UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR\
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 1-11527
HOSPITALITY PROPERTIES TRUST
Maryland 04-3262075
(State of incorporation) (IRS Employer Identification No.)
400 Centre Street, Newton, Massachusetts 02158
617-964-8389
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Shares outstanding
Class at November 7, 1997
- ------------------------------------ -------------------
Common shares of beneficial
interest, $0.01 par value per share 26,878,295
<PAGE>
FORM 10-Q
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
INDEX
Page
<S> <C> <C>
PART I Financial Information (Unaudited)
Condensed Consolidated Balance Sheets - September 30, 1996 and
September 30, 1997 3
Consolidated Statements of Income - Nine Months Ended September 30, 1996
and September 30, 1997 4
Consolidated Statements of Income - Three Months Ended September 30, 1996
and September 30, 1997 5
Condensed Consolidated Statements of Cash Flows - Nine Months Ended
September 30, 1996 and September 30, 1997 6
Notes to Condensed Consolidated Financial Statements 7
Management's Discussion and Analysis of Results of Operations and
Financial Condition 11
PART II Other Information 14
</TABLE>
2
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HOSPITALITY PROPERTIES TRUST
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
December 31, September 30,
1996 1997
-------------- -------------
(unaudited)
ASSETS
Real estate properties $ 842,687 $ 1,006,740
Accumulated depreciation (26,218) (48,746)
----------- -----------
816,469 957,994
Cash and cash equivalents 38,073 13,955
FF&E reserve (restricted cash) 7,277 11,759
Rent receivable 2,638 776
Other assets 7,146 8,290
----------- -----------
$ 871,603 $ 992,780
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Term debt $ 125,000 $ 125,000
Revolving debt -- 104,000
Security deposits 81,360 102,359
Other liabilities 20,035 2,957
Shareholders' equity
Common shares of beneficial interest 269 269
Additional paid-in capital 656,523 656,906
Cumulative net income 63,013 107,866
Dividends (74,327) (106,577)
----------- -----------
Total shareholders' equity 645,208 658,464
----------- -----------
$ 871,603 $ 992,780
=========== ===========
See accompanying notes
3
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<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(unaudited)
For the Nine For the Nine
Months Ended Months Ended
September 30, September 30,
1996 1997
------------ ------------
<S> <C> <C>
Revenues
Rental income $48,661 $71,158
FF&E reserve income 8,798 11,138
Interest income 764 474
------- -------
Total revenues 58,223 82,770
------- -------
Expenses
Interest (including amortization of deferred finance costs of
$176 and $989, respectively) 3,661 10,602
Depreciation and amortization of real estate assets 14,174 22,528
General and administrative 3,697 4,787
------- -------
Total expenses 21,532 37,917
------- -------
Net income $36,691 $44,853
======= =======
Weighted average shares outstanding 21,932 26,871
======= =======
Earnings per share. $ 1.67 $ 1.67
======= =======
</TABLE>
See accompanying notes
4
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<TABLE>
<CAPTION>
HOSPITALITY PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(unaudited)
For the Quarter For the Quarter
Ended September 30, Ended September 30,
1996 1997
------------------- -------------------
<S> <C> <C>
Revenues
Rental income $20,764 $24,751
FF&E reserve income 3,978 4,057
Interest income 136 209
------- -------
Total revenues 24,878 29,017
------- -------
Expenses
Interest (including amortization of deferred finance costs of
$66 and $338, respectively) 1,699 4,272
Depreciation and amortization of real estate assets 6,170 8,005
General and administrative 1,563 1,723
------- -------
Total expenses 9,432 14,000
------- -------
Net income $15,446 $15,017
======= =======
Weighted average shares outstanding 26,857 26,878
======= =======
Earnings per share. $ 0.58 $ 0.56
======= =======
</TABLE>
See accompanying notes
5
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<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
For the Nine For the Nine
Months Ended Months Ended
September 30, September 30,
1996 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 36,691 $ 44,853
Adjustments to reconcile to cash provided by operating activities
Depreciation and amortization of real estate assets 14,174 22,528
Amortization of deferred finance costs as interest 176 989
FF&E reserve income (8,789) (11,138)
Change in assets and liabilities 998 (283)
--------- ---------
Cash provided by operating activities 43,241 56,949
--------- ---------
Cash flows from investing activities
Real estate acquisitions (491,638) (155,897)
Increase in security deposits 48,460 20,999
Purchase of FF&E reserve (5,500) (1,500)
Payments for purchase option (2,500) --
--------- ---------
Cash used for investing activities (451,178) (136,398)
--------- ---------
Cash flows from financing activities
Draws on credit facility 115,650 104,000
Repayments of credit facility (22,000) --
Dividends paid (38,080) (48,096)
Proceeds from issuance of common shares 358,633 --
Financing costs -- (573)
--------- ---------
Cash provided by financing activities 414,203 55,331
--------- ---------
Increase (decrease) in cash and equivalents $ 6,266 $ (24,118)
========= =========
Supplemental cash flow information
Interest paid $ 3,412 $ 9,602
Non-cash investing activities
Property managers' deposits in FF&E reserve 8,928 9,717
Purchases of fixed assets with FF&E reserve 9,242 6,117
</TABLE>
See accompanying notes
6
<PAGE>
HOSPITALITY PROPERTIES TRUST
NOTES TO FINANCIAL STATEMENTS
(dollar amounts in thousands, except per share amounts)
(unaudited)
1. The accompanying condensed consolidated financial statements of Hospitality
Properties Trust and its subsidiaries (the "Company") have been prepared
without audit. Certain information and footnote disclosures required by
generally accepted accounting principles for complete financial statements
have been condensed or omitted. The Company believes the disclosures made
are adequate to make the information presented not misleading. However, the
accompanying financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1996. Operating results
for interim periods are not necessarily indicative of the results that may
be expected for the full year.
In the opinion of management, all adjustments (which include only normal
recurring adjustments) considered necessary for a fair presentation have
been included. All intercompany transactions and balances between
Hospitality Properties Trust and its subsidiaries have been eliminated.
2. Earnings per share is computed by dividing net income by the weighted
average number of outstanding common shares of beneficial interest.
In August 1997, the Company paid a $0.61 per share dividend to shareholders
for the quarter ended June 30, 1997. On October 10, 1997, the Trustees
declared a dividend of $0.62 per share be paid to shareholders of record as
of October 24, 1997, which will be distributed on or about November 20,
1997.
3. The Financial Accounting Standards Board has issued Financial Accounting
Standards Board Statement No. 128 "Earnings Per Share" ("FAS 128"),
Statement No. 129 "Disclosure of Information about Capital Structure" ("FAS
129"), Statement No. 130 "Reporting Comprehensive Income" ("FAS 130") and
Statement No. 131 "Disclosures about Segments of an Enterprise and Related
Information" ("FAS 131"). FAS 128 and FAS 129 must be adopted for the
Company's 1997 annual financial statements. FAS 130 and FAS 131 must be
adopted for the Company's 1998 financial statements. Management believes
that the adoption of FAS 128, FAS 129, FAS 130 and FAS 131 would have no
impact on reported results.
4. All of the Company's properties are leased pursuant to long term leases.
Each lease requires the lessee to pay minimum rent, percentage rent (a
percentage of increases in total hotel sales over total hotel sales in a
base year), and all operating costs associated with the hotels. In
addition, a percentage of hotel sales related to each lease is paid by the
Company's hotel operators into an escrow account to fund certain capital
improvements and ongoing renovations necessary to maintain the quality of
the properties. In the case of certain leases, this escrow account is
maintained by the Company.
