Hospitality Properties Trust Announces Third Quarter 2018 Results

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 HPTs 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.

 Stay Updated To Save Money & Time. Join Our Free Newsletter 
. Indepth Analysis & Opinion       . Interviews      . Exclusive Reports  
. Free Digital Magazines      News & updates      . Event Invitations 
                     
& Much More Delivered To Your Inbox For Free.
Submit
We Will Not Spam, Rent, or Sell Your Information.
All emails include an unsubscribe link. You may opt-out at any time. See our privacy policy.

 
 

John Murray, President and Chief Executive Officer of HPT, made the following statement:

HPTs 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 HPTs 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 HPTs 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 HPTs 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 HPTs 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) HPTs 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) HPTs 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) HPTs 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) HPTs 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 HPTs aggregate annual minimum returns and rents were secured by guarantees or security deposits from HPTs managers and tenants pursuant to the terms of HPTs 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 HPTs total annual minimum returns and rents, and five lease agreements with one travel center operating company for 199 travel centers, which represented 33% of HPTs total annual minimum returns and rents.

  • Marriott Agreements: As of September 30, 2018, 122 of HPTs hotels were operated by subsidiaries of Marriott International, Inc. (Nasdaq: MAR), or Marriott, under three agreements. HPTs 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. HPTs 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. HPTs 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 Marriotts 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 HPTs 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 HPTs 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 HPTs 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 HPTs 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. HPTs 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 HPTs 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. HPTs 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, HPTs 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 HPTs website, which is located at www.hptreit.com. Participants wanting to access the webcast should visit HPTs website about five minutes before the call. The archived webcast will be available for replay on HPTs website for about one week after the call. The transcription, recording and retransmission in any way of HPTs third quarter conference call is strictly prohibited without the prior written consent of HPT.

Supplemental Data:

A copy of HPTs Third Quarter 2018 Supplemental Operating and Financial Data is available for download at HPTs website, which is located at www.hptreit.com. HPTs 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. HPTs 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 HPTs operating results and financial condition and for an explanation of HPTs 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 HPTS 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 HPTS 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 HPTS AGGREGATE ANNUAL MINIMUM RETURNS AND RENTS WERE SECURED BY GUARANTEES OR SECURITY DEPOSITS FROM HPTS 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 HPTS PROPERTIES AND WHETHER SUCH PERFORMANCE WILL COVER HPTS 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 HPTS 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 HPTS 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 HPTS 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 HPTS FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION, OR THE SEC, INCLUDING UNDER THE CAPTION RISK FACTORS IN HPTS PERIODIC REPORTS, OR INCORPORATED THEREIN, IDENTIFIES OTHER IMPORTANT FACTORS THAT COULD CAUSE DIFFERENCES FROM HPTS FORWARD LOOKING STATEMENTS. HPTS FILINGS WITH THE SEC ARE AVAILABLE ON THE SECS 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 Ended September 30,

Nine Months Ended September 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 Ended September 30,

Nine Months Ended September 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 Ended September 30,

Nine Months Ended September 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. HPTs 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 HPTs 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 HPTs 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 HPTs leases, the deferred rent obligations under HPTs 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 HPTs 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 HPTs 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 HPTs 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. HPTs calculation of Normalized FFO available for common shareholders differs from Nareits 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 HPTs 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 HPTs 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 HPTs Board of Trustees when determining the amount of distributions to its shareholders. Other factors include, but are not limited to, requirements to maintain HPTs qualification for taxation as a REIT, limitations in its credit agreement and public debt covenants, the availability to HPT of debt and equity capital, HPTs expectation of its future capital requirements and operating performance and HPTs 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 HPTs operating performance or as measures of HPTs liquidity. These measures should be considered in conjunction with net income and net income available for common shareholders as presented in HPTs 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 HPTs 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 HPTs 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 HPTs liquidity. These measures should be considered in conjunction with net income and net income available for common shareholders as presented in HPTs 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 HPTs trustees, its officers and certain other employees of HPTs 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.

Hospitality Properties Trust
Katie Strohacker, 617-796-8232
Senior
Director, Investor Relations

 Stay Updated To Save Money & Time. Join Our Free Newsletter 
. Indepth Analysis & Opinion       . Interviews      . Exclusive Reports  
. Free Digital Magazines      News & updates      . Event Invitations 
                     
& Much More Delivered To Your Inbox For Free.
Submit
We Will Not Spam, Rent, or Sell Your Information.
All emails include an unsubscribe link. You may opt-out at any time. See our privacy policy.

 
Close
Stay Updated To Save Money & Time. Join Our Free Newsletter. 
. Indepth Analysis & Opinion       Interviews          . Exclusive Reports 
. Free Digital Magazines        . News & updates        . Event Invitations
& Much More Delivered To Your Inbox For Free. 
Submit
We Will Not Spam, Rent, or Sell Your Information.
All emails include an unsubscribe link. You may opt-out at any time. See our privacy policy.
 
Close