SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): February 11, 1998
HOSPITALITY PROPERTIES TRUST
(Exact name of registrant as specified in its charter)
Maryland
(State or other 1-11527 04-3262075
jurisdiction of (Commission (IRS Employer
incorporation) File Number) Identification No.)
400 Centre Street, Newton, MA 02158
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 617-964-8389
<PAGE>
CERTAIN IMPORTANT FACTORS
This Current Report contains statements which constitute forward
looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995. Those statements appear in a number of places in this
Current Report and include statements regarding the intent, belief or
expectations of Hospitality Properties Trust (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 accompanying information
contained in this Form 8-K, including the information under the heading
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", and in the Company's Annual Report on Form 10-K for its fiscal year
ended December 31, 1996, including under the captions "Item 5 Business and
Properties" and in Exhibit 99 thereof, 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.
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Item 5. Other Events
A. The Company issued an aggregate of 12,000,000 common shares of beneficial
interest in its previously announced and reported public offering. The
shares were issued on December 12, 1997, and the gross proceeds were $397
million. The net proceeds were used to pay all outstanding borrowings
under the Company's revolving line of credit which were at a floating
rate, for hotel acquisitions and for general business purposes.
B. The Company entered into an Advisory Agreement (the "New Advisory
Agreement") with REIT Management & Research, Inc., a Delaware corporation
(the "New Advisor"). The New Advisory Agreement was effective as of
January 1, 1998 and replaced the Advisory Agreement dated as of November
20, 1986, as amended (the "Old Advisory Agreement"), between the Company
and HRPT Advisors, Inc., a Delaware corporation (the "Old Advisor"). The
terms of the New Advisory Agreement are substantially the same as those
of the Old Advisory Agreement. The persons who were officers and
directors of the Old Advisor as of December 31, 1997 are the officers and
directors of the New Advisor, each holding the same office or offices.
They 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, and Gerard M. Martin and Barry
M. Portnoy, as Directors. Each of Messrs. Martin and Portnoy own 50% of
the outstanding capital stock of both the Old Advisor and the New
Advisor.
C. Management's Discussion and Analysis of Results of Operations and
Financial Condition
The following information is provided in connection with the financial
statements filed as Item 7 to this Current Report.
Overview
The Company was organized on February 7, 1995 and commenced operations
on March 24, 1995 with the acquisition of its first 21 hotels. The Company
completed its initial public offering of shares and acquired an additional 16
hotels on August 22, 1995. Because the Company did not operate for the entire
year 1995, the Company believes it is meaningful to an understanding of its
operations to discuss the Company's 1995 pro forma results of operations as well
as its historical results of operations.
The following discussion should be read in conjunction with the financial
statements and the notes thereto included elsewhere herein. Pro forma results
and percentage relationships set forth in the financial highlights section and
in such financial statements may not be indicative of the future operations of
the Company.
Historical and Pro Forma Results of Operations
Year Ended December 31, 1997 versus Year Ended December 31, 1996
- ----------------------------------------------------------------
The Company's assets increased to $1,313 million as of December 31, 1997
from $872 million as of December 31, 1996. The increase resulted primarily from
hotel acquisitions completed in 1997.
In January 1997 the Company purchased a full service hotel in Salt Lake
City, Utah for $44.0 million. 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 $149 million and acquired all these
properties in 1997 after they opened. 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 million. As of
February 11, 1998, three of these hotels have been acquired; the remaining six
are expected to be acquired periodically during the remainder of 1998. In
November 1997 the Company acquired 14 Sumner Suites(R) hotels (1,641 suites) for
$140 million. In November 1997 the Company agreed to acquire 15 Candlewood(R)
hotels for $100 million. Five of these 15 Candlewood(R) hotels were acquired in
1997. An additional 5 properties were acquired in January 1998. The remaining
hotels are expected to be acquired during 1998. These acquisitions were funded
through the use of cash on hand, borrowings on the company's line of credit, and
the net proceeds from the offering of 12,000,000 common shares of beneficial
interest ("Shares") in December 1997.
