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 June 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 August 7, 1997
----- -----------------
Common shares of beneficial
interest, $.01 par value per share 26,872,295
<PAGE>
HOSPITALITY PROPERTIES TRUST
FORM 10-Q
JUNE 30, 1997
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, dispositions, financings, conflicts of
interest or other matters, the Company's qualification and continued
qualification as a real estate investment trust or trends affecting the
Company's or any hotel'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 statement 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 of the Company's hotels and
general changes in economic conditions not presently contemplated. The
information contained in the Company's Annual Report on Form 10-K including the
information under the headings "Business" and "Management's Discussion and
Analysis of Financial Condition and Results of Operation," or in Exhibit 99 to
such Annual Report or in this Form 10-Q 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 OF 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 TRUST SHALL BE HELD TO ANY PERSONAL LIABILITY, JOINTLY OR
SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM AGAINST, THE TRUST. ALL PERSONS
DEALING WITH THE TRUST, IN ANY WAY, SHALL LOOK ONLY TO THE ASSETS OF THE TRUST
FOR THE PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY OBLIGATION.
INDEX
PART I Financial Information (Unaudited) Page
Condensed Consolidated Balance Sheets - December 31, 1996
and June 30, 1997 ............................................. 4
Consolidated Statements of Income - Six Months Ended
June 30, 1996 and June 30, 1997................................ 5
Consolidated Statements of Income - Three Months Ended
June 30, 1996 and June 30, 1997................................ 6
Condensed Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1996 and June 30, 1997............... 7
Notes to Financial Statements...................................... 8
Management's Discussion and Analysis of Results of
Operations and Financial Condition.............................. 12
2
<PAGE>
PART II Other Information.................................................. 14
Changes in Securities.............................................. 14
Submission of Matters to a Vote of Shareholders ................... 14
Exhibits and Reports on Form 8-K................................... 15
3
<PAGE>
HOSPITALITY PROPERTIES TRUST
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
December 31, June 30,
1996 1997
------------ ------------
(unaudited)
ASSETS
Real estate properties $ 842,687 $ 1,001,995
Accumulated depreciation (26,218) (40,741)
----------- -----------
816,469 961,254
Cash and cash equivalents 38,073 13,229
FF&E reserve (restricted cash) 7,277 11,600
Rent receivable 2,638 3,557
Other assets 7,146 8,482
----------- -----------
$ 871,603 $ 998,122
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Term debt $ 125,000 $ 125,000
Revolving debt -- 104,000
Security deposits 81,360 102,359
Other liabilities 20,035 7,082
Shareholders' equity
Common shares of beneficial interest 269 269
Additional paid-in capital 656,253 656,744
Cumulative net income 63,013 92,849
Dividends (74,327) (90,181)
----------- -----------
Total shareholders' equity 645,208 659,681
----------- -----------
----------- -----------
$ 871,603 $ 998,122
=========== ===========
See accompanying notes
4
<PAGE>
HOSPITALITY PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(unaudited)
For the Six For the Six
Months Ended Months Ended
June 30, June 30,
1996 1997
------------ ------------
Revenues
Rental income $27,897 $46,407
FF&E reserve income 4,820 7,081
Interest income 628 265
------- -------
Total revenues 33,345 53,753
------- -------
Expenses
Interest (including amortization of deferred
finance costs of $110 and $651, respectively)
1,962 6,330
Depreciation and amortization of real estate assets 8,004 14,523
General and administrative 2,134 3,064
------- -------
Total expenses 12,100 23,917
------- -------
Net income $21,245 $29,836
======= =======
Weighted average shares outstanding 19,443 26,867
======= =======
Earnings per share. $1.09 $1.11
======= =======
See accompanying notes
5
<PAGE>
<TABLE>
<CAPTION>
HOSPITALITY PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(unaudited)
For the Quarter For the Quarter
Ended June 30, Ended June 30,
1996 1997
--------------- ---------------
<S> <C> <C>
Revenues
Rental income $19,226 $24,513
FF&E reserve income 3,200 3,602
Interest income 585 161
------- -------
Total revenues 23,011 28,276
------- -------
Expenses
Interest (including amortization of deferred
finance costs of $65 and $342, respectively)
1,747 4,034
Depreciation and amortization of real estate assets 5,267 7,750
General and administrative 1,374 1,566
------- -------
Total expenses 8,388 13,350
------- -------
Net income $14,623 $14,926
======= =======
Weighted average shares outstanding 26,285 26,872
======= =======
Earnings per share. $0.56 $0.56
======= =======
</TABLE>
See accompanying notes
6
<PAGE>
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
For the Six For the Six
Months Ended Months Ended
June 30, June 30,
1996 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 21,245 $ 29,836
Adjustments to reconcile to cash provided by operating activities
Depreciation and amortization of real estate assets 8,004 14,523
Amortization of deferred finance costs as interest 110 651
FF&E reserve income (4,820) (7,081)
Change in assets and liabilities 2,553 1,051
--------- ---------
Cash provided by operating activities 27,092 38,980
--------- ---------
Cash flows from investing activities
Real estate acquisitions (491,304) (155,050)
Increase in security deposits 48,460 20,999
Purchase of FF&E reserve (5,500) (1,500)
Other (2,500) --
--------- ---------
Cash used by investing activities (450,844) (135,551)
--------- ---------
Cash flows from financing activities
Draws on credit facility 115,650 104,000
Repayments of credit facility (22,000) --
Dividends paid (22,503) (31,700)
Proceeds from issuance of common shares 358,649 --
Financing costs -- (573)
--------- ---------
Cash provided by financing activities 429,796 71,727
--------- ---------
Increase/(decrease) in cash and equivalents $ 6,044 $ (24,844)
========= =========
Supplemental cash flow information
Interest paid $ 1,750 $ 5,666
Non-cash investing activities
Property managers' deposits in FF&E reserve 4,645 6,234
Purchases of fixed assets with FF&E reserve 5,789 4,258
</TABLE>
See accompanying notes
7
<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 May 1997, the Company paid a $0.59 per share dividend to shareholders
for the quarter ended March 31, 1997. On July 1, 1997, the Trustees
declared a dividend of $0.61 per share be paid to shareholders of record
as of July 21, 1997, which will be distributed on or about August 21,
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 will
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 are 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 million. The hotel is
leased to Wyndham Hotel Corporation and operated as a Wyndham hotel.
In April 1997, the Company entered an agreement to acquire fourteen
hotels from Marriott International, Inc. for $149 million. As of June 30,
1997, the acquisition of ten of these hotels was complete. The Company
expects to acquire the remaining four hotels during 1997.
5. As of June 30, 1997, the Company had $104,000 outstanding under its
$200,000 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 a 10-year
loan. In the second quarter of 1997, the Company borrowed $104,000 under
the Credit Facility in connection with the acquisition of ten hotels
noted above. Certain subsidiaries of the Company are obligated for
$125,000 of long-term mortgages payable (Notes). The Notes require
payment of interest only through
8
<PAGE>
HOSPITALITY PROPERTIES TRUST
NOTES TO FINANCIAL STATEMENTS
(dollar amounts in thousands, except per share amounts)
(unaudited)
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 June 30, 1997, 53 Courtyard by Marriott(R) properties of the Company
and its subsidiary 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
twenty-four weeks ended June 14, 1996 and June 20, 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:
<TABLE>
<CAPTION>
Twenty-four weeks Twenty-four weeks
ended ended
June 14, 1996 (1) June 20, 1997 (2)
------------------ ------------------
(unaudited) (unaudited)
<S> <C> <C>
Revenues $39,701 $51,138
Investment expenses
Base and percentage rent 19,706 24,226
FF&E contribution 3,792 4,942
Management fees 7,177 11,557
Other 3,768 4,486
-------
-------
Total investment expenses 34,443 45,211
------- -------
Income before taxes 5,258 5,927
Provision for income taxes 2,103 2,371
------- -------
Net income $ 3,155 $ 3,556
======= =======
<CAPTION>
June 20, 1997
----------------
(unaudited)
<S> <C>
Assets $ 60,236
Liabilities 41,919
Equity 18,317
</TABLE>
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 twenty-four weeks ended June 14, 1996 and
June 20, 1997 are as follows:
9
<PAGE>
<TABLE>
<CAPTION>
HOSPITALITY PROPERTIES TRUST
NOTES TO FINANCIAL STATEMENTS
(dollar amounts in thousands, except per share amounts)
(unaudited)
Twenty-four weeks Twenty-four weeks
ended June 14, 1996(1) ended June 20, 1997(2)
----------------------- ----------------------
(unaudited) (unaudited)
<S> <C> <C>
Total hotel sales
Rooms $64,881 $88,041
Food and beverage 5,642 7,104
Other 2,985 3,706
------- -------
Total hotel sales 73,508 98,851
------- -------
Departmental expenses
Rooms 13,634 17,919
Food and beverage 4,696 5,855
Other operating departments 832 1,072
General and administrative 7,541 10,365
Utilities 2,742 3,801
Repairs, maintenance and accidents 835 3,969
Marketing and sales 843 1,173
Chain services 2,684 3,559
------- -------
Total departmental expenses 33,807 47,713
------- -------
Revenues $39,701 $51,138
======= =======
<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 June 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 twenty-four weeks ended June 14, 1996
and June 20, 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>
Twenty-four weeks Twenty-four weeks
ended June 14, 1996(1) ended June 20, 1997(2)
----------------------- ----------------------
(unaudited) (unaudited)
<S> <C> <C>
Revenues $ 7,529 $17,701
Investment expenses
Base and percentage rent 3,091 8,019
FF&E contribution 686 1,594
Management fees 1,834 4,100
Other 490 1,763
------- -------
Total investment expenses 6,101 15,476
------- -------
Income before taxes 1,428 2,225
Provision for income taxes 571 890
------- -------
Net income $ 857 $ 1,335
======= =======
<CAPTION>
June 20, 1997
--------------
(unaudited)
<S> <C>
Assets $21,295
Liabilities 15,569
Equity 5,726
</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)
10
<PAGE>
HOSPITALITY PROPERTIES TRUST
NOTES TO FINANCIAL STATEMENTS
(dollar amounts in thousands, except per share amounts)
(unaudited)
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 twenty-four weeks ended June 14,
1996 and June 20, 1997 are as follows:
<TABLE>
<CAPTION>
Twenty-four weeks Twenty-four weeks
ended June 14, 1996(1) ended June 20, 1997(2)
----------------------- ----------------------
(unaudited) (unaudited)
<S> <C> <C>
Total hotel sales
Rooms $13,090 $30,209
Other 699 1,666
------- -------
Total hotel sales 13,789 31,875
------- -------
Departmental expenses
Rooms 2,608 5,859
Other operating departments 147 593
General and administrative 1,139 2,447
Utilities 554 1,331
Repairs, maintenance and accidents 792 1,727
Marketing and sales 786 1,570
Chain services 234 647
------- -------
Total departmental expenses 6,260 14,174
------- -------
Revenues $ 7,529 $17,701
======= =======
<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>
11
<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 June 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 International"). 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 six
months of 1997 these hotels had average occupancy, average daily rate ("ADR")
and room revenue per available room ("RevPAR") of 81.8%, $84.16 and $68.86,
respectively.
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
International. 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 six months of 1997 these properties had
average occupancy, ADR and RevPAR of 83.3%, $99.09 and $82.56, respectively.
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 six
months of 1997 these hotels had average occupancy, ADR and RevPAR of 79.3%,
$91.59 and $72.59, respectively.
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 hotel. Annual base rent on this hotel
is $3.8 million. 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 six months of 1997 the property had average occupancy, ADR and RevPAR of
76.6%, $100.66, and $77.06, respectively.
In April of 1997 the Company announced plans to acquire 14, existing and to be
built, hotels from Marriott International, Inc. for approximately $149 million.
The 14 hotels are comprised of ten Residence Inn by Marriott(R) hotels and four
Courtyard by Marriott(R) hotels. These Courtyard and Residence Inn properties
are or will be leased to and operated by a wholly owned subsidiary of Marriott
International for annual base rent of approximately $14.9 million plus,
beginning after a two year period, percentage rent equal to 7% increases in
total sales over levels achieved in the second full year of operation. As of
August 7, the Company has acquired ten of these hotels, with 1,349 rooms, and
expects to acquire the four remaining hotels, with 470 rooms, later this year.
At June 30, 1997, these properties had an approximate average operating history
of just over 6 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 four-weeks ended June
20, 1997, occupancy, ADR and RevPAR for these 10 open and operating hotels were
74.7%, $81.60 and $61.05, respectively.
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 ("FF&E").
Quarter Ended June 30, 1997 (dollar amounts in thousands except per share
amounts)
Total revenues for the quarter ended June 30, 1997 increased to $28,276 from
$23,011 for the quarter ended June 30, 1996. Base and percentage rent increased
12
<PAGE>
to $24,513 from $19,226 during the comparable period. The increase primarily is
a result of the Company's investment in eleven 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 June 30, 1997 increased to $13,350 from
$8,388 for the quarter ended June 30, 1996. The increase is the result of
increases in depreciation, interest, and general and administrative expenses of
$2,483, $2,287, and $192, respectively. Depreciation and general and
administrative increased as a result of new investments since June 30, 1996.
Interest expense increased due to the issuance of the Notes, in late 1996, as
well as borrowings under the credit facility in the quarter ended June 30, 1997.
Net Income for the quarter ended June 30, 1997 increased to $14,926 ($0.56 per
share) from $14,623 ($0.56 per share) from the quarter ended June 30, 1996. The
increase is primarily a result of increased base and percentage rent of $5,287
primarily from new investments offset by an increase in total expenses of
$4,962, primarily from interest and depreciation related to new investments,
during the comparable period in 1996.
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 were $22,676 ($0.84 per
share) and $19,592 ($0.73 per share), respectively, compared to funds from
operations and cash available for distribution of $19,890 ($0.76 per share) and
$16,889 ($0.64 per share), respectively, for the quarter ended June 30, 1996.
Six Months ended June 30, 1997 (dollar amounts in thousands except per share
amounts)
Total revenues for the six months ended June 30, 1997 increased to $53,753 from
$33,345 for the six months ended June 30, 1996. Base and percentage rent
increased to $46,407 from $27,897 during the comparable period. The increase
primarily is a result of the Company's investment in forty-five hotels acquired
between March and May of 1996 and ten hotels acquired in 1997 prior to June 30,
1997, as well as increased percentage rent revenues from 53 Courtyard by
Marriott(R) properties, 18 Residence Inn by Marriott(R) and 11 Wyndham Garden(R)
hotels.
Total expenses for the six months ended June 30, 1997 increased to $23,917 from
$12,100 for the six months ended June 30, 1996. The increase is the result of
increases in depreciation, interest, and general and administrative expenses of
$6,519, $4,368, $930, respectively. Depreciation and general and administrative
increased as a result of new investments since June 30, 1996. Interest expense
increased due to the issuance of the Notes, in late 1996 as well as borrowings
under the credit facility in the quarter ended June 30, 1997.
Net Income for the six months ended June 30, 1997 increased to $29,836 ($1.11
per share) from $21,245 ($1.09 per share) from the six months ended June 30,
1996. The increase is primarily a result of increased base and percentage rent
of $18,510 primarily from new investments offset by an increase in total
expenses of $11,817, primarily from interest and depreciation, during the
comparable period.
Funds from operations and cash available for distribution related to the six
months were $44,359 ($1.65 per share) and $38,276 ($1.42 per share),
respectively, compared to funds from operations and cash available for
distribution of $29,249 ($1.50 per share) and $24,736 ($1.27 per share),
respectively, for the six months ended June 30, 1996.
Liquidity and Capital Resources (dollar amounts in thousands except per share
amounts)
Assets of the Company increased to $998,122 at June 30, 1997 from $840,964 from
the quarter ended June 30, 1996. The increase is primarily due to new real
estate acquisitions.
At June 30, 1997 the Company had $13,229 of cash and cash equivalents and the
ability to borrow up to an additional $96,000 under its credit facility ("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 ten hotels (eight Residence Inn by
Marriott(R) and two Courtyard by Marriott(R)) for approximately $111,000. Net
cash used to make these acquisitions was approximately $134,000 plus closing
13
<PAGE>
costs, funded primarily with draws of $104,000 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 has committed to purchase an additional four hotels
from Marriott International, Inc. for an additional total investment of
approximately $39,373.
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 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 for 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 first quarter 1997 results declared on March 31,
1997 of $0.59 per share were distributed on May 15, 1997. Dividends declared
with respect to second quarter 1997 results of $0.61 per share will be paid to
shareholders on or about August 21, 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
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.
PART II Other Information
Item 2. Changes in Securities
Effective May 20, 1997 the Company's Board of Trustees adopted a
Shareholder Protection Rights Plan, pursuant to which the Board of
Trustees created a class of authorized but unissued Junior
Participating Preferred Shares, par value $.01 per share, and declared
a dividend of one Preferred Share Purchase Right per outstanding Common
Share of Beneficial Interest. The terms of the Junior Participating
Preferred Shares and the Plan are described in the Company's Current
Report on Form 8-K dated May 20, 1997 which is hereby incorporated
herein by reference.
Pursuant to the Company's Incentive Share Award Plan, each of the
Company's independent trustees received an automatic annual grant of
300 Common Shares of Beneficial Interest on May 20, 1997, valued at
$31.00 per share, the closing price of the Company's shares on the New
York Stock Exchange on May 19, 1997. The grants were made pursuant to
the exemption from registration contained in Section 4(2) of the
Securities Act of 1933, as amended.
14
<PAGE>
Item 4. Submission of Matters to a Vote of Shareholders
At the Company's regular annual meeting of shareholders held on May 20,
1997, Gerard M. Martin was re-elected Trustee of the Company
(23,338,899 voted for, votes with respect to 256,746 shares withheld
and 16,309 shares present but not voted) and William J. Sheehan was
re-elected Trustee of the Company (23,329,939 voted for, votes with
respect to 265,706 shares withheld and 16,309 shares present but not
voted). The terms of Messrs. Martin and Sheehan will extend until the
Company's 2000 annual meeting of shareholders. Messrs. John L.
Harrington, Arthur G. Koumantzelis and Barry M. Portnoy continue to
serve as Trustees with terms expiring in 1999, 1998 and 1999,
respectively.
Also during such meeting a proposal to amend the Company's declaration
of trust to allow the Board of Trustees to increase or decrease the
authorized capital stock of the Company without shareholder approval
was adopted (13,642,719 voted for, 3,790,719 voted against, votes with
respect to 330,104 shares withheld and 5,848,170 shares present but not
voted).
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
1. The Company filed a current report on Form 8-K, dated May
20, 1997, with respect to adoption of a shareholder
protection rights plan.
2. The Company filed a current report on Form 8-K, dated April
3, 1997, with respect to the acquisition or proposed
acquisition of 14 hotels from subsidiaries of Marriott
International, Inc.
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: August 8, 1997
15
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