year ended December 31, 2017, respectively. Business
management incentive fees for 2018 and 2017 were paid in January
2019 and 2018, respectively. (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 losses 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
December 31, 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. HPT recorded a loss of $146 on early extinguishment of
debt in the three months ended December 31, 2017 in connection with
the redemption of certain senior unsecured notes. (8) HPT
realized a $5,431 tax benefit in the three months ended December
31, 2017 related to the enactment of the Tax Act. (9) 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. (10) 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 (loss) 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, unrealized losses on equity securities
and certain deferred tax benefits. 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 (loss) and net income
(loss) 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 (loss) or net income (loss) 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 (loss) and net income (loss) available
for common shareholders as presented in HPT’s 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.
(11) 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 (loss)
and net income (loss) 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 (loss) or net
income (loss) 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 (loss)
and net income (loss) available for common shareholders as
presented in HPT’s consolidated statements of income. Other real
estate companies and REITs may calculate EBITDA and Adjusted EBITDA
differently than HPT does. (12) Amounts represent the equity
compensation for HPT’s trustees, its officers and certain other
employees of HPT’s manager.
HOSPITALITY PROPERTIES TRUST
CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share
data)
(Unaudited)
December 31, December 31,
2018 2017 ASSETS Real estate properties: Land $ 1,626,239 $
1,668,797 Buildings, improvements and equipment 7,896,734
7,758,862 Total real estate properties, gross 9,522,973
9,427,659 Accumulated depreciation (2,973,384 ) (2,784,478 ) Total
real estate properties, net 6,549,589 6,643,181 Cash and cash
equivalents 25,966 24,139 Restricted cash 50,037 73,357 Due from
related persons 91,212 78,513 Other assets, net 460,275
331,195 Total assets $ 7,177,079 $ 7,150,385
LIABILITIES AND SHAREHOLDERS’ EQUITY Unsecured revolving
credit facility $ 177,000 $ 398,000 Unsecured term loan, net
397,292 399,086 Senior unsecured notes, net 3,598,295 3,203,962
Security deposits 132,816 126,078 Accounts payable and other
liabilities 211,332 184,788 Due to related persons 62,913
83,049 Total liabilities 4,579,648 4,394,963
Commitments and contingencies Shareholders’ equity: Common
shares of beneficial interest, $.01 par value; 200,000,000 shares
authorized; 164,441,709 and 164,349,141 shares issued and
outstanding, respectively 1,644 1,643 Additional paid in capital
4,545,481 4,542,307 Cumulative net income 3,575,307 3,310,017
Cumulative other comprehensive income (loss) (266 ) 79,358
Cumulative preferred distributions (343,412 ) (343,412 ) Cumulative
common distributions (5,181,323 ) (4,834,491 ) Total shareholders’
equity 2,597,431 2,755,422 Total liabilities and
shareholders’ equity $ 7,177,079 $ 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/20190227005189/en/
Katie Strohacker, Senior Director, Investor Relations(617)
796-8232
Hospitality Properties (NASDAQ:HPT)
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