Total revenues in 1997 were $114.1 million versus 1996 revenues of $82.6
million. Total revenues were comprised principally of base and percentage rent
of $98.6 million and FF&E reserve income of $14.6 million in 1997 versus $69.5
million and $12.2 million, respectively, in the 1996 period. The Company's
results are reflective of the full year impact of 45 hotels acquired in 1996 and
the impact of the 1997 completion of 37 of the 53 hotel acquisitions announced
in 1997. During 1997 the Company earned percentage rent revenue of $2.5 million
($0.09/Share) versus $1.1 million ($0.05/Share) in 1996, as a result of
increases in gross hotel revenues at the Company's hotels.
Total expenses in 1997 were $55.0 million (including interest expense and
depreciation and amortization of real estate assets of $15.5 and $31.9 million,
respectively) versus 1996 expenses of $31.0 million (including interest expense
and depreciation and amortization of $5.6 million and $20.4 million,
respectively). A portion of the hotels purchased in 1997 were temporarily
financed with proceeds from the Company's line of credit which was ultimately
repaid with the proceeds of the Company's 12,000,000 Share offering in December
1997. These line of credit proceeds, plus the amounts outstanding on certain
prepayable mortgage notes issued by a subsidiary of the Company, gave rise to
interest expense of $15.5 million in 1997 versus $5.6 million in 1996 when
amounts on the Company's line of credit were smaller, were outstanding for
shorter periods and during which the Company's mortgage notes were not in place
for the entire period. The substantial increase in the number of hotels owned by
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the Company has also proportionately increased the Company's general expense
levels, including depreciation and general and administrative expenses. The
Company incurred $713,000 of costs in 1997 in connection with a terminated
acquisition attempt.
Net income in 1997 was $59.2 million ($2.15/Share) and cash available for
distribution ("CAD") was $79.3 million ($2.88/Share) versus $51.7 million ($2.23
per Share) and CAD of $60.8 million ($2.62/Share). Growth in net income and CAD
is primarily related to the effects of acquisitions in 1996 and 1997.
Cash flow provided by (used for) operating, investing and financing
activities was $81.2 million, ($347.3 million) and $309.7 million, respectively,
for the year ended December 31, 1997.
Year Ended December 31, 1996 versus Pro Forma Year Ended December 31, 1995
- --------------------------------------------------------------------------
The Company's assets increased to $871.6 million as of December 31, 1996
from $338.9 million at December 31, 1995. The increase primarily resulted from
three hotel portfolio acquisitions completed during 1996. In March and April of
1996, the Company acquired 16 Courtyard by Marriott(R) hotels for $176.4 million
and 18 Residence Inn(R) by Marriott hotels for $172.2 million. In May 1996, the
Company acquired 11 Wyndham Garden(R) hotels for $135.3 million. These
acquisitions were funded through the use of cash on hand, borrowings on the
Company's line of credit, and the net proceeds from the offering of 14,250,000
Shares in April 1996.
Total revenues in 1996 were $82.6 million versus pro forma 1995 revenue
of $39.9 million. Total revenues were comprised principally of base and
percentage rent of $69.5 million and FF&E reserve income of $12.2 million in
1996 versus $33.3 million and $6.4 million, respectively, in the pro forma
period. The Company's results of operations in 1996 are reflective of the growth
in the number of owned hotels to 82, from 37 at year end 1995. The leases for
the Company's 82 hotels at December 31, 1996 call for base rent of $81.3 million
annually, versus $32.9 million for the 37 hotels owned at December 31, 1995.
During 1996, the Company earned revenue of approximately $1.1 million
($0.05/Share) in percentage rents from its portfolio of 53 Courtyard hotels,
reflective of continued increases in Total Hotel Sales at these properties.
Total expenses in 1996 were $31.0 million, including interest expense and
depreciation and amortization of $5.6 million and $20.4 million, respectively,
versus pro forma 1995 expenses of $11.8 million, including depreciation and
amortization of $9.2 million. A portion of the hotels purchased in 1996 were
financed with proceeds from the Company's line of credit which was ultimately
repaid with prepayable floating rate mortgages. Such debt financing in 1996 gave
rise to the $5.6 million of interest expense referred to above, versus zero for
pro forma 1995, when the Company did not use third-party debt. The substantial
increase in the number of hotels owned by the Company has also proportionately
increased the Company's general expense levels, including depreciation and
amortization and general and administrative expenses.
Net income in 1996 was $51.7 million ($2.23 per Share) and CAD for the
period was $60.8 million ($2.62 per Share), based in both cases on average
outstanding Shares for the period of 23,170,000. This compares with pro forma
1995 net income of $28.0 million ($2.22 per Share) and CAD of $30.8 million
($2.45 per Share), based in both cases upon 12,600,900 outstanding Shares. This
7% growth in CAD is primarily related to the effects of the Company's 1996 hotel
acquisitions and related financing activity as well as growth in percentage rent
to $1.1 million in 1996 from $0.4 million in the 1995 pro forma period. During
April 1996, the Company completed an offering of 14,250,000 Shares raising net
proceeds of approximately $358 million to fund its acquisitions and more than
doubling its equity capitalization and shares outstanding.
Cash flow provided by (used for) operating, investing and financing
activities was $61.7 million, ($448.7 million) and $422.9 million, respectively,
for the year ended December 31, 1996.
February 7, 1995 (Inception) Through December 31, 1995
- ------------------------------------------------------
Total revenues from Inception through December 31, 1995 were $23.6
million, which included base and percentage rent of $19.5 million and FF&E
reserve income of $4.0 million. Total expenses for the period were $12.3
million, including interest expense and depreciation and amortization of $5.0
million and $5.8 million, respectively. Net income for the period was $11.3
million ($2.51 per Share) and CAD for the period was $13.2 million ($2.91 per
Share), based in both cases on average outstanding Shares for the period of
4,515,000.
From Inception until completion of its initial public offering on August
22, 1995, the Company was a 100% owned subsidiary of Health and Retirement
Properties Trust ("HRP") and was initially capitalized with $1 million of equity
and $163.3 million of debt. The debt was
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provided by HRP at rates which were lower than the market rates which the
Company would have paid on a stand alone basis. Accordingly, the Company does
not believe that its results of operations while it was a wholly owned
subsidiary of HRP are comparable to subsequent periods.
Cash flow provided by (used for) operating, investing and financing
activities was $14.1 million, ($303.7 million) and $291.6 million, respectively,
for the year ended December 31, 1996.
Pro Forma Year Ended December 31, 1995
- --------------------------------------
The pro forma results of operations assume that the Company's formation
transactions, the initial public offering of Shares and the acquisition and
leasing of the 37 hotels and related transactions all occurred on January 1,
1995. On this pro forma basis, total revenues would have been $39.9 million
(principally base and percentage rents of $33.3 million and FF&E reserve income
of $6.4 million). Total expenses would have been $11.8 million (including
depreciation and amortization of $9.2 million and general and administrative
expenses of $2.6 million). Net income would have been $28.0 million or $2.22 per
Share, and CAD would have been $30.8 million or $2.45 per Share, based in both
cases upon 12,600,900 Shares outstanding.
Liquidity and Capital Resources
The Company's primary source of cash to fund its dividends, interest and
day to day operations is the base and percentage rent it receives. Base rent is
paid monthly in advance and percentage rent is paid either monthly or quarterly
in arrears. This flow of funds from rent has historically been sufficient for
the Company to pay dividends, interest and meet day to day operating expenses.
The Company believes that its operating cash flow will be sufficient to meet its
operating expenses, interest and dividend payments.
In order to fund acquisitions and to accommodate occasional cash needs
which may result from timing differences between the receipt of rents and the
need to pay dividends or operating expenses, the Company has entered into a line
of credit arrangement was with DLJ Mortgage Capital, Inc. ("DLJMC"). The line of
credit (the "DLJMC Line of Credit") is for up to $200 million, all of which was
available at December 31, 1997. During 1997 the Company expanded its credit
facilities with DLJMC temporarily to provide up to $455 million. Drawings under
the DLJMC Line of Credit are secured by first mortgage liens on certain of the
Company's hotels. Funds may be drawn, repaid and redrawn until maturity, and no
principal repayment is due until maturity. The DLJMC Line of Credit matures on
December 31, 1998. Interest on borrowings under the DLJMC Line of Credit are
payable until maturity at a spread above LIBOR; and interest during the extended
term, if any, will be set at market rates at the time the loan is extended.
During 1996, subsidiaries of the Company issued $125 million of mortgage
notes (the "Notes") secured by such subsidiaries' assets, including 18 Residence
Inn by Marriott(R) and 11 Wyndham Garden(R) hotels. The mortgage loan was
financed by the issuance of $125 million commercial mortgage pass-through
certificates through a trust created by another of the Company's subsidiaries.
The certificates were sold in a Rule 144A private placement to institutional
investors. The Notes carry interest that floats with one-month LIBOR plus a
spread and are due December 1, 2001, but may be prepaid by the Company at any
time without penalty. In connection with this issuance of the Notes, the Company
entered into interest rate cap agreements for $125 million (notional amount)
with a major financial institution which limit the Company's maximum interest
rate exposure to 7.6925% on this debt.
The Company expects to use existing cash balances, borrowings under the
DLJMC Line of Credit or other lines of credit and/or net proceeds of offerings
of equity or debt securities to fund future hotel acquisitions. To the extent
the Company borrows on a line of credit, the Company will explore various
alternatives in both the timing and method of repayment of such amounts. Such
alternatives may include incurring long term debt. On January 15, 1997, the
Company's shelf registration statement for up to $2 billion of securities,
including debt securities, was declared effective by the Securities and Exchange
Commission (the "SEC"). An effective shelf registration statement enables the
Company to issue specific securities to the public on an expedited basis by
filing a prospectus supplement with the SEC.
The Company has recently held preliminary discussions with several banks
concerning the possibility of replacing the DLJMC Line of Credit. The Company is
also exploring the prepayment of the Notes with the proceeds of an issuance of
unsecured term debt securities. No assurance can be made that a new credit
facility will be available to the Company on acceptable terms or that a
prepayment of the Notes will occur.
5
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Although there can be no assurance that the Company will consummate any
debt or equity security offerings or other financings, the Company believes it
will have access to various types of financing in the future, including debt or
equity securities offerings, with which to finance future acquisitions.
Seasonality
The Company's hotels have historically experienced seasonal differences
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 expected to cause fluctuations in the Company's rental income
because the Company believes that the revenues generated by its hotels will be
sufficient for the lessees to pay rents on a regular basis notwithstanding
seasonal fluctuations.
Inflation
The Company believes that inflation should not have a material adverse
effect on the Company. Although increases in the rate of inflation may tend to
increase interest rates which the Company may be required to pay for borrowed
funds, the Company has a policy of obtaining interest rate caps in appropriate
circumstances to protect it from interest rate increases. In addition, the
Company's leases provide for the payment of percentage rent to the Company based
on increases in total sales, and such rent should increase with inflation.
Certain Considerations
The discussion and analysis of the Company's financial condition and
results of operations requires the Company to make certain estimates and
assumptions and contains certain statements of the Company's beliefs, intent or
expectation concerning projections, plans, future events and performance. The
estimates, assumptions and statements, such as those relating to the Company's
ability to expand its portfolio, performance of its assets, the ability to pay
dividends, its tax status as a "real estate investment trust," the ability to
appropriately balance the use of debt and equity and to access capital markets,
depend upon various factors over which the Company and/or the Company's lessees
have or may have limited or no control. Those factors include, without
limitation, the status of the economy, capital markets (including prevailing
interest rates), compliance with the changes to regulations within the
hospitality industry, competition, changes to federal, state and local
legislation and other factors. The Company cannot predict the impact of these
factors, if any. However, these factors could cause the Company's actual results
for subsequent periods to be different from those stated, estimated or assumed
in this discussion and analysis of the Company's financial condition and results
of operations. The Company believes that its estimates and assumptions are
reasonable and prudent at this time.
Item 7. Financial Statