Filed pursuant to Rule 424(b)(5)
Registration No. 333-17983
PROSPECTUS SUPPLEMENT
(To Prospectus dated December 24, 1996)
December 9, 1997
12,000,000 Shares
Hospitality Properties Trust
Common Shares of Beneficial Interest
Hospitality Properties Trust (the "Company" or "HPT") is a real estate
investment trust (a "REIT") which owns hotels and leases them to unaffiliated
tenants. Upon completion of pending acquisitions, HPT will own 135 hotels with
18,497 rooms or suites located in 35 states. The Company's common shares of
beneficial interest (the "Shares") offered hereby are all being issued and sold
by the Company. On December 9, 1997, the last reported sale price for the
Shares on the New York Stock Exchange ("NYSE") was $33-1/16 per Share.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH
IT RELATES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
Price Underwriting Proceeds
to the Discounts and to the
Public Commissions(1) Company(2)
- --------------------------------------------------------------------------------
Per Share ...... $33.0625 $1.65 $31.4125
Total(3) ...... $396,750,000 $19,800,000 $376,950,000
- --------------------------------------------------------------------------------
(1) See "Underwriting" for indemnification arrangements with the Underwriters.
(2) Before deducting expenses payable by the Company estimated at approximately
$1,000,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
an aggregate of 1,800,000 additional Shares at the Price to the Public,
less Underwriting Discounts and Commissions, solely to cover
over-allotments, if any. If such option is exercised in full, the total
Price to the Public, Underwriting Discounts and Commissions and Proceeds
to the Company will be $456,262,500, $22,770,000 and $433,492,500,
respectively. See "Underwriting."
The Shares offered hereby are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by them, subject to
approval of certain legal matters by counsel to the Underwriters and certain
other conditions. The Underwriters reserve the right to reject orders in whole
or in part. It is expected that delivery of the Shares will be made against
payment therefor in New York, New York on or about December 12, 1997.
Donaldson, Lufkin & Jenrette
Securities Corporation
A.G. Edwards & Sons, Inc.
Legg Mason Wood Walker
Incorporated
Merrill Lynch & Co.
Prudential Securities Incorporated
Salomon Smith Barney
<PAGE>
[INSIDE FRONT COVER]
HOSPITALITY PROPERTIES TRUST
[PICTURE OF HOTEL] [PICTURE OF HOTEL]
RESIDENCE INN BY MARRIOTT[RegTM] WYNDHAM[RegTM]
Westborough, Massachusetts Salt Lake City, Utah
[PICTURE OF HOTEL] [PICTURE OF HOTEL]
SUMNER SUITES[RegTM] CANDLEWOOD[RegTM]
Dallas, Texas Birmingham, Alabama
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE SHARES.
SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE OFFERING,
AND MAY BID FOR, AND PURCHASE, SHARES IN THE OPEN MARKET. FOR A DESCRIPTION OF
THESE ACTIVITIES, SEE "UNDERWRITING."
<PAGE>
SUMMARY
The following summary is qualified by the detailed information and
financial statements appearing elsewhere or incorporated by reference in this
Prospectus Supplement and in the accompanying Prospectus dated December 24,
1996 (the "Prospectus"). References in this Prospectus Supplement to the
"Company" or "HPT" include consolidated subsidiaries. Unless otherwise noted,
the information contained in this Prospectus Supplement assumes that (i) the
Underwriters' over-allotment option is not exercised and (ii) the transactions
described below in "Recent Developments--Investments" have been completed,
including the acquisition of the 23 hotels which have not yet been acquired as
of the date hereof. The offering of Shares contemplated hereby (the "Offering")
is not contingent upon the consummation of these transactions, and there can be
no assurance that they will be consummated.
THE COMPANY
The Company is a REIT formed to acquire, own and lease hotels. The Company
currently owns or has entered agreements to acquire a total of 135 hotels with
18,497 rooms costing approximately $1,375 million.
HPT Investments by Hotel Brand
[PIE CHART]
24% 46%
Residence Inn by Marriott[RegTM] Courtyard by Marriott[RegTM]
31 hotels/3,961 suites 63 hotels/8,982 rooms
$335 million $621 million
7% 13%
Candlewood[RegTM] Wyndham[RegTM]
15 hotels/1,592 suites 12 hotels/2,321 rooms
$100 million $179 million
10%
Sumner Suites[RegTM]
14 Hotels/1,641 suites
$140 million
[/PIE CHART]
The Company has raised its quarterly dividends five times since its
initial public offering ("IPO") in August 1995. The next quarterly dividend of
$0.63 per Share will be paid on or about January 28, 1998 to shareholders of
record on December 31, 1997. Purchasers of Shares in this Offering who continue
to hold their Shares on December 31, 1997 will receive this next quarterly
dividend. The following chart shows HPT's growth in dividends and cash
available for distribution ("CAD") per Share, as well as adjusted pro forma CAD
per Share, assuming all pending acquisitions are completed. CAD is defined as
net income plus depreciation, amortization and other non-cash charges, less
cash reserves for periodic refurbishment.
HPT Quarterly Dividends and CAD
(per Share)
<TABLE>
<CAPTION>
Adjusted
Pro Forma
4Q95 1Q96 2Q96 3Q96 4Q96 1Q97 2Q97 3Q97 4Q97 3Q97
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Dividends $.55 $.58 $.58 $.59 $.59 $.59 $.61 $.62 $.63
CAD $.62 $.62 $.64 $.67 $.68 $.70 $.73 $.73 $.75
</TABLE>
S-3
<PAGE>
The Company's strategy to increase CAD per Share is to invest in high
quality hotels leased to experienced hotel operators for minimum rents which
exceed the Company's cost of capital plus percentage rents which increase with
gross hotel revenues. In 1995 the Company acquired 37 hotels for $329 million.
In 1996 the Company acquired 45 hotels for $485 million. Since the beginning of
1997 the Company has acquired or agreed to acquire 53 hotels for $562 million.
The average age of the Company's hotels is under 6 years. The Company believes
that its hotels are among the newest, best designed and best located hotels in
their respective market segments.
The Company has designed its leases to benefit from increasing rents
during cyclical rises in the financial performance of its hotels and to secure
its minimum rents during cyclical downturns. Important features of the
Company's leases, which are designed to increase the growth and dependability
of the Company's CAD per Share used to pay dividends, include the following:
Minimum Rent. All the Company's leases require minimum annual rent equal
to 10% of the Company's investment in its hotels.
Percentage Rent. All the Company's leases require percentage rent equal to
between 5% and 10% of increases in gross hotel revenues over threshold amounts.
Pooled Leases. Each Company-owned hotel is part of a combination of
hotels. The leases in each combination are subject to cross default with other
leases to the same tenant. The smallest combination includes nine hotels with
1,336 rooms in which the Company has invested approximately $129 million; the
largest combination includes 53 hotels with 7,610 rooms in which the Company
has invested approximately $505 million.
Geographic Diversification. Each combination of hotels leased to a single
tenant is geographically diversified. In addition, many of HPT's hotels are
located in the vicinity of major demand generators such as airports, medical or
educational facilities and large suburban office parks.
All or None Renewals. All renewal options for each combination of hotels
may only be exercised on an all or none basis and not for separate hotels.
Security Deposits. The leases require cash security deposits equal to one
year's minimum rent.
FF&E Reserves. The leases require the tenants to deposit 5% of gross hotel
revenues into escrow to fund periodic renovations (the "FF&E Reserve"). For
hotels owned throughout the 12 months ended September 30, 1997, the FF&E
Reserve amounted to $1,462 per room per year.
Subordinated Fees. All management fees for the Company's hotels are
subordinated to the rent due to the Company.
Guarantees for New Hotels. When the Company purchases and leases recently
built hotels, the Company requires that payment of rent be guaranteed until the
operations of the hotels achieve negotiated rent coverage levels. Except for
guarantors whose obligations are investment grade rated, these guarantees are
secured by cash deposits.
Rent Coverage. When the Company purchases hotels which have historical
operations, the purchase prices and rents are set at levels which provide
historical as well as projected rent coverage. For the 12 months ended
September 30, 1997, hotels owned by the Company which had been open at least
one year at the beginning of this period earned cash flow available for rent
(after paying all non-subordinated expenses and after a 5% FF&E Reserve) of 1.6
times the minimum rent due to the Company. The Company believes that this is
the highest rent coverage ratio among all public hotel REITs.
THE OFFERING
<TABLE>
<S> <C>
Shares being offered by the Company ............... 12,000,000 Shares
Shares to be outstanding after the Offering ...... 38,878,295 Shares
Use of proceeds ................................. To repay debt, to purchase hotels and for general business
purposes.
NYSE symbol ....................................... HPT
</TABLE>
S-4
<PAGE>
SUMMARY HISTORICAL AND ADJUSTED PRO FORMA FINANCIAL INFORMATION
The following table sets forth certain financial information with respect
to the Company which is derived from the audited and unaudited financial
statements of the Company incorporated herein by reference or in the Unaudited
Adjusted Pro Forma Financial Statements included elsewhere in this Prospectus
Supplement and should be read in conjunction with these financial statements
and the accompanying footnotes.
<TABLE>
<CAPTION>
Historical Adjusted Pro Forma(1)
------------------------------------------- -----------------------------
Nine Months
Year Ended Nine Months Ended Year Ended Ended
December 31, September 30, December 31, September 30,
--------------------- --------------------- -------------- --------------
1995 1996 1996 1997 1996 1997
(unaudited)
(in thousands, except per Share data)
<S> <C> <C> <C> <C> <C> <C>
Operating Data:
Rental income ........................... $ 19,531 $ 69,514 $ 48,661 $ 71,158 $136,117 $ 103,303
FF&E Reserve income ..................... 4,037 12,169 8,798 11,138 13,343 11,138
Interest income ........................... 74 946 764 474 408 474
Total revenues ........................ 23,642 82,629 58,223 82,770 149,868 114,915
Net income .............................. 11,349 51,664 36,691 44,853 84,451 64,105
Dividends declared ........................ 11,486 62,841 46,996 48,914
Per Share Data:
Net income .............................. $ 2.51 $ 2.23 $ 1.67 $ 1.67 $ 2.17 $ 1.65
Dividends(2) .............................. 0.79 2.34 1.75 1.82
Weighted average Shares outstanding ...... 4,515 23,170 21,932 26,871 38,857 38,871
Other Data:
Cash available for distribution ......... $ 13,156 $ 60,794 $ 42,611 $ 57,768 $115,352 $ 87,749
CAD per Share ........................... $ 2.91 $ 2.62 $ 1.94 $ 2.15 $ 2.97 $ 2.26
Balance Sheet Data (at end of period):
Real estate properties, net ............... $326,752 $816,469 $814,127 $957,994 $1,368,238
Total assets .............................. 338,947 871,603 839,665 992,780 1,404,318
Total borrowings ........................ -- 125,000 93,650 229,000 204,808
Total shareholders' equity ............... 297,951 645,208 661,929 658,464 1,034,374
</TABLE>
- ---------------------
(1) Adjusted pro forma data is presented for the year ended December 31, 1996
and as of or for the nine months ended September 30, 1997, giving effect
to the transactions described under "Recent Developments--Investments,"
this Offering and the additional transactions described in the Unaudited
Adjusted Pro Forma Financial Statements included elsewhere in this
Prospectus Supplement.