On January 8, 1997, a subsidiary of the Company acquired a 381-room full
service hotel in Salt Lake City, Utah for $44,000. The hotel is leased to
Wyndham Hotel Corporation and operated as a Wyndham(R)hotel.
In April 1997, the Company entered an agreement to acquire fourteen hotels
from Marriott International, Inc. for $149,000. As of September 30, 1997,
the acquisition of ten of these hotels was complete. Three hotels were
purchased in October 1997, and the Company expects to acquire the remaining
hotel during 1997.
In October 1997, the Company entered an agreement to acquire an additional
nine hotels from Marriott International, Inc. for $129,000. In October
1997, acquisition of two of these hotels was completed and the Company
expects to close on the remaining seven hotels as construction is completed
by the end of 1998.
In October 1997, the Company entered into an agreement to purchase fourteen
Sumner Suites hotels from ShoLodge, Inc. (Nasdaq:LODG) for $144,000. The
acquisition is expected to be completed in the 1997 fourth quarter.
5. As of September 30, 1997, the Company had $104,000 outstanding under its
revolving acquisition credit facility (the "Credit Facility") which
provides for borrowings at one month LIBOR plus a spread. Borrowings may be
repaid and reborrowed as necessary until December 31, 1998, at which time
the outstanding balance may, at the Company's option (with lender
approval), be either repaid or converted into
7
<PAGE>
a 10-year loan. In October of 1997, the Company borrowed $40,000 under the
Credit Facility in connection with the acquisition of hotels noted above.
During the 1997 fourth quarter, the Company held discussions with the
lender under the Credit Facility and has agreed, subject to finalization of
definitive documents, to expand the Credit Facility by $250,000 to $450,000
and amend the terms of the Credit Facility to provide, among other things,
interest at a lower spread over LIBOR. The additional $250,000 is expected
to be available for draw until December 31, 1997.
Certain subsidiaries of the Company are obligated for $125,000 of long-term
mortgages payable (Notes). The Notes require payment of interest only
through their maturity in December 2001, at which time the principal
balance is due. The Notes are prepayable at any time without penalty.
Interest on the Notes is equal to one month LIBOR plus a spread.
6. At September 30, 1997, 53 Courtyard by Marriott(R)properties of the Company
and one of its subsidiaries were leased to a special purpose subsidiary of
Host Marriott Corporation and managed by a subsidiary of Marriott
International, Inc. The unaudited results of operations for the thirty-six
weeks ended September 6, 1996 and September 12, 1997 and unaudited
summarized balance sheet data of the Host Marriott subsidiary to which
these 53 Courtyard by Marriott(R)hotels are leased are as follows:
Thirty-six weeks Thirty-six weeks
ended ended
September 6, September 12,
1996 (1) 1997 (2)
---------------- -----------------
(unaudited) (unaudited)
Revenues $63,503 $77,434
Investment expenses
Base and percentage rent 30,852 36,348
FF&E contribution 6,240 7,497
Management fees 11,621 16,259
Other 5,386 7,284
------- -------
Total investment expenses 54,099 67,388
------- -------
Income before taxes 9,404 10,046
Provision for income taxes 3,942 4,018
------- -------
Net income $ 5,462 $ 6,028
======= =======
September 12, 1997
--------------------
(unaudited)
Assets $62,671
Liabilities 39,868
Equity 22,803
Revenues in the statements of income above represent house profit. House
profit represents total hotel sales less property level expenses excluding
depreciation and amortization, system fees, real and personal property
taxes, ground rent, insurance and management fees. The system fees
(included in other investment expenses) and management fees presented
above, and the expenses detailed below represent all the costs incurred
directly, allocated or charged to the properties by their management. The
comparable details of total hotel sales and reconciliations to revenue for
the thirty-six weeks ended September 6, 1996 and September 12, 1997 are as
follows:
8
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<TABLE>
<CAPTION>
HOSPITALITY PROPERTIES TRUST
NOTES TO FINANCIAL STATEMENTS
(dollar amounts in thousands, except per share amounts)
Thirty-six weeks ended Thirty-six weeks ended
September 6, 1996(1) September 12, 1997(2)
---------------------- -----------------------
(unaudited) (unaudited)
<S> <C> <C>
Total hotel sales
Rooms $109,631 $133,990
Food and beverage 9,387 10,469
Other 4,892 5,477
-------- --------
Total hotel sales 123,910 149,936
-------- --------
Departmental expenses
Rooms 22,873 27,590
Food and beverage 8,022 8,818
Other operating departments 1,350 1,626
General and administrative 12,656 15,594
Utilities 4,693 5,756
Repairs, maintenance and accidents 4,808 6,069
Marketing and sales 1,482 1,651
Chain services 4,523 5,398
-------- --------
Total departmental expenses 60,407 72,502
-------- --------
Revenues $ 63,503 $ 77,434
======== ========
<FN>
(1) Includes results of operations of properties from the later of the beginning of the period presented or the acquisition
date of the property.
(2) Includes results for 53 Courtyard by Marriott(R)properties.
</FN>
</TABLE>
7. At September 30, 1997, 18 Residence Inn by Marriott(R)properties of a
Company subsidiary were leased to a special purpose subsidiary of Host
Marriott Corporation and managed by a subsidiary of Marriott International,
Inc. The results of operations for the thirty-six weeks ended September 6,
1996 and September 12, 1997 and unaudited summarized balance sheet data of
the Host Marriott Corporation subsidiary to which these 18 Residence Inn by
Marriott(R)hotels are leased are as follows:
<TABLE>
<CAPTION>
Thirty-six weeks ended Thirty-six weeks ended
September 6, 1996(1) September 12, 1997(2)
---------------------- -----------------------
(unaudited) (unaudited)
<S> <C> <C>
Revenues $16,186 $27,214
Investment expenses
Base and percentage rent 6,623 12,099
FF&E contribution 1,480 2,443
Management fees 3,639 6,318
Other 1,164 2,621
------- -------
Total investment expenses 12,906 23,481
------- -------
Income before taxes 3,280 3,733
Provision for income taxes 1,312 1,493
------- -------
Net income $ 1,968 $ 2,240
======= =======
September 12, 1997
------------------
(unaudited)
Assets $21,489
Liabilities 14,858
Equity 6,631
</TABLE>
Revenues in the statement of income above represent house profit. House profit
represents total hotel sales less property level expenses excluding depreciation
and amortization, system fees, real and personal property taxes, ground rent,
insurance and management fees. The system fees (included in other investment
expenses)
9
<PAGE>
HOSPITALITY PROPERTIES TRUST
NOTES TO FINANCIAL STATEMENTS
(dollar amounts in thousands, except per share amounts)
and management fees presented above, and the expenses detailed below represent
all the costs incurred directly, allocated or charged to the properties by their
management. The details of total hotel sales and a reconciliation to revenues
for the thirty-six weeks ended September 6, 1996 and September 12, 1997 are as
follows:
<TABLE>
<CAPTION>
Thirty-six weeks ended Thirty-six weeks ended
September 6, 1996(1) September 12, 1997(2)
---------------------- -----------------------
(unaudited) (unaudited)
<S> <C> <C>
Total hotel sales
Rooms $28,097 $46,257
Other 1,500 2,593
Total hotel sales 29,597 48,850
Departmental expenses
Rooms 5,565 8,986
Other operating departments 313 909
General and administrative 2,522 3,833
Utilities 1,252 1,982
Repairs, maintenance and accidents 1,598 2,539
Marketing and sales 1,651 2,423
Chain services 510 964
Total departmental expenses 13,411 11,741
------- -------
Revenues $16,186 $27,214
======= =======
<FN>
(1) Includes results of operations of properties from the later of the beginning of the period presented or the acquisition
date of the property.
(2) Includes results for 18 Residence Inn by Marriott(R)properties.
</FN>
</TABLE>
10
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
References below to the Company and to items comprising the Company's results of
operations are collective references to the Company and its subsidiaries and to
consolidated items of the Company's consolidated results of operations.
Overview
Hospitality Properties Trust (the "Company") acquires, owns and leases hotel
properties to unaffiliated hotel operators. The Company owned 55 Courtyard by
Marriott(R)hotels, 11 Wyndham Garden(R)hotels, one Wyndham(R)hotel, and 26
Residence Inn by Marriott(R)hotels as of September 30, 1997.
Fifty-three of the Company's Courtyard by Marriott(R)hotels are leased to a
subsidiary of Host Marriott Corporation ("Host Marriott") and managed by a
subsidiary of Marriott International, Inc. ("Marriott"). Annual base rent on
these 53 properties totals $50.5 million and percentage rent equals 5% of
increases in total hotel sales over base year levels. The 53 hotels have a total
of 7,610 guest rooms and are located in 23 states. During the first nine months
of 1997 these hotels had average occupancy, average daily rate ("ADR") and room
revenue per available room ("RevPAR") of 82.9%, $84.28 and $69.87, respectively,
in the 1997 period versus 81.6%, $77.99 and $63.64, respectively, for the
comparable 1996 period
Eighteen of the Company's Residence Inn by Marriott(R)properties are leased to a
subsidiary of Host Marriott and managed by a subsidiary of Marriott. Annual base
rent on these 18 properties totals $17.2 million and percentage rent equals 7.5%
of increases in total hotel sales over 1997 first quarter levels. The 18
properties have a total of 2,178 guest suites and are located in 14 states.
During the first nine months of 1997 these properties had average occupancy, ADR
and RevPAR of 84.7%, $99.56 and $84.33, respectively, in the 1997 period versus
87.2%, $90.04 and $78.51, respectively, for the comparable 1996 period.
The Company's 11 Wyndham Garden(R)hotels are leased to and operated by
subsidiaries of the Wyndham Hotel Corporation. Annual base rent on these 11
properties totals $13.6 million and percentage rent equals 8% of increases in
total hotel sales over 1997 first quarter levels. The 11 properties have a total
of 1,940 guest rooms and are located in seven states. During the first nine
months of 1997 these hotels had average occupancy, ADR and RevPAR of 79.1%,
$89.82 and $71.05, respectively, in the 1997 period versus 77.8%, $84.28 and
$65.57, respectively, for the comparable 1996 period.
In January of 1997 the Company acquired a 381-room full service hotel (the "Salt
Lake Hotel") in Salt Lake City, Utah. The hotel is leased to Wyndham Hotel
Corporation and is operated as a Wyndham(R) hotel. Annual base rent on this
hotel is $4.4 million. The Company has agreed to provide up to $3 million for
renovations to this hotel; as such funding is drawn the minimum rent for this
Salt Lake Hotel increases. The Company will begin receiving percentage rent in
1998 equal to 5% of increases in total hotel sales over 1997 levels and
thereafter annually at 8% of increases in total hotel sales over 1998 levels.
During the first nine months of 1997 the property had average occupancy, ADR and
RevPAR of 75.8%, $97.58, and $73.99, respectively. Wyndham Hotel Corporation has
guaranteed this lease until operating at the Salt Lake Hotel cover the rent
according to a formula, and this guaranty is secured by a cash deposit.
In March 1997 the Company agreed to acquire 10 Residence Inn by Marriott(R)
hotels (1,276 suites) and four Courtyard by Marriott(R) hotels (543 rooms) for
$148.8 million from Marriott. All of these hotels were developed by Marriott and
are less than one year old. The Company purchases these hotels as they are
opened and leases 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 renovation escrows. The lease 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 rent according to a formula. As of October 13, the Company has
acquired 13 of these hotels, with 1,697 rooms, and expects to acquire the one
remaining hotel, with 122 rooms, later this year. At September 30, 1997, these
properties had an approximate average operating history of just over 9 months.
Because these properties have a limited operating history, a display of average
occupancy, ADR and RevPAR for the full 1997 periods for these properties is not
meaningful. For the twelve weeks ended September 12, 1997, occupancy, ADR and
RevPAR for those 10 open and operating hotels were 75.6%, $81.11 and $61.32,
respectively.
11
<PAGE>
In September 1997 the Company agreed to acquire from Marriott six Courtyard by
Marriott(R)hotels (829 rooms) and three Residence Inn by Marriott(R)hotels (507
suites) for $129.4 million. These hotels are being leased to a separate
subsidiary of Marriott through 2010 plus renewal options. The terms of these
acquisitions and leases are substantially similar to the terms described above
for the 14 hotels purchased from Marriott. As of November 7, 1997 two of these
hotels have been acquired; the remaining seven are expected to be acquired
periodically during 1997 and 1998. Because the two properties purchased to date
have a limited operating history, a display of average occupancy, ADR and RevPAR
is not meaningful.
All of the Company's leases require a percentage (usually 5%) of total hotel
sales to be escrowed by the tenant or operator as a reserve for renovations and
refurbishment (the "FF&E Reserve").
Quarter Ended September 30, 1997 (dollar amounts in thousands except per share
amounts)
Total revenues for the quarter ended September 30, 1997 increased to $29,017
from $24,878 for the quarter ended September 30, 1996. Base and percentage rent
increased to $24,751 from $20,764 during the comparable period. The increase
primarily is a result of the Company's investment in 11 hotels acquired during
1997 as well as increased percentage rent revenues from 53 Courtyard by
Marriott(R)properties, 18 Residence Inns by Marriott(R)and 11 Wyndham
Garden(R)hotels.
Total expenses for the quarter ended September 30, 1997 increased to $14,000
from $9,432 for the quarter ended September 30, 1996. The increase is the result
of increases in depreciation, interest, and general and administrative expenses
of $1,835, $2,573, and $160, respectively. Depreciation and general and
administrative increased as a result of new investments since September 30,
1996. Interest expense increased due to the issuance of the Notes, in late 1996,
as well as borrowings under the Credit Facility (defined below) in the second
quarter of 1997.
Net Income for the quarter ended September 30, 1997 was $15,017 ($0.56 per
share) compared to $15,446 ($0.58 per share) from the quarter ended September
30, 1996. The decrease is primarily a result of increased expenses of $4,568
primarily from interest and depreciation related to new investments, offset by
an increase in total revenues of $4,139 primarily from new investments. These
changes in revenue and expense amounts, combined with the Company's issuance of
additional shares as a result of its 1996 public offering, caused earnings for
the quarter ended September 30, 1997 on a per share basis to decline by $.02
from the comparable 1996 period.
Funds from operations (defined as net income plus depreciation and amortization
of real estate assets) and cash available for distribution (defined as funds
from operations less FF&E Reserve plus amortization of deferred financing costs
and other non-cash charges) related to the quarter ended September 30, 1997 were
$23,022 ($0.86 per share) and $19,492 ($0.73 per share), respectively, compared
to funds from operations and cash available for distribution of $21,616 ($0.80
per share) and $17,876 ($0.67 per share), respectively, for the quarter ended
September 30, 1996.
Nine months ended September 30, 1997 (dollar amounts in thousands except per
share amounts)
Total revenues for the nine months ended September 30, 1997 increased to $82,770
from $58,223 for the nine months ended September 30, 1996. Base and percentage
rent increased to $71,158 from $48,661 during the comparable period. The
increase is primarily a result of the Company's investment in 45 hotels acquired
between March and May of 1996 and 11 hotels acquired in 1997 prior to September
30, 1997, as well as increased percentage rents from 53 Courtyard by
Marriott(R)properties, 18 Residence Inn by Marriott(R)and 11 Wyndham
Garden(R)hotels.
Total expenses for the nine months ended September 30, 1997 increased to $37,917
from $21,532 for the nine months ended September 30, 1996. The increase is the
result of increases in depreciation, interest, and general and administrative
expenses of $8,354, $6,941, $1,090, respectively. Depreciation and general and
administrative increased as a result of new investments since September 30,
1996. Interest expense increased due to the issuance of the Notes in late 1996
as well as borrowings under the Credit Facility in 1997.
Net Income for the nine months ended September 30, 1997 increased to $44,853
($1.67 per share) from $36,691 ($1.67 per share) for the nine months ended
September 30, 1996. The increase is primarily a result of increased base and
percentage rent of $22,497, primarily from new investments, offset by an
increase in total expenses of $16,385, primarily from interest and depreciation,
during the comparable period. These changes in revenue and expense amounts,
combined with the Company's issuance of additional shares as a result of its
1996 public offering, caused
12
<PAGE>
earnings for the nine months ended September 30, 1997 on a per share basis to
remain unchanged from the comparable 1996 period.
Funds from operations and cash available for distribution related to the nine
months ended September 30, 1997 were $67,381 ($2.51 per share) and $57,768
($2.15 per share), respectively, compared to funds from operations and cash
available for distribution of $50,865 ($2.32 per share) and $42,611 ($1.94 per
share), respectively, for the nine months ended September 30, 1996.
Liquidity and Capital Resources (dollar amounts in thousands except per share
amounts)
Assets of the Company increased to $992,780 at September 30, 1997 from $871,603
as December 31, 1997. The increase is primarily due to new real estate
acquisitions.
At September 30, 1997 the Company had $13,955 of cash and cash equivalents. In
the fourth quarter of 1997, the Company has held discussions with the lender
under the credit facility ("Credit Facility") and has agreed, subject to
finalization of definitive documents, to expand the Credit Facility by $250,000
to $450,000. When finalized, the Company will have up to $200,000 available for
draw, repayment and redraw through December 31, 1998 and an additional $250,000
available for draw through December 31, 1997. As of November 7, 1997 the Company
had $144,000 outstanding on the Credit Facility. The Company has on file an
effective shelf registration statement for up to $500,000 of equity and/or debt
securities (the "Shelf Registration").
In January 1997 the Company purchased the Salt Lake Hotel for approximately
$44,000. Later in 1997 the Company acquired fifteen hotels (Residence Inn by
Marriott(R)and Courtyard by Marriott(R)) for approximately $166,000. Net cash
used to make these acquisitions of $150,000 plus closing costs, was funded
primarily with draws under the Credit Facility and cash on hand. The terms of
these acquisitions called for a portion of the purchase price to be withheld to
secure the tenants' obligations under the related leases. The Company is
committed to purchase an additional eight hotels from Marriott for an additional
total investment of approximately $112,405 which are expected to close as
construction is completed at various dates during 1997 and 1998.
The Company continues to actively pursue other acquisition opportunities to
diversify and expand its portfolio of hotel properties and expects to utilize
funds on hand and funds available under its Credit Facility or the Shelf
Registration to complete such acquisitions. The Company intends to balance the
use of debt and equity in such a manner that the long term cost of funds
borrowed to acquire facilities is appropriately matched, to the extent
practicable, to the terms of the investments made with such borrowed funds.
Pursuant to the terms of the lease and management agreements, the Company's
tenants and operators are required to fund FF&E Reserve escrow accounts in
amounts equal to a percentage of total hotel sales. Funds escrowed in the FF&E
reserve accounts are used for capitalized improvements and replacements to, and
refurbishment of, the hotels. The Company believes that these funds will be
adequate to maintain the competitiveness of its hotels.
Funding for current expenses and dividends is provided by operations. To
maintain its status as a real estate investment trust ("REIT") under the
Internal Revenue Code of 1986, as amended, the Company must meet certain
requirements including the distribution of at least 95% of its taxable income to
its shareholders. As a REIT, the Company expects not to be subject to federal
income taxes.
Dividends are based principally on cash available for distribution which is net
income plus depreciation and amortization of real estate assets and certain
non-cash charges less FF&E reserve income. Cash available for distribution may
not equal cash provided by operating activities because the cash flow of the
Company is affected by other factors not included in the cash available for
distribution calculation.
Dividends with respect to the second quarter 1997 results declared on July 1,
1997 of $0.61 per share were distributed on August 21, 1997. Dividends declared
with respect to third quarter 1997 results of $0.62 per share will be paid to
shareholders on or about November 20, 1997. Dividends in a year in excess of
REIT taxable income for that year constitute return of capital.
Seasonality
Most of the Company's hotels experience seasonal variation in operating results
typical of the hotel industry with higher revenues in the second and third
quarters of calendar years compared with the first and fourth quarters. This
13
<PAGE>
seasonality is not presently expected to cause fluctuations in the Company's
rental income because the Company believes that the revenues generated by its
hotels will be sufficient to pay rents on a regular basis notwithstanding
seasonal fluctuations.
CERTAIN IMPORTANT FACTORS
The Company's Quarterly Report on Form 10-Q contains statements which constitute
forward looking statements within the meaning of the Securities Exchange Act of
1934, as amended. Those statements appear in a number of places in this Form
10-Q and include statements regarding the intent, belief or expectations of the
Company, its Trustees or its officers with respect to the declaration or payment
of dividends, the consummation of additional acquisitions, policies and plans of
the Company regarding investments, financings or other matters, the Company's
qualification and continued qualification as a real estate investment trust or
trends affecting the Company's or any property's financial condition or results
of operations. Readers are cautioned that any such forward looking statements
are not guarantees of future performance and involve risks and uncertainties,
and that actual results may differ materially from those contained in the
forward looking statements as a result of various factors. Such factors include
without limitation changes in financing terms, the Company's ability or
inability to complete acquisitions and financing transactions, results of
operations for the Company's properties and general changes in economic
conditions not presently contemplated. The information contained in this Form
10-Q and the Company's Annual Report on Form 10-K for the year ended December
31, 1996, including the information under the heading "Management's Discussion
and Analysis of Results of Operations and Financial Condition", identifies other
important factors that could cause such differences.
THE AMENDED AND RESTATED DECLARATION OF TRUST ESTABLISHING THE COMPANY, DATED
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.
PART II Other Information
Item 2. Changes in Securities.
On July 1, 1997, pursuant to the Company's Incentive Share Award Plan, officers
of the Company and certain employees of the Advisor received a grant of 6,000
common shares of beneficial interest, par value $.01 per share
14
<PAGE>
("Common Shares") valued at $30.4375 per share, the closing price of the Common
Shares on the New York Stock Exchange on July 1, 1997. The grants were made
pursuant to the exemption from registration contained in Section 4(2) of the
Securities Act of 1933, as amended.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HOSPITALITY PROPERTIES TRUST
/S/Thomas M. O'Brien
Thomas M. O'Brien
Treasurer and Chief Financial Officer
(authorized officer and principal
financial officer)
Dated: November 14, 1997
15
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 13,955
<SECURITIES> 0
<RECEIVABLES> 776
<ALLOWANCES> 0
<INVENTORY> 0
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<PP&E> 1,006,740
<DEPRECIATION> 48,746
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0
0
<COMMON> 269
<OTHER-SE> 656,906
<TOTAL-LIABILITY-AND-EQUITY> 992,780
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<TOTAL-REVENUES> 82,770
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<INTEREST-EXPENSE> 10,602
<INCOME-PRETAX> 44,853
<INCOME-TAX> 0
<INCOME-CONTINUING> 44,853
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 44,853
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