(2) Amounts represent dividends declared with respect to the periods shown.
S-5
<PAGE>
RECENT DEVELOPMENTS
From January 1, 1997 through the date hereof, the Company has engaged in
the following significant activities.
Investments
Wyndham[RegTM] Salt Lake City Hotel (381 rooms; $44.0 million). In January
1997 the Company purchased a full service hotel in Salt Lake City, Utah for
$44.0 million. This hotel is located adjacent to the Salt Lake City Salt Palace
Convention Center and contains 381 rooms, 14,469 square feet of meeting space
and two restaurants/lounges. This hotel was previously operated as a
Doubletree[RegTM] hotel, but upon acquisition the Company leased it to a
subsidiary of Wyndham Hotel Corporation ("Wyndham") for an initial term ending
in 2012 plus renewal options. Wyndham is a publicly owned company listed on the
NYSE under the symbol "WYN." Wyndham is in the process of renovating this hotel
and the Company has agreed to provide up to $3.3 million for such renovations.
The minimum rent payable to the Company for this hotel is $4.4 million per
year; this amount increases as improvement funding is drawn and will be $4.7
million per year if all the $3.3 million committed for improvements is drawn.
This lease also requires percentage rent based upon increases in gross revenues
at the hotel and a FF&E Reserve escrow. The lease obligations due the Company
are secured by a $4.7 million cash security deposit. Because this hotel is
being repositioned by Wyndham and the purchase price did not meet the Company's
underwriting criteria based upon historical operating results, the Company
required Wyndham to guarantee the lease obligations up to a specified amount
until cash flow from operations of this hotel exceeds 1.4 times the minimum
rent. This guaranty is secured by a cash deposit. Also, the lease permits the
Company to subject this lease to cross default and all or none renewal options
with leases for 11 other Company-owned hotels leased to another subsidiary of
Wyndham.
Fourteen Marriott[RegTM] Hotels (1,819 rooms; $149 million). In March 1997
the Company agreed to acquire 10 Residence Inn by Marriott[RegTM] hotels (1,276
suites) and four Courtyard by Marriott[RegTM] hotels (543 rooms) for $149
million from Marriott International, Inc. ("Marriott"). Marriott is a publicly
owned company listed on the NYSE under the symbol "MAR." All of these hotels
were developed by Marriott and are less than two years old. The Company agreed
to purchase these hotels as they open and to lease them to a subsidiary of
Marriott through 2014 plus renewal options. The annual minimum rent payable
under these leases is equal to 10% of the purchase prices and will total $14.9
million when all of these hotels are acquired. The leases require percentage
rents beginning after operations of these hotels are stabilized as well as FF&E
Reserve escrows. The leases for all 14 of these hotels are subject to cross
default and all or none renewal options. A cash security deposit equal to one
year's minimum rent (totaling $14.9 million when all 14 hotels are acquired) is
required. In addition, Marriott has guaranteed the lease payments until
operations of these hotels are stabilized and cover the minimum rent according
to a formula negotiated between the Company and Marriott. As of the date
hereof, 13 of these 14 hotels have been acquired and leased; the remaining
hotel is expected to be acquired and leased during December 1997.
Nine Marriott[RegTM] Hotels (1,336 rooms; $129 million). In September 1997
the Company agreed to acquire from Marriott six Courtyard by Marriott[RegTM]
hotels (829 rooms) and three Residence Inn by Marriott[RegTM] hotels (507
suites) for $129 million. These hotels are being leased to a separate
subsidiary of Marriott through 2012 plus renewal options. The terms of these
acquisitions and leases are substantially similar to the terms described above
for the 14 Marriott[RegTM] hotels being acquired and leased by the Company. The
purchase price and minimum rent per room for these hotels are higher than the
purchase prices and rents for other Marriott hotels previously acquired by the
Company because several of these hotels are in higher cost urban locations. As
of the date hereof, two of these hotels have been acquired; the remaining seven
are expected to be acquired periodically during the remainder of 1997 and 1998.
Fourteen Sumner Suites[RegTM] Hotels (1,641 suites; $140 million). In
November 1997 the Company acquired 14 Sumner Suites[RegTM] hotels (1,641
suites) for $140 million from ShoLodge, Inc. ("ShoLodge"). ShoLodge is a public
company listed on The Nasdaq National Market under the symbol "LODG." Sumner
Suites[RegTM] is a proprietary brand of all suite hotels owned by ShoLodge.
Thirteen of these hotels were developed by ShoLodge within the past two years
and the remaining hotel is being substantially renovated at this time.
Simultaneous with their acquisition all of these hotels were leased to a
subsidiary of ShoLodge for an initial term ending in 2008 plus renewal options.
The lease requires annual minimum rent of $14.0 million plus percentage rent
and FF&E Reserve escrows. The lease provides that all 14 hotels are subject to
cross default and all or none renewal options. The lease requires a $14.0
million security deposit. In addition, the lease obligations are guaranteed up
to a specified amount by ShoLodge until a negotiated ratio of cash flow
coverage of rent is achieved from the operations of these hotels; this guaranty
is secured by a cash deposit.
S-6
<PAGE>
Fifteen Candlewood[RegTM] Hotels (1,592 suites; $100 million). In November
1997 the Company agreed to acquire 15 Candlewood[RegTM] hotels for $100 million
from Candlewood Hotel Company, Inc. ("Candlewood"). Candlewood is a publicly
owned company listed on The Nasdaq National Market under the symbol "CNDL."
Candlewood[RegTM] hotels are extended stay hotels developed by Candlewood. As
these hotels are acquired they will be leased to a subsidiary of Candlewood for
an initial term ending in 2011 plus renewal options. The lease will require
annual minimum rent equal to 10% of the purchase prices paid (totaling $10.0
million per year when all 15 hotels are acquired) plus percentage rent and FF&E
Reserve escrows. Cash security deposits equal to one year's minimum rent of
$10.0 million are required. Candlewood will guarantee the lease obligations to
the Company until a negotiated ratio of operating cash flow coverage of rent is
achieved from the operations of these hotels; this guaranty will be secured by
a cash deposit. The Candlewood[RegTM] hotels are expected to be acquired during
the remainder of 1997 and the first quarter of 1998.
Financing
Expanded Credit Facilities. In 1995 the Company entered into an agreement
with DLJ Mortgage Capital, Inc. ("DLJMC") for a $200 million revolving line of
credit. This line of credit was secured by mortgages on certain hotels owned by
the Company and required a draw fee and interest at a spread over one-month
LIBOR. In October and November 1997, the Company and DLJMC entered agreements
to change the terms of this credit facility as follows: (i) in addition to the
$200 million line of credit which may be drawn, repaid and redrawn through
December 1998, the Company has obtained additional credit facilities under
which the Company has the right to borrow up to an additional $255 million
which may not be redrawn after it is repaid; (ii) no additional mortgages will
be recorded to secure draws under the credit facilities until November 1998;
and (iii) the applicable interest rate spread and draw fees were reduced. As of
December 9, 1997, $261 million was outstanding under the DLJMC credit
facilities. The Company intends to repay in full amounts outstanding under
these credit facilities with the proceeds of the Offering.
Additional Debt. The Company has recently held preliminary discussions
with several banks concerning the possibility of replacing the Company's credit
facilities with DLJMC. The Company is also considering whether it should seek
to prepay its outstanding $125 million of mortgage bonds. After completion of
this Offering, the Company expects to have further discussions with various
rating agencies and banks concerning the possibility of establishing new
unsecured credit facilities. No assurance can be given that these discussions
will result in any particular debt ratings or that new credit facilities will
be available to the Company on acceptable terms.
Other Matters
Wyndham Merger. The Company currently owns 12 hotels leased to
subsidiaries of Wyndham. In April 1997 Wyndham announced that it had agreed to
merge with Patriot American Hospitality, Inc., a publicly owned company listed
on the NYSE under the symbol "PAH." The Company believes that this merger as
proposed would violate certain of the Wyndham lease terms and the Company has
advised Wyndham of this belief. Wyndham has not disputed the Company's
interpretation of these terms but has requested that the Company consent to the
merger. Negotiations with Wyndham concerning the terms on which the Company may
consent to this merger are currently on-going. The Company believes that an
agreement for its consent will be achieved, but as of the date hereof no
agreement has been reached. If Wyndham were to breach its lease obligations the
Company might be required to find a new tenant for its 12 Wyndham hotels. In
addition, if the Company was unable to find a new tenant for these hotels
within one year, Wyndham's breach might cause a default in the Company's $125
million of outstanding mortgage bonds which are partially secured by 11 of
these 12 Wyndham hotels. Although there can be no assurances with regard to the
consequences of a Wyndham breach if it were to occur, the Company believes that
these 12 hotels have increased in value since they were acquired and that it
would be able to find a substitute tenant or tenants willing to pay equal or
greater rent than the rent now paid by Wyndham.
Marriott Spin Off and Merger.The Company currently owns or has agreements
to acquire 23 hotels which are or will be leased to Marriott subsidiaries.
Certain obligations due to the Company under these purchase contracts and
leases are guaranteed by Marriott. In October 1997 Marriott announced a plan to
dividend to its shareholders a new company which will own and operate
Marriott's lodging and senior living businesses and to merge the remaining
company with Sodexho SA. As a result of this spin off and merger the current
guarantor of the obligations due to the Company would have a negative net worth
and its obligations are not expected to be investment grade rated. Upon
learning of this planned transaction the Company entered negotiations with
Marriott and, as a result of those negotiations, an agreement has been entered
into which will be effective upon consummation of the Marriott spin off and
merger transaction. This agreement requires that the spin off entity created by
Marriott will assume the guaranty obligations to the Company. Subsidiaries of
the spin off entity will also become managers of the 94 hotels which are
currently managed by subsidiaries of Marriott. The new spin off entity is
expected to be investment grade rated.
S-7
<PAGE>
DIVIDENDS
The Company pays regular quarterly dividends. The current quarterly
dividend rate is $0.63 per Share. The next dividend will be paid on or about
January 28, 1998 to shareholders of record on December 31, 1997. Purchasers of
Shares in this Offering who continue to own their Shares on December 31, 1997
will receive this dividend.
Since its IPO in August 1995 the Company has paid or declared 10
consecutive quarterly dividends and has increased its dividend rate five times.
HPT Dividends Per Share(1)
1995 1996 1997
First quarter ...... n/a $ .58 $ .59
Second quarter ...... n/a .58 .61
Third quarter ...... $ .24(2) .59 .62
Fourth quarter ...... .55 .59 .63
----- ----- -----
Total ........... $ .79 $2.34 $2.45
- ---------------------
(1) Dividends are generally paid in the quarter following the quarter to which
they relate.
(2) Represents a dividend for the period from the date of the IPO to September
30, 1995.
The Company establishes its dividend rate based upon its calculation of
CAD. The Company's calculation of CAD for the quarter ended September 30, 1997
on an historical and adjusted pro forma basis (assuming this Offering and all
of the transactions described in "Recent Developments--Investments" had been
consummated at the beginning of the quarter) is as follows:
<TABLE>
<CAPTION>
Three Months Ended
September 30, 1997
-----------------------
Adjusted
Historical Pro Forma
(in thousands, except
per Share data)
(unaudited)
<S> <C> <C>
Minimum rent ............................................. $ 24,078 $33,761
Percentage rent(1) ....................................... 673 673
-------- --------
Total rent .......................................... 24,751 34,434
FF&E Reserve income(2) .................................... 4,057 4,057
Interest income .......................................... 209 209
-------- --------
Total revenue ....................................... 29,017 38,700
Operating expenses ....................................... 14,000 16,947
-------- --------
Net income ................................................ 15,017 21,753
Deduct FF&E Reserve income(2) ........................... (4,057) (4,057)
Add back depreciation, amortization and non-cash items ... 8,532 11,562
-------- --------
Cash available for distribution ........................... $ 19,492 $29,258
======== ========
Weighted average Shares outstanding ..................... 26,878 38,878
Cash available for distribution per Share ............... $ 0.73 $ 0.75
Dividends per Share(3) .................................... $ 0.62 $ 0.63
Cash available for distribution payout ratio ............ 84.9% 84.0%
</TABLE>
- ---------------------
(1) Adjusted pro forma information assumes no additional percentage rent
because percentage rent begins approximately one year after hotels are
acquired.
(2) Some of the Company's leases provide that ownership of FF&E Reserve escrows
belongs to the Company. Other leases provide that ownership of FF&E
Reserve escrow funds remains with the tenant and the Company has a
security and remainder interest in the escrow account. When the Company
owns the escrow, generally accepted accounting principles require that
payments into the escrow be reported as additional rent. Because these
funds are escrowed for renovations and refurbishments, the Company
eliminates FF&E Reserve income when calculating its CAD.
(3) On November 21, 1997, the Company's Board of Trustees raised the quarterly
dividend from $0.62 per Share to $0.63 per Share.
S-8
<PAGE>
PRICE RANGE OF SHARES
The Shares are listed on the NYSE under the symbol "HPT". The following
table sets forth the range of high and low closing sales prices per Share on
the NYSE on a quarterly basis from August 15, 1995, the IPO date, through the
date indicated.
Price Range
of Common Shares
---------------------
High Low
1995:
3rd quarter (from August 15) ......... $26-3/8 $24-5/8
4th quarter ........................... 26-3/4 24-3/4
1996:
1st quarter ........................... $27-3/4 $25-5/8
2nd quarter ........................... 26-3/4 24-3/4
3rd quarter ........................... 26-7/8 25-1/2
4th quarter ........................... 29-1/2 25-5/8
1997:
1st quarter ........................... $33 $28-3/8
2nd quarter ........................... 32-1/8 29-3/8
3rd quarter ........................... 35-15/16 30-7/16
4th quarter (through December 9) ...... 38-5/16 33-1/16
USE OF PROCEEDS
The Company estimates that the net proceeds of this Offering will be
approximately $376 million ($432 million if the Underwriters' over-allotment
option is exercised in full). A portion of the net proceeds will be used to
repay the amounts outstanding to DLJMC under the Company's credit facilities,
which are approximately $261 million. Borrowings from DLJMC bear interest at a
spread over one-month LIBOR, which at December 9, 1997 totaled 7.22% per annum.
The balance of the net proceeds of this Offering will be used for the purchase
of the hotels described in "Recent Developments--Investments" and for general
business purposes. Until the net proceeds of this Offering are used, they will
be deposited in interest-bearing accounts or invested in short-term securities,
including securities which may not be investment grade rated.
S-9
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1997, Adjusted assuming completion of this Offering, and Adjusted
Pro Forma assuming completion of this Offering and consummation of the
transactions described in the Unaudited Adjusted Pro Forma Financial
Statements.
<TABLE>
<CAPTION>
As of September 30, 1997
---------------------------------------------
Adjusted
Actual Adjusted(2) Pro Forma(2)
(in thousands)
<S> <C> <C> <C>
Debt:
Credit facilities ................................. $ 104,000 $ -- $ 79,808
Mortgage bonds .................................... 125,000 125,000 125,000
--------- ---------- ----------
Total debt(1) .................................... 229,000 125,000 204,808
Shareholders' equity:
Preferred Shares, no par value
100,000,000 authorized, none issued ............ -- -- --
Common Shares, par value $0.01 per Share
100,000,000 authorized, 26,878,295 issued and
38,878,295 adjusted and adjusted pro forma ...... 269 389 389
Additional paid-in capital ........................ 656,906 1,032,696 1,032,696
Cumulative net income .............................. 107,866 107,866 107,866
Dividends (paid or declared) ..................... (106,577) (106,577) (106,577)
--------- ---------- ----------
Total shareholders' equity ........................ 658,464 1,034,374 1,034,374
--------- ---------- ----------
Total capitalization .............................. $ 887,464 $1,159,374 $1,239,182
========= ========== ==========
</TABLE>
- ---------------------
(1) Excludes the Company's obligation to refund security deposits upon lease
expirations and to refund guaranty deposits when the operating performance
of the related hotels reaches negotiated rent coverage levels.
(2) Assumes no exercise of the Underwriters' over-allotment option. If the
Underwriters' over-allotment option is exercised in full, the number of
Common Shares outstanding would be 40,678,295, adjusted pro forma total
debt would be $148 million and adjusted pro forma total shareholders'
equity would be $1,091 million.
S-10
<PAGE>
THE COMPANY
The Company is a REIT which acquires, owns and leases hotels to
unaffiliated hotel operators. The Company was formed in February 1995 as a
subsidiary of Health and Retirement Properties Trust ("HRP"), a REIT which
specializes in owning and leasing healthcare related real estate. In August
1995, the Company completed an initial public offering of 8,325,000 Shares at
$25 per Share, raising gross proceeds of $208 million. In April 1996 the
Company completed a follow-on public offering of 14,250,000 Shares at $26.625
per Share raising gross proceeds of approximately $379 million. Simultaneously
with the IPO in August 1995, HRP purchased 4,000,000 Shares at $25 per Share
and HRPT Advisors, Inc. ("Advisors"), the investment advisor to the Company,
purchased 250,000 Shares for $25 per Share, for a total investment in the
Company of $106 million. Both HRP and Advisors continue to own their Shares.
The Company is organized as a Maryland real estate investment trust; its
principal place of business is at 400 Centre Street, Newton, Massachusetts
02158; and its telephone number is (617) 964-8389.
Growth Strategy
The Company's growth objective is to increase CAD per Share from
dependable and diverse revenue sources.
To achieve these objectives the Company seeks to operate as follows:
maintain a strong capital base of shareholders' equity; invest in high quality
properties operated by unaffiliated hotel operating companies; use moderate
debt leverage to fund additional investments which increase CAD per Share
because of positive spreads between the Company's cost of investment capital
and rent yields; design leases which require minimum rents and provide an
opportunity to participate in a percentage of increases in gross revenues at
the Company's hotels; when market conditions permit, refinance debt with
additional equity or long term debt; and pursue diversification so that the
Company's CAD is received from diverse properties and operators.
Most other public hotel REITs seek to control the operations of hotels in
which they invest by leasing their properties to affiliated tenants. These
other hotel REITs generally design their affiliated leases to capture
substantially all net operating revenues from their hotels as CAD. The
Company's leases are designed so that net operating revenues from its hotels
exceed its rents by considerable coverage margins. The Company believes that
these differences in operating philosophy afford it a competitive advantage
over other hotel REITs in finding high quality hotel investment opportunities
on attractive terms and increase the dependability of the Company's CAD used to
pay dividends.
The Company believes that it has successfully implemented its growth
strategy as follows:
Portfolio Size and Diversification. Since its founding in 1995 the
Company's cumulative investments and commitments have increased as follows:
Investment
Cumulative Through Hotels Tenants States (in millions)
December 31, 1995 ...... 37 1 20 $ 329
December 31, 1996 ...... 82 3 26 813
December 9, 1997 ...... 135 7 35 1,375
Accretive Acquisitions. The Company has increased its CAD per Share as
follows:
<TABLE>
<S> <C>
1995 (pro forma--37 hotels) ............................................. $ 2.45
1996 (historical--82 hotels) ............................................. 2.62
1997 (annualized historical nine months ended 9/30/97--93 hotels) ......... 2.87
1997 (annualized adjusted pro forma nine months ended 9/30/97--135 hotels) 3.01
</TABLE>
Percentage Rent Contribution. Percentage rents payable to the Company vary
from 5% to 10% of gross revenue increases at the Company's hotels above
threshold levels. Due to the Company's rapid growth, percentage rents during
1997 were only payable with respect to a limited number of the Company's
hotels. The Company believes that percentage rents will have a more meaningful
positive impact on its revenues and CAD in future periods.
S-11
<PAGE>
Hotels
Upon completion of the acquisitions described in "Recent
Developments--Investments," including the 23 hotels which have not yet been
acquired as of the date hereof, the Company will have investments totaling
$1,375 million in 135 hotels, with 18,479 rooms, located in 35 states.
Location of HPT Hotels
[GRAPHIC -- MAP]
[MAP SHOWING STATES IN WHICH THE COMPANY'S HOTELS ARE LOCATED]
<TABLE>
<CAPTION>
No. of No. of Investment No. of No. of Investment
State Hotels Rooms (in thousands) State Hotels Rooms (in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Alabama ............ 3 340 $ 25,312 Nebraska ............... 1 131 $ 6,201
Arizona ............ 12 1,669 104,641 Nevada .................. 1 120 9,093
California ......... 14 1,982 151,254 New Jersey ............ 4 572 47,767
Colorado ............ 1 130 6,670 New Mexico ............ 2 237 23,433
Delaware ............ 1 152 12,100 New York ............... 3 403 28,500
Florida ............ 4 504 42,017 North Carolina ......... 5 657 41,684
Georgia ............ 11 1,473 106,971 Ohio .................. 3 308 24,943
Illinois ............ 3 514 38,076 Oklahoma ............... 1 122 10,414
Indiana ............ 2 271 18,523 Pennsylvania ............ 7 911 71,210
Iowa ............... 1 108 7,800 Rhode Island ............ 1 148 10,200
Kansas ............ 2 188 9,674 South Carolina ......... 1 108 5,800
Kentucky ............ 1 77 5,305 Tennessee ............... 4 499 39,054
Louisiana ......... 1 231 27,663 Texas .................. 13 1,780 143,527
Maryland ............ 4 526 44,851 Utah .................. 3 601 58,278
Massachusetts ...... 8 1,072 69,700 Virginia ............... 7 936 77,349
Michigan ............ 3 402 20,784 Washington ............ 3 522 43,529
Minnesota ......... 2 358 18,086 Wisconsin ............... 1 147 8,500
--- ------ ----------
Missouri ............ 2 298 16,200 Total (35 states) ...... 135 18,497 $1,375,109
=== ====== ==========
</TABLE>
The purchase of the remaining 23 hotels that the Company has agreed to
acquire as described under "Recent Developments--Investments" is subject to the
satisfaction of a number of conditions, including completion of construction.
If these conditions are not satisfied, one or more of these hotels may not be
acquired.
S-12
<PAGE>
The Company believes that its portfolio of hotels is among the newest and
most competitive of publicly owned hotel REITs. The average age of the
Company's hotels is under six years.
Courtyard by Marriott[RegTM] hotels are designed to attract both business
and leisure travelers. A typical Courtyard by Marriott[RegTM] hotel has 145
guest rooms. The guest rooms are larger than those in most other moderately
priced hotels and predominately offer king size beds. Most Courtyard by
Marriott[RegTM] hotels are situated on well landscaped grounds and typically
are built with a courtyard containing a patio, pool and socializing area that
may be glass enclosed depending upon location. Most of these hotels have
lounges or lobbies, meeting rooms, an exercise room, a small laundry room
available to guests and a restaurant or coffee shop. Generally, the guest rooms
are similar in size and furnishings to guest rooms in full service Marriott
hotels. In addition, many of the same amenities as would be available in full
service Marriott[RegTM] hotels are available in Courtyard by Marriott[RegTM]
hotels, except that restaurants may be open only for breakfast buffets or serve
limited menus, room service may not be available and meeting and function rooms
are limited in size and number. According to Marriott, as of September 30,
1997, 330 Courtyard by Marriott[RegTM] hotels were open and operating
nationally. The Company believes that the Courtyard by Marriott[RegTM] brand is
a leading brand in the mid-priced segment of the United States hotel industry.
The Company has invested or agreed to invest a total of $621 million in 63
Courtyard by Marriott[RegTM] hotels which have 8,982 rooms. The average daily
rate ("ADR"), occupancy and revenue per available room ("REVPAR") for the
Company's 53 Courtyard by Marriott[RegTM] hotels which were open throughout the
12 months ended September 30, 1997 were as follows:
HPT COURTYARD BY MARRIOTT[RegTM] HOTELS
---------------------------------------
(12 months ended September 30, 1997)
ADR ............ $82.17
Occupancy ...... 81.1%
REVPAR ......... $66.64
Residence Inn by Marriott[RegTM] hotels are designed to attract business,
governmental and family travelers who stay more than five consecutive nights.
Residence Inn by Marriott[RegTM] hotels generally have between 80 and 130
studios, one bedroom and two-bedroom suites. Most Residence Inn by
Marriott[RegTM] hotels are designed as residential-style buildings with
landscaped walkways, courtyards and recreational areas. Residence Inn by
Marriott[RegTM] hotels do not have restaurants. All offer complimentary
continental breakfast and most provide a complimentary evening hospitality
hour. In addition, each suite contains a fully equipped kitchen and many have
fireplaces. Most Residence Inn by Marriott[RegTM] hotels also have swimming
pools, exercise rooms, business centers and guest laundries. According to
Marriott, as of September 30, 1997, 248 Residence Inn by Marriott[RegTM] hotels
were open and operating nationally. The Company believes that the Residence Inn
by Marriott[RegTM] brand is the leading brand in the extended stay segment of
the United States hotel industry.
The Company has invested or agreed to invest a total of $335 million in 31
Residence Inn by Marriott[RegTM] hotels which have 3,961 suites. The ADR,
occupancy and REVPAR for the Company's 18 Residence Inn by Marriott[RegTM]
hotels which were open throughout the 12 months ended September 30, 1997 were
as follows:
HPT RESIDENCE INN BY MARRIOTT[RegTM] HOTELS
-------------------------------------------
(12 months ended September 30, 1997)
ADR ............ $93.73
Occupancy ...... 84.6%
REVPAR ......... $79.30
Wyndham[RegTM] Hotels. Eleven of the Company's Wyndham[RegTM] hotels are
Wyndham Garden[RegTM] hotels. Wyndham Garden[RegTM] hotels are mid-sized, full
service hotels located primarily near suburban business centers and airports
and are designed to attract business travelers and small business groups. Each
hotel contains 140 to 250 rooms and approximately 1,500 to 5,000 square feet of
meeting space. Amenities and services include desks large enough to accommodate
personal computers, room service and access to 24 hour telecopy and
mail/package service. The meeting facilities at Wyndham Garden[RegTM] hotels
generally can accommodate groups of between 10 and 200 people and include a
flexible meeting room design and audiovisual equipment. Wyndham Garden[RegTM]
hotels also feature a lobby lounge, most of which have a fireplace, a library
typically overlooking a landscaped garden and a swimming pool. In addition,
many Wyndham Garden[RegTM] hotels contain a whirlpool and an exercise facility.
Each Wyndham
S-13
<PAGE>
Garden[RegTM] hotel contains a cafe restaurant and serves a full breakfast,
lunch and dinner menu. The Company believes that the Wyndham Garden[RegTM]
brand is one of the leading brands in the full service segment of the United
States hotel industry. The one additional Wyndham[RegTM] hotel owned by the
Company is a full service hotel located in downtown Salt Lake City adjacent to
the Salt Lake City Salt Palace Convention Center. This hotel includes 381
rooms, 14,469 square feet of meeting space and two restaurants/lounges. The
Company believes this hotel is a leading convention hotel in Salt Lake City.
The 11 Wyndham Garden[RegTM] hotels owned by the Company represent a total
investment of $135 million and contain 1,940 rooms. All of these hotels were
open throughout the 12 months ended September 30, 1997 and had ADR, occupancy
and REVPAR as follows:
HPT WYNDHAM GARDEN[RegTM] HOTELS
---------------------------------
(12 months ended September 30, 1997)
ADR ............ $84.92
Occupancy ...... 78.2%
REVPAR ......... $66.41
The Company purchased the Wyndham[RegTM] hotel in Salt Lake City in
January 1997 for $44.0 million and has committed up to $3.3 million for
renovations to this hotel. The ADR, occupancy and REVPAR for this hotel from
its acquisition by the Company through September 30, 1997 were $97.58, 75.8%
and $73.97, respectively.
Sumner Suites[RegTM] hotels are all suite hotels that cater to
value-oriented business travelers. Sumner Suites[RegTM] hotels compete in the
all suite segment of the lodging industry against such brands as Embassy
Suites[RegTM], Hampton Inns and Suites[RegTM] and Amerisuites[RegTM]. Each
Sumner Suites[RegTM] guest room offers an efficient space for working which
includes two phones with data ports and voice mail, a living area which
includes a coffee maker, microwave, mini-refrigerator, sleeper-sofa and 25-inch
television, and a separate bedroom area with either one king or two double
beds. Each Sumner Suites[RegTM] hotel has an attractive lobby lounge where free
continental breakfast is provided in the mornings and cocktails are generally
available in the early evening. In addition, all Sumner Suites[RegTM] hotels
have meeting rooms that can accommodate up to 150 persons, fitness facilities
and a pool. Sumner Suites[RegTM] hotels are generally high-rise hotels of six
or seven stories and are of masonry construction.
The Company has invested $140 million in its 14 Sumner Suites[RegTM]
hotels which include 1,641 guest suites. Twelve of these hotels were built and
opened between April 1996 and August 1997, one of these hotels opened in late
1995 and one recently re-flagged hotel is currently undergoing extensive
renovations. The Company believes that the current performance of its Sumner
Suites[RegTM] hotels is not indicative of their operating potential because of
their recent development or renovation; the ADR, occupancy and REVPAR for all
14 of these hotels during September 1997 was $72.74, 62.2% and $45.24,
respectively.
Candlewood[RegTM] Hotels are extended stay hotels which offer studio and
one bedroom suites that cater to business travelers expecting to stay five or
more days. Candlewood[RegTM] hotels compete in the mid-priced extended stay
segment of the lodging industry against such other brands as Sierra Suites by
Summerfield[RegTM], Towne Place Suites by Marriott[RegTM] and MainStay
Suites[RegTM]. Each Candlewood[RegTM] suite contains a kitchen area, a
combination living and work area and a sleeping area. The kitchen includes a
full-size microwave, full-size refrigerator, stove, dishwasher and coffee
maker. The living area contains a convertible sofa, recliner, 25-inch
television, videocassette player and compact disc player. The work area
includes an oversized desk and executive chair, two phone lines, voice mail and
a speaker phone. Each Candlewood[RegTM] suite contains a king size bed. Other
amenities offered at each Candlewood[RegTM] hotel include a fitness center,
free guest laundry facilities, and a Candlewood Cupboard area where guests can
purchase light meals, snacks and other refreshments. The Company believes that
Candlewood[RegTM] will become one of the leading brands in the mid-priced,
extended stay segment of the United States hotel industry.
The Company has agreed to invest $100 million to acquire 15
Candlewood[RegTM] hotels which include 1,592 suites. Fourteen of these hotels
were, or are scheduled to be, built and opened during 1997 and one was opened
in May 1996. The Company believes that the current performance of the
Candlewood[RegTM] hotels is not indicative of their operating potential because
of their recent development; the ADR, occupancy and REVPAR for the five
Candlewood[RegTM] hotels to be acquired by the Company which were open during
September 1997 were $58.53, 76.2% and $44.60, respectively.
S-14
<PAGE>
Leases
The Company's 135 hotels are grouped into seven combinations which are
leased to separate affiliates of large publicly owned hotel companies. The
following chart summarizes important features of the Company's leases,
including leases for 23 hotels to be entered as described in "Recent
Developments--Investments."
<TABLE>
<CAPTION>
Residence
Inn by
Marriott[RegTM]
Courtyard Residence (10 hotels)
by Inn by and Courtyard
Marriott[RegTM] Marriott[RegTM] by Marriott[RegTM]
(53 hotels) (18 hotels) (4 hotels)
----------------- ----------------- --------------------
<S> <C> <C> <C>
Tenant subsidiary of subsidiary of subsidiary of
Host Marriott Host Marriott Marriott
- --------------------------------------------------------------------------------
Manager subsidiary of subsidiary of subsidiary of
Marriott Marriott Marriott
- --------------------------------------------------------------------------------
Minimum rent $50.5 million $17.2 million $14.9 million
per year
- --------------------------------------------------------------------------------
Percentage rent-- began in 1996 began in 1997 begins in 1999
between 5% and
10% of increases in
gross revenues over
a base as negotiated
- --------------------------------------------------------------------------------
Initial lease term 2012 2010 2014
expiration
- --------------------------------------------------------------------------------
Renewal options all or none all or none all or none
3 for 12 1 for 10 1 for 12
years years years
2 for 15 1 for 10
years years
- --------------------------------------------------------------------------------
Security deposit $50.5 million $17.2 million $14.9 million
- --------------------------------------------------------------------------------
Estimated FF&E $1,386/room $1,529/suite n/a (new
Reserves for construction)
12 months ended
September 30, 1997
- --------------------------------------------------------------------------------
Cross defaults yes yes yes
within each group
- --------------------------------------------------------------------------------
Management fees subordinated subordinated subordinated
- --------------------------------------------------------------------------------
Pro forma rent 1.59x 1.67x n/a (new
coverage: 12 months construction)
ended September
30, 1997 hotel
operating results
after FF&E
Reserves and all
non-subordinated
charges
- --------------------------------------------------------------------------------
Other security -- -- Marriott has
provided
a limited
guarantee
until cash
flow reaches
a negotiated
rent coverage
ratio
<CAPTION>
Courtyard
by Marriott[RegTM]
(6 hotels)
and Residence
Inn by Sumner
Marriott[RegTM] Wyndham[RegTM] Suites[RegTM] Candlewood[RegTM]
(3 hotels) (12 hotels) (14 hotels) (15 hotels)
------------------- ------------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Tenant subsidiary of subsidiaries of subsidiary of subsidiary of
Marriott Wyndham ShoLodge Candlewood
- --------------------------------------------------------------------------------------------------------
Manager subsidiary of subsidiary of subsidiary of subsidiary of
Marriott Wyndham ShoLodge Candlewood
- --------------------------------------------------------------------------------------------------------
Minimum rent $12.9 million $18.0 million $14.0 million $10.0 million
per year
- --------------------------------------------------------------------------------------------------------
Percentage rent-- begins in 2000 began in 1997 begins in 1999 begins in 1998
between 5% and for 11 hotels;
10% of increases in begins in
gross revenues over 1998 for one hotel
a base as negotiated
- --------------------------------------------------------------------------------------------------------
Initial lease term 2012 2012 2008 2011
expiration
- --------------------------------------------------------------------------------------------------------
Renewal options all or none all or none all or none all or none
2 for 10 4 for 12 5 for 10 3 for 15
years years years years
- --------------------------------------------------------------------------------------------------------
Security deposit $12.9 million $18.3 million $14.0 million $10.0 million
- --------------------------------------------------------------------------------------------------------
Estimated FF&E n/a (new $1,649/room n/a (new n/a (new
Reserves for construction) construction) construction)
12 months ended
September 30, 1997
- --------------------------------------------------------------------------------------------------------
Cross defaults yes yes yes yes
within each group
- --------------------------------------------------------------------------------------------------------
Management fees subordinated subordinated subordinated subordinated
- --------------------------------------------------------------------------------------------------------
Pro forma rent n/a (new 11 Wyndham n/a (new n/a (new
coverage: 12 months construction) Garden[RegTM] hotels construction) construction)
ended September cover 1.68x
30, 1997 hotel
operating results
after FF&E
Reserves and all
non-subordinated
charges
- --------------------------------------------------------------------------------------------------------
Other security Marriott has for the ShoLodge Candlewood
provided Salt Lake has provided has provided
a limited City hotel, a secured a secured
guarantee Wyndham limited limited
until has provided guarantee guarantee
cash flow a secured up to a until
reaches a limited specified cash flow
negotiated guarantee up amount reaches a
rent coverage to a specified until cash negotiated
ratio amount flow reaches rent
until cash a negotiated coverage ratio
flow rent coverage
reaches a ratio
negotiated
rent coverage
ratio
</TABLE>
S-15
<PAGE>
MANAGEMENT
The Trustees and executive officers of the Company are as follows:
Name Age Position
Barry M. Portnoy ........... 52 Managing Trustee
Gerard M. Martin ........... 63 Managing Trustee
John G. Murray ............. 37 President, Chief Operating Officer
and Secretary
Thomas M. O'Brien .......... 31 Treasurer and
Chief Financial Officer
John L. Harrington ......... 61 Independent Trustee
William J. Sheehan ......... 53 Independent Trustee
Arthur G. Koumantzelis ..... 67 Independent Trustee
Barry M. Portnoy is a Managing Trustee of the Company and has been since
its IPO in 1995. Mr. Portnoy is also a Managing Trustee of HRP and a 50% owner
and Director of Advisors. Mr. Portnoy has been actively involved in real estate
and real estate finance activities for approximately 20 years. Mr. Portnoy is
an attorney and was a partner of the law firm of Sullivan & Worcester LLP,
Boston, MA from 1978 through March 31, 1997.
Gerard M. Martin is a Managing Trustee of the Company and has been since
its IPO in 1995. Mr. Martin is also a Managing Trustee of HRP and a 50% owner
and Director of Advisors. Mr. Martin has been active in the real estate
industry for approximately 30 years.
John G. Murray is President, Chief Operating Officer and Secretary of the
Company. Mr. Murray is also an Executive Vice President of Advisors. Mr. Murray
served in various capacities for HRP and Advisors from 1993 through August
1995. Prior to joining Advisors in 1993 Mr. Murray was Director of Finance,
Business Analysis and Planning at Fidelity Brokerage Services, Inc. from 1992
to 1993 and Director of Acquisitions from 1990 through 1991. Prior to 1990, Mr.
Murray was employed by Ernst & Young LLP. Mr. Murray is a certified public
accountant.
Thomas M. O'Brien is the Treasurer and Chief Financial Officer of the
Company. Mr. O'Brien is also a Vice President of Advisors. Prior to joining the
Company and Advisors in March 1996, Mr. O'Brien was employed by Arthur Andersen
LLP for eight years. Mr. O'Brien is a certified public accountant.
John L. Harrington is the Chief Executive Officer of the Boston Red Sox
Baseball Club, Executive Director and Trustee of the Yawkey Foundation and a
Trustee of the JRY Trust. Mr. Harrington is also a director of a bank
subsidiary of Fleet Financial Group, Inc. Mr. Harrington was a Trustee of HRP
from 1991 through August 1995 and has been a Trustee of the Company since its
IPO in 1995.
William J. Sheehan has been a Trustee of the Company since its IPO in
1995, and has been the Chief Financial officer of Ian Schrager Hotels, Inc.
since May 1995. From 1993 through May 1995 Mr. Sheehan was a self employed
consultant on financial and operating matters to companies in the hotel
industry. From 1982 until 1993 he was employed by Omni Hotels, most recently as
Vice Chairman (1992 to 1993) and President and Chief Executive Officer (1988 to
1992). Mr. Sheehan is a certified hotel administrator, a Fellow of the
Educational Institute of the American Hotel and Motel Association and has been
a speaker at various hotel industry conferences.
Arthur G. Koumantzelis has been a Trustee of the Company since its IPO in
1995, and has been Senior Vice President and Chief Financial Officer of
Cumberland Farms, Inc. since July 1990. Cumberland Farms, Inc. is a private
company engaged in the convenience store business in the northeastern United
States and Florida and in the distribution and retail sale of gasoline in the
northeastern United States. Mr. Koumantzelis was a trustee of HRP from 1992
through August 1995.
S-16
<PAGE>
The Declaration of Trust provides that a majority of the Board of Trustees
will be composed of Independent Trustees who are not affiliated with Advisors
nor serve as officers of the Company. Messrs. Harrington, Sheehan and
Koumantzelis are the Company Independent Trustees. All major investments and
policy decisions affecting the Company are made by the Board of Trustees.
Advisors provides management services and investment advice to the Company
pursuant to an investment advisory agreement (the "Advisory Agreement").
Advisors also acts as an investment advisor to HRP and has other business
interests. Advisors is owned by Messrs. Portnoy and Martin. The directors of
Advisors are Messrs. Portnoy, Martin and Mr. David J. Hegarty. The officers of
Advisors are David J. Hegarty, President and Secretary, John G. Murray,
Executive Vice President, John A. Mannix, Vice President, Thomas M. O'Brien,
Vice President, Ajay Saini, Vice President, David M. Lepore, Vice President and
John Popeo, Treasurer.
The Company pays Advisors an annual advisory fee calculated on the basis
of total assets under management (0.7% of the first $250 million plus 0.5% of
additional assets) and an incentive fee for each year equal to 15% of the
annual increase in CAD per Share multiplied by the weighted average number of
Shares outstanding in each year, but in no event more than $0.02 per Share
multiplied by the weighted average number of Shares outstanding in each year.
The incentive fees earned by Advisors are paid in Shares. The Advisory
Agreement is subject to annual review and approval by the Independent Trustees.
The Company does not have any employees or administrative officers
separate from Advisors. Services which might otherwise be provided by employees
are provided to the Company by employees of Advisors. Similarly, office space
is provided to the Company by Advisors. Although the Company does not have
significant general and administrative operating expenses in addition to fees
payable to Advisors, the Company is required to pay various other expenses
relating to its activities, including the costs and expenses of acquiring,
owning and disposing of the Company's real estate interests (including taxes,
appraisals, third party diligence, brokerage, audit and legal fees), its cost
of borrowing money and its cost of securities listing, transfer, registration
and compliance with public reporting requirements. Also, the fees and expenses
of the Company's Independent Trustees are paid by the Company.
S-17
<PAGE>
FEDERAL INCOME TAX AND ERISA CONSEQUENCES
The following description of certain federal income tax matters and
Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
considerations relating to the Company is qualified in its entirety by
reference to the more detailed description thereof contained in the Company's
Annual Report on Form 10-K for its fiscal year ended December 31, 1996 (the
"Annual Report") which is incorporated in the Prospectus and in this Prospectus
Supplement by reference. Sullivan & Worcester LLP, Boston, MA has rendered its
opinion that the discussion in this section and in the Annual Report in the
sections captioned "Taxation of the Company" and "ERISA Plans, Keogh Plans and
Individual Retirement Accounts" in all material respects is accurate and fairly
summarizes the federal income tax and ERISA issues which are material to an
investment in the Shares and the opinions of counsel referred to in those
sections represent Sullivan & Worcester LLP's opinions in those subjects.
Specifically, subject to qualifications and assumptions contained in its
opinion and in the Annual Report, Sullivan & Worcester LLP has opined to the
effect (i) that the Company has been organized in conformity with the
requirements for federal tax qualification as a REIT, and has qualified for
federal taxation as a REIT for its taxable years 1995 and 1996, and that the
Company's current and anticipated investments and its current plan of operation
will enable it to continue to meet the requirements for federal tax
qualification and taxation as a REIT and (ii) that, under the "plan assets"
regulations promulgated by the Department of Labor under ERISA, the Shares are
publicly offered securities and the assets of the Company will not be deemed to
be "plan assets" under ERISA.
The Company is and intends to remain qualified as a REIT under the
Internal Revenue Code of 1986, as amended (the "Code"). As a REIT, the Company
will not be subject to federal income taxation on its net income which is
distributed as dividends to shareholders. Distributions to the Company's
shareholders generally will be includable in their income as dividends;
however, distributions which are in excess of current and accumulated earnings
will be treated for tax purposes as a return of capital to the extent of a
shareholder's basis, and will reduce the basis of such shareholder's Shares.
Approximately 14.7% of distributions in calendar 1996 were treated as a return
of capital.
The Taxpayer Relief Act of 1997 liberalized certain of the requirements
for qualifying and operating as a REIT under Sections 856 through 860 of the
Code. These amendments apply to the Company for its taxable year commencing
January 1, 1998, but are not expected to alter significantly either the
Company's operations or its continued federal tax qualification and taxation as
a REIT. In comparison to the rules and requirements in effect for the Company's
1997 taxable year (as discussed in the Annual Report in the section captioned
"Taxation of the Company"), the amendments will, inter alia: (i) eliminate REIT
disqualification as the sanction for failing to solicit certain shareholder
ownership statements and instead impose a penalty of $25,000 ($50,000 for
intentional violations), and permit a REIT that solicits necessary shareholder
ownership statements and otherwise exercises reasonable due diligence to rely
on its actual knowledge for purposes of satisfying the requirement that at no
time during the last half of its taxable year was more than 50% in value of its
outstanding shares owned directly or indirectly by five or fewer individuals;
(ii) repeal the requirement that less than 30% of a REIT's gross income be
derived from sales or dispositions of certain short-term property; (iii) treat
income from a larger class of hedging instruments as qualifying income for
purposes of the 95% gross income requirement; (iv) permit a REIT to receive de
minimis amounts of otherwise impermissible service income from tenants, and
nevertheless have the rental income from such tenants qualify as rents from
real property for purposes of the 75% and 95% gross income requirements; and
(v) permit a REIT to retain and pay income tax on net long term capital gain,
and without an actual distribution thereof pass through to its shareholders
such gain and a refundable credit for such taxes paid.
Treasury Regulations issued on October 6, 1997 (the "New Regulations")
alter the withholding rules on dividends paid to a non-U.S. shareholder of
Shares, generally effective with respect to dividends paid after December 31,
1998. Under the New Regulations, to obtain a reduced rate of withholding under
an income tax treaty, a non-U.S. shareholder generally will be required to
provide an Internal Revenue Service Form W-8 certifying such non-U.S.
shareholder's entitlement to benefits under the treaty. The New Regulations
also provide special rules to determine whether, for purposes of determining
the applicability of a tax treaty, dividends paid to a non-U.S. shareholder
that is an entity should be treated as paid to the entity or to those holding
an interest in that entity, and whether such entity or such holders in the
entity are entitled to benefits under the tax treaty. The New Regulations also
alter the information reporting and backup withholding rules applicable to
non-U.S. shareholders and, among other things, provide certain presumptions
under which a non-U.S. shareholder is subject to backup withholding and
information reporting until the Company receives certification from such
shareholder of its non-U.S. status. The foregoing is not intended to be a
complete discussion of the New Regulations, and prospective investors are urged
to consult their tax advisors with respect to the effect of the New Regulations
on an investment in the Shares.
S-18
<PAGE>
The Company intends to conduct its affairs so that the assets of the
Company will not be deemed to be "plan assets" of any individual retirement
account, employee benefit plan subject to Title I of ERISA, or other qualified
retirement plan subject to Section 4975 of the Code which acquires its Shares.
The Company believes that, under present law, its distributions do not create
so-called "unrelated business taxable income" to shareholders that are
tax-exempt entities such as pension trusts, subject, however, to certain rules
which may apply to a pension trust holding more than 10% of the Shares, and to
certain rules regarding debt-financed investments.
EACH PROSPECTIVE PURCHASER OF THE SHARES OFFERED HEREBY IS ADVISED TO CONSULT
HIS OR HER OWN PROFESSIONAL ADVISOR REGARDING THE SPECIFIC FEDERAL, STATE,
LOCAL, FOREIGN AND OTHER TAX AND ERISA CONSEQUENCES TO HIM OR HER OF THE
PURCHASE, OWNERSHIP AND SALE OF THE SHARES OFFERED HEREBY.
DESCRIPTION OF COMMON SHARES
Reference is made to "Description of Shares," "Limitation of Liability;
Shareholder Liability" and "Redemption; Trustees; Business Combinations and
Control Share Acquisitions" in the accompanying Prospectus for a description of
the Shares. In May 1997, the Trustees adopted a shareholder rights plan (the
"Rights Plan"), which provides for the distribution of one Junior Participating
Preferred Share purchase right (a "Right") for each Share. Reference is made to
the Company's Current Report on Form 8-K, dated May 20, 1997 (including the
exhibits thereto), which is incorporated herein by reference, for a description
of the Rights Plan, the Rights and the Company's Junior Participating Preferred
Shares.
S-19
<PAGE>
UNDERWRITING
Subject to the terms and conditions of an Underwriting Agreement, the
Underwriters named below (the "Underwriters"), for whom Donaldson, Lufkin &
Jenrette Securities Corporation ("DLJ"), A.G. Edwards & Sons, Inc., Legg Mason
Wood Walker, Incorporated, Merrill Lynch, Pierce, Fenner & Smith Incorporated,
Prudential Securities Incorporated and Smith Barney Inc. are acting as
representatives (the "Representatives"), have severally agreed to purchase from
the Company an aggregate of 12,000,000 Shares. The number of Shares that each
Underwriter has agreed to purchase is set forth opposite its name below:
Number
Underwriters of Shares
Donaldson, Lufkin & Jenrette Securities Corporation ...... 1,584,000
A.G. Edwards & Sons, Inc. ................................. 1,584,000
Legg Mason Wood Walker, Incorporated ..................... 1,584,000
Merrill Lynch, Pierce, Fenner & Smith
Incorporated ........................................ 1,584,000
Prudential Securities Incorporated ........................ 1,584,000
Smith Barney Inc. ....................................... 1,584,000
Lehman Brothers Inc. .................................... 312,000
Arnhold and S. Bleichroeder, Inc. ........................ 312,000
Cruttenden Roth Incorporated .............................. 312,000
D.A. Davidson & Co. ....................................... 312,000
Edward D. Jones & Co., L.P. .............................. 312,000
McDonald & Company Securities, Inc. ..................... 312,000
Sands Brothers & Co., Ltd. .............................. 312,000
Sutro & Co. Incorporated ................................. 312,000
----------
Total ................................................ 12,000,000
==========
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase and accept delivery of the Shares offered hereby are
subject to approval by their counsel of certain legal matters and to certain
other conditions. The Underwriters are obligated to purchase and accept
delivery of all the Shares offered hereby (other than those Shares covered by
the over-allotment option described below) if any are purchased.
The Company has been advised that the Underwriters propose to offer the
Shares to the public initially at the price to the public set forth on the
cover page of this Prospectus Supplement and in part to certain dealers
(including the Underwriters) at such price less a concession not in excess of
$0.97 per share. The Underwriters may allow, and such dealers may re-allow to
certain other dealers, a concession not in excess of $0.10 per share. After the
completion of the Offering, the offering price and other selling terms may be
changed by the Underwriters.
The Company has granted to the Underwriters an option exercisable within
30 days after the date of this Prospectus Supplement to purchase up to
1,800,000 additional Shares at the price to the public set forth on the cover
page hereof less underwriting discounts and commissions. The Underwriters may
exercise such option solely to cover over-allotments, if any, made in
connection with the Offering. To the extent that the Underwriters exercise such
option, each Underwriter will become obligated, subject to certain conditions,
to purchase the same portion of such additional Shares as the number of other
Shares to be purchased by the Underwriter bears to the total number of Shares
being sold in this Offering on the same terms as those on which all Shares are
being sold in the Offering.
In the Underwriting Agreement, the Company and the Underwriters have
agreed to indemnify each other against certain liabilities under the Securities
Act.
Each of the Company, HRP and Advisors has agreed not to, the Company has
agreed to cause its affiliates, trustees and officers not to, and HRP and
Advisors have each agreed to cause their trustees, directors, officers and
affiliates under their control not to, directly or indirectly, (i) offer, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase or
otherwise transfer or dispose of, directly or indirectly, any Shares or any
securities convertible into or exercisable or exchangeable for Shares or (ii)
enter into any swap or other arrangement that transfers all or a portion of the
S-20
<PAGE>
economic consequences associated with the ownership of any Shares (regardless
of whether any of the transactions described in clause (i) or (ii) is to be
settled by the delivery of Shares, or such other securities, in cash or
otherwise) for a period of 90 days after the date of this Prospectus
Supplement, other than the Shares being sold in the Offering, or to be issued
pursuant to the Company's Incentive Share Award Plan, without the prior written
consent of DLJ. Additionally, during such period, the Company also has agreed
not to file any registration statement with respect to, and HRP and Advisors
have agreed not to make any demand for, or exercise any right with respect to,
the registration of any Shares or any securities convertible into or
exercisable or exchangeable for Shares without the prior written consent of
DLJ.
Other than in the United States, no action has been taken by the Company
or the Underwriters that would permit a public offering of the Shares offered
hereby in any jurisdiction where action for that purpose is required. The
Shares offered hereby may not be offered or sold, directly or indirectly, nor
may this Prospectus Supplement or any other offering material or advertisements
in connection with the offer and sale of any such Shares be distributed or
published in any jurisdiction, except under circumstances that will result in
compliance with the applicable rules and regulations of such jurisdiction.
Persons into whose possession this Prospectus Supplement comes are advised to
inform themselves about and to observe any restrictions relating to the
Offering of the Shares and the distribution of this Prospectus Supplement. This
Prospectus Supplement does not constitute an offer to sell or a solicitation of
an offer to buy any Shares offered hereby in any jurisdiction in which such an
offer or a solicitation is unlawful.
In connection with the Offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Shares. Specifically, the Underwriters may over-allot the Offering, creating a
syndicate short position. The Underwriters may bid for and purchase Shares in
the open market to cover syndicate short positions and to stabilize the price
of the Shares. Any of these activities may stabilize or maintain the market
price of the Shares above independent market levels. The Underwriters are not
required to engage in these activities, and may end any of these activities at
any time.
In the ordinary course of their respective businesses, certain of the
Underwriters and their affiliates have engaged, and may in the future engage,
in investment banking or commercial banking transactions with the Company.
DLJMC, an affiliate of DLJ, receives fees and interest payments in connection
with amounts drawn under the Company's credit facilities. DLJ is acting as
financial advisor to Candlewood in connection with the pending acquisition by
the Company of 15 Candlewood[RegTM] hotels and upon completion of such
acquisition, DLJ will be entitled to customary fees from the seller.
LEGAL MATTERS
Certain legal matters with respect to the Shares offered by the Company
have been passed upon for the Company by Sullivan & Worcester LLP, Boston, MA
and will be passed upon for the Underwriters by Davis Polk & Wardwell, New
York, NY. Sullivan & Worcester LLP has relied, and Davis Polk & Wardwell will
rely, as to all matters of Maryland law, upon the opinion of Piper & Marbury
L.L.P., Baltimore, MD. Sullivan & Worcester LLP has also given its opinion as
to certain federal income tax matters and certain ERISA considerations relating
to the Company. See "Federal Income Tax and ERISA Consequences." Barry M.
Portnoy, a retired partner in the firm of Sullivan & Worcester LLP, is a
Managing Trustee of the Company and of HRP and director and a 50% owner of
Advisors. Sullivan & Worcester LLP represents HRP, Advisors, and certain of
their affiliates on various matters.
EXPERTS
The consolidated financial statements of the Company for the years ended
December 31, 1996 and 1995; HMH HPT Courtyard, Inc. for the fiscal year ended
January 3, 1997 and for the period from March 24, 1995 (inception) through
December 29, 1995 and of HMH HPT Residence Inn, Inc. for the period March 22,
1996 (inception) through January 3, 1997, appearing in the Annual Report and
incorporated by reference in this Prospectus Supplement and the accompanying
Prospectus and elsewhere in the related Registration Statement, have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their reports with respect thereto. Such reports are incorporated herein and in
the Registration Statement by reference in reliance upon the authority of said
firm as experts in giving said reports.
S-21
<PAGE>
The combined financial statements of the Limited Service I Hotels and
Limited Service II Hotels (as defined in the Company's Current Report on Form
8-K dated November 21, 1997) incorporated by reference in this Prospectus
Supplement and the accompanying Prospectus and elsewhere in the related
Registration Statement, have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto. Such
reports are incorporated herein and in the Registration Statement by reference
in reliance upon the authority of said firm as experts in giving said reports.
The financial statements of Renthotel Utah, L.C. incorporated in this
Prospectus Supplement and the accompanying Prospectus and the related
Registration Statement by reference to the Company's Current Report on Form 8-K
dated November 21, 1997, have been audited by Reznick Fedder & Silverman,
independent auditors, as stated in their report, which is incorporated herein
by reference, and has been so incorporated in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
In addition to the documents incorporated by reference or deemed
incorporated by reference into the accompanying Prospectus, which Prospectus is
supplemented by this Prospectus Supplement, the following documents, which have
been filed with the Commission pursuant to the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), are hereby incorporated in this Prospectus
Supplement and specifically made a part hereof by reference: (i) the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1996, (ii)
the Company's Quarterly Reports on Form 10-Q for the quarters ended March 31,
1997, June 30, 1997 and September 30, 1997 and (iii) the Company's Current
Reports on Form 8-K dated April 3, 1997, May 20, 1997, November 21, 1997 and
December 9, 1997. All documents filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus Supplement and prior to the termination of the offering of the
Shares shall be deemed to be incorporated by reference into this Prospectus
Supplement and to be a part hereof from the respective dates of filing of such
documents. Any statement contained herein or in a document incorporated or
deemed to be incorporated herein by reference shall be deemed to be modified or
superseded for purposes of this Prospectus Supplement to the extent that a
statement contained herein, or in any subsequently filed document that also is
or is deemed to be incorporated herein by reference, modifies or supersedes
such statement. Any such statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus Supplement.
The Company hereby undertakes to provide without charge to each person to
whom this Prospectus Supplement is delivered, upon the written or oral request
of such person, a copy of any and all of the information that has been
incorporated by reference in this Prospectus Supplement (excluding exhibits
unless such exhibits are specifically incorporated by reference into the
information that this Prospectus Supplement incorporates). Requests for such
copies should be made to the Company at its principal executive offices, 400
Centre Street, Newton, Massachusetts 02158, Attention: Investor Relations,
telephone (617) 964-8389.
S-22
<PAGE>
FORWARD-LOOKING STATEMENTS
THIS PROSPECTUS SUPPLEMENT CONTAINS FORWARD-LOOKING STATEMENTS. SUCH
STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES WHICH COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE ANTICIPATED OR PROJECTED.
PROSPECTIVE PURCHASERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE
FORWARD-LOOKING STATEMENTS WHICH SPEAK ONLY AS OF THE DATE HEREOF. THE COMPANY
UNDERTAKES NO OBLIGATION TO PUBLISH REVISED FORWARD-LOOKING STATEMENTS TO
REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE HEREOF OR TO REFLECT THE
OCCURRENCE OF PRESENTLY UNANTICIPATED EVENTS.
---------------------
THE DECLARATION OF TRUST OF THE COMPANY, AMENDED AND RESTATED ON AUGUST
21, 1995, A COPY OF WHICH, TOGETHER WITH ALL AMENDMENTS THERETO (THE
"DECLARATION"), IS DULY FILED IN THE OFFICE OF THE DEPARTMENT OF ASSESSMENTS
AND TAXATION OF THE STATE OF MARYLAND, PROVIDES THAT THE NAME "HOSPITALITY
PROPERTIES TRUST" REFERS TO THE TRUSTEES UNDER THE DECLARATION COLLECTIVELY AS
TRUSTEES, BUT NOT INDIVIDUALLY OR PERSONALLY, AND THAT NO TRUSTEE, OFFICER,
SHAREHOLDER, EMPLOYEE OR AGENT OF THE COMPANY SHALL BE HELD TO ANY PERSONAL
LIABILITY, JOINTLY OR SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM AGAINST, THE
COMPANY. ALL PERSONS DEALING WITH THE COMPANY, IN ANY WAY, SHALL LOOK ONLY TO
THE ASSETS OF THE COMPANY FOR THE PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY
OBLIGATION.
S-23
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
HOSPITALITY PROPERTIES TRUST
UNAUDITED ADJUSTED PRO FORMA FINANCIAL STATEMENTS
The following unaudited adjusted pro forma balance sheet at September 30,
1997 is intended to present the financial position of the Company as if the
transactions described in the notes hereto (the "Transactions") were
consummated at September 30, 1997. The following unaudited adjusted pro forma
statements of income are intended to present the results of operations of the
Company as if the Transactions were consummated as of the beginning of the
period presented. These unaudited adjusted pro forma financial statements
should be read in conjunction with, and are qualified in their entirety by
reference to, the separate financial statements of the Company and of certain
hotel properties the Company has acquired or entered into agreements to
acquire, each as of and for the year ended December 31, 1996 and for the nine
months ended September 30, 1997, and the pro forma financial statements of the
Company, incorporated herein by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1996, Quarterly Report on Form 10-Q
for the quarterly period ended September 30, 1997 and Current Reports on Form
8-K dated November 21, 1997 and December 9, 1997.
In addition to pro forma adjustments relating to operating hotel
properties acquired during 1996 and 1997, these unaudited adjusted pro forma
financial statements include adjustments for the results of certain hotel
properties which were under development during 1996 and 1997. See Notes B and
H. The Company believes that presentation of combined pro forma and adjusted
financial data is meaningful and relevant to an understanding of the effects of
the Transactions on the Company. No assurance can be given that these adjusted
pro forma financial statements reflect the financial results which would have
been realized if the acquisition and development of the relevant hotel
properties was completed as of September 30, 1997 or January 1, 1996.
In addition, these unaudited adjusted pro forma financial statements are
not necessarily indicative of what the actual financial position or results of
operations of the Company would have been as of the date or for the period
indicated, nor does it purport to represent the expected financial position or
results of operations of the Company for any future period. Differences may
result from, among other considerations, future changes in the Company's
portfolio of investments, changes in interest rates, changes in the capital
structure of the Company, delays in the acquisition of certain properties or
any determination not to complete the acquisition of any hotel properties and
changes in the Company's operating expenses.
F-1
<PAGE>
HOSPITALITY PROPERTIES TRUST
UNAUDITED ADJUSTED PRO FORMA BALANCE SHEET
<TABLE>
<CAPTION>
As of September 30, 1997
---------------------------------------------------
Adjusted
Historical(A) Pro Forma
(93 Hotels) Adjustments (135 Hotels)
(in thousands)
<S> <C> <C> <C>
ASSETS
Real estate properties ..................... $1,006,740 $ 410,244(B) $1,416,984
Accumulated depreciation .................. (48,746) -- (48,746)
---------- ---------- ----------
957,994 410,244 1,368,238
Cash and cash equivalents .................. 13,955 -- 13,955
FF&E reserve (restricted cash) ............ 11,759 1,294(C) 13,053
Rent receivable ........................... 782 -- 782
Other assets .............................. 8,290 -- 8,290
---------- ---------- ----------
$ 992,780 $ 411,538 $1,404,318
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgage bonds .............................. $ 125,000 $ -- $ 125,000
Credit facilities ........................... 104,000 (24,192)(D) 79,808
Security deposits ........................... 102,359 59,820 (E) 162,179
Other liabilities ........................... 2,957 -- 2,957
Shareholders' equity:
Common shares of beneficial interest ...... 269 120 (F) 389
Additional paid-in capital ............... 656,906 375,790 (G) 1,032,696
Cumulative net income ..................... 107,866 -- 107,866
Dividends ................................. (106,577) -- (106,577)
---------- ---------- ----------
Total shareholders' equity ............... 658,464 375,910 1,034,374
---------- ---------- ----------
$ 992,780 $ 411,538 $1,404,318
========== ========== ==========
</TABLE>
F-2
<PAGE>
HOSPITALITY PROPERTIES TRUST
UNAUDITED ADJUSTED PRO FORMA STATEMENT OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31, 1996
--------------------------------------------
Adjusted
Historical Adjustments Pro Forma
(in thousands, except per Share data)
<S> <C> <C> <C>
Revenues:
Rental income ................................. $69,514 $66,603(H) $136,117
FF&E reserve income ........................... 12,169 1,174 (I) 13,343
Interest income .............................. 946 (538)(J) 408
------- ------- --------
Total revenues .............................. 82,629 67,239 149,868
Expenses:
Depreciation and amortization .................. 20,398 21,684 (K) 42,082
Interest ....................................... 5,646 8,871 (L) 14,517
General and administrative ..................... 4,921 3,897 (M) 8,818
------- ------- --------
Total expenses .............................. 30,965 34,452 65,417
------- ------- --------
Net income .................................... $51,664 $32,787 $ 84,451
======= ======= ========
Weighted average Shares outstanding ............ 23,170 15,687 (N) 38,857
Net income per Share ........................... $ 2.23 $ 2.17
Cash available for distribution ............... $60,794 $54,558 (O) $115,352
Cash available for distribution per Share ...... $ 2.62 $ 2.97
</TABLE>
F-3
<PAGE>
HOSPITALITY PROPERTIES TRUST
UNAUDITED ADJUSTED PRO FORMA STATEMENT OF INCOME
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1997
--------------------------------------------
Adjusted
Historical Adjustments Pro Forma
(in thousands, except per Share data)
<S> <C> <C> <C>
Revenues:
Rental income ................................. $71,158 $32,145(H) $103,303
FF&E reserve income ........................... 11,138 -- 11,138
Interest income .............................. 474 -- 474
------- ------- --------
Total revenues .............................. 82,770 32,145 114,915
Expenses:
Depreciation and amortization .................. 22,528 10,578(K) 33,106
Interest ....................................... 10,602 488(L) 11,090
General and administrative ..................... 4,787 1,827(M) 6,614
------- ------- --------
Total expenses .............................. 37,917 12,893 50,810
------- ------- --------
Net income .................................... $44,853 $19,252 $ 64,105
======= ======= ========
Weighted average Shares outstanding ............ 26,871 12,000(N) 38,871
Net income per Share ........................... $ 1.67 $ 1.65
Cash available for distribution ............... $57,768 $29,981(O) $ 87,749
Cash available for distribution per Share ...... $ 2.15 $ 2.26
</TABLE>
F-4
<PAGE>
HOSPITALITY PROPERTIES TRUST
UNAUDITED ADJUSTED PRO FORMA STATEMENT OF INCOME
<TABLE>
<CAPTION>
Three Months Ended September 30, 1997
---------------------------------------------
Adjusted
Historical Adjustments Pro Forma
(in thousands, except per Share data)
<S> <C> <C> <C>
Revenues:
Rental income ................................. $24,751 $ 9,683(H) $34,434
FF&E reserve income ........................... 4,057 -- 4,057
Interest income .............................. 209 -- 209
------- --------- --------
Total revenues .............................. 29,017 9,683 38,700
Expenses:
Depreciation and amortization .................. 8,005 3,030 (K) 11,035
Interest ....................................... 4,272 (575)(L) 3,697
General and administrative ..................... 1,723 492 (M) 2,215
------- --------- --------
Total expenses .............................. 14,000 2,947 $16,947
------- --------- --------
Net income .................................... $15,017 $ 6,736 $21,753
======= ========= ========
Weighted average Shares outstanding ............ 26,878 12,000 (N) 38,878
Net income per Share ........................... $ 0.56 $ 0.56
Cash available for distribution ............... $19,492 $ 9,766(O) $29,258
Cash available for distribution per Share ...... $ 0.73 $ 0.75
</TABLE>
F-5
<PAGE>
HOSPITALITY PROPERTIES TRUST
NOTES TO UNAUDITED ADJUSTED PRO FORMA FINANCIAL STATEMENTS
(dollars in thousands)
Balance Sheet Adjustments
A. Represents the historical balance sheet of the Company on September 30,
1997.
B. Represents the purchase of the 42 hotels not acquired as of September 30,
1997:
<TABLE>
<S> <C>
Cash purchase prices:
Eight Courtyard by Marriott[RegTM] hotels ..................... $ 83,151
Five Residence Inn by Marriott[RegTM] hotels .................. 68,231
14 Sumner Suites[RegTM] hotels ................................. 112,000
15 Candlewood[RegTM] hotels .................................... 85,001
Purchase price withheld as security deposits and guaranty deposits 59,820
Closing costs ................................................... 2,041
--------
Total ......................................................... $410,244
========
</TABLE>
Included in the above are certain hotel properties the Company has purchased
or expects to purchase from sellers upon completion of construction, of
which five have been completed and purchased by the Company between
September 30, 1997 and December 9, 1997 for an aggregate purchase price of
$56,479.
C. Represents FF&E Reserve cash acquired or to be acquired by the Company in
connection with the purchase of six Courtyard by Marriott[RegTM] and three
Residence Inn by Marriott[RegTM] hotels. The FF&E Reserves for other hotels
acquired or to be acquired by the Company will be owned by the tenant and
the Company will have security and remainder interests in the FF&E Reserve
escrow accounts of those tenants. See Note I.
D. Represents pro forma net borrowings by the Company under its credit
facilities.
E. Represents security deposits and other deposits held or to be held by the
Company as a result of purchasing and leasing the following hotels:
Eight Courtyard by Marriott[RegTM] hotels ......... $ 9,238
Five Residence Inn by Marriott[RegTM] hotels ...... 7,582
14 Sumner Suites[RegTM] hotels ..................... 28,000
15 Candlewood[RegTM] hotels ........................ 15,000
-------
Total .......................................... $59,820
=======
F. Represents the par value ($0.01) of the 12,000,000 Shares to be issued in
this Offering.
G. Represents the following:
<TABLE>
<S> <C>
Gross proceeds from this Offering (12,000,000 Shares at $33.0625 per Share) $ 396,750
Estimated expenses of this Offering ....................................... (20,840)
---------
Net proceeds of this Offering ............................................. 375,910
Par value of Shares ...................................................... (120)
---------
Additional paid-in capital ................................................ $ 375,790
=========
</TABLE>
F-6
<PAGE>
HOSPITALITY PROPERTIES TRUST
NOTES TO UNAUDITED ADJUSTED PRO FORMA FINANCIAL STATEMENTS--(Continued)
(dollars in thousands)
Income Statement Adjustments
H. Represents the adjusted pro forma effect of leases entered since January 1,
1996 and to be entered. This adjusted pro forma effect is derived as
follows:
<TABLE>
<CAPTION>
Nine Three
Months Months
Year Ended Ended
Ended September September
December 31, 1996 30, 1997 30, 1997
<S> <C> <C> <C>
Pro forma minimum rent .............................. $ 134,994 $101,245 $ 33,761
Pro forma percentage rent ........................... 1,123 2,058 673
Amounts included in historical minimum rent ......... (68,419) (69,100) (24,078)
Amounts included in historical percentage rent ...... (1,095) (2,058) (673)
--------- -------- ---------
$ 66,603 $ 32,145 $ 9,683
========= ======== =========
</TABLE>
Certain of the hotels owned by the Company as of September 30, 1997 were
under development and others are currently under development by the sellers
of these properties. The Company is not contractually obligated to acquire
these hotels until they are substantially completed. The adjusted pro forma
income statements assume these hotels were completed and acquired on
January 1, 1996; however, pro forma percentage rent is limited to those
hotels which were in actual operation since January 1, 1996. Percentage
rent which is based upon a percentage of gross revenue increases cannot be
calculated for unopened hotels under development.
I. Represents the effect of the Company's 1996 acquisition of 16 Courtyard
by Marriott[RegTM] and 18 Residence Inn by Marriott[RegTM] hotels on FF&E
Reserve income. FF&E Reserve escrow accounts for all of the Company's
Courtyard by Marriott[RegTM] and Residence Inn by Marriott[RegTM] hotels
are owned by the Company and periodic payments into these escrow accounts
are recorded as additional rent under generally accepted accounting
principles ("GAAP"). Pro forma escrow amounts represent 5% of total hotel
revenues at such hotels prior to the purchase date by the Company for the
period presented.
No pro forma adjustment for the FF&E Reserve income related to newly
constructed hotels purchased and to be purchased by the Company from
Marriott has been made, as this amount cannot be calculated.
The FF&E Reserve for the renovation and refurbishment of the Company's
Wyndham[RegTM], Sumner Suites[RegTM] and Candlewood[RegTM] hotels remains
the property of these respective tenants during the lease term. The Company
has a security interest in these escrow accounts and at the end of the
lease term, any remaining funds in these FF&E Reserves must be paid to the
Company. Under GAAP, the FF&E Reserve for the leases relating to these
hotels is not recorded as income by the Company.
J. Represents the pro forma reduction in interest income during 1996 from
the effect of cash investments between the time of capital raising
activities and acquisitions by the Company.
K. Represents the impact of the Transactions on depreciation expense for
the entire period presented.
L. Represents interest on pro forma mortgage bonds ($125,000) issued in
November 1996 and the Company's credit facilities ($79,808) at LIBOR plus
contractual spreads for the entire period presented, plus amortization of
deferred financing costs. The average applicable LIBOR rate was 5.45% for
the year ended December 31, 1996, 5.60% for the nine months ended September
30, 1997 and 5.65% for the three months ended September 30, 1997. The pro
forma annual impact on interest expense of a 1/8% change in LIBOR is $256.
M. Represents the estimated impact of the transactions on general and
administrative expense of the Company for the period presented.
N. Represents the impact of additional Shares issued in this Offering,
plus, for the year ended December 31, 1996, the impact of additional Shares
issued by the Company in April 1996.
F-7
<PAGE>
HOSPITALITY PROPERTIES TRUST
NOTES TO UNAUDITED ADJUSTED PRO FORMA FINANCIAL STATEMENTS--(Continued)
(dollars in thousands)
O. The Company bases its dividend primarily on Cash Available for
Distribution ("CAD"), which it defines as net income from operations, plus
depreciation, amortization and other non-cash expenses less the Company's
income under GAAP resulting from FF&E Reserves (see Note I), and adjusted
for non-recurring items, if any. CAD may not necessarily equal cash
provided by operating activities under GAAP, as the cash flow of the
Company is affected by other factors not included in the calculation of
CAD, including changes in working capital.
F-8
<PAGE>
[INSIDE BACK COVER]
HOSPITALITY PROPERTIES TRUST
[PICTURE OF HOTEL] [PICTURE OF HOTEL]
COURTYARD BY MARRIOTT[RegTM] WYNDHAM GARDEN[RegTM]
Camelback, Arizona San Diego, California
[MAP SHOWING LOCATIONS OF COMPANY'S HOTELS]
<PAGE>
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No dealer, salesperson or other individual has been authorized to give
any information or to make any representations other than those contained in or
incorporated by reference in this Prospectus Supplement or the Prospectus in
connection with the offering made by this Prospectus Supplement and the
Prospectus and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company or the Underwriters.
Neither this Prospectus Supplement nor the Prospectus constitutes an offer to
sell or the solicitation of an offer to buy the Shares by anyone in any
jurisdiction in which such offer or solicitation is not authorized, or in which
the person making such offer or solicitation is not qualified to do so, or to
any person to whom it is unlawful to make such offer or solicitation. Neither
the delivery of this Prospectus Supplement and the Prospectus nor any sale made
hereunder shall, under any circumstances, create an implication that the
information contained herein is correct as of any time subsequent to the date
hereof.
------------------------
TABLE OF CONTENTS
Page
Prospectus Supplement
Summary ............................................. S-3
Recent Developments ................................. S-6
Dividends .......................................... S-8
Price Range of Shares .............................. S-9
Use of Proceeds .................................... S-9
Capitalization ....................................... S-10
The Company .......................................... S-11
Management .......................................... S-16
Federal Income Tax and ERISA Consequences ............ S-18
Description of Common Shares ........................ S-19
Underwriting ....................................... S-20
Legal Matters ....................................... S-21
Experts ............................................. S-21
Incorporation of Certain Information by Reference S-22
Forward-Looking Statements ........................... S-23
Unaudited Adjusted Pro Forma Financial
Statements ....................................... F-1
Prospectus
Available Information .............................. (ii)
Incorporation of Certain Documents by Reference (ii)
The Company .......................................... 1
Use of Proceeds .................................... 1
Ratio of Earnings to Fixed Charges .................. 1
Description of Debt Securities ..................... 1
Description of Shares .............................. 10
Description of Preferred Shares ..................... 11
Description of Depositary Shares ..................... 16
Description of Warrants .............................. 19
Limitation of Liability; Shareholder Liability ...... 19
Redemption; Trustees; Business Combinations
and Control Share Acquisitions ..................... 20
Plan of Distribution ................................. 21
Legal Matters ....................................... 22
Experts ............................................. 22
12,000,000 Shares
Hospitality Properties Trust
Common Shares of
Beneficial Interest
------------------------------------------------------------
P R O S P E C T U S S U P P L E M E N T
------------------------------------------------------------
Donaldson, Lufkin & Jenrette
Securities Corporation
A.G. Edwards & Sons, Inc.
Legg Mason Wood Walker
Incorporated
Merrill Lynch & Co.
Prudential Securities Incorporated
Salomon Smith Barney
December 9, 1997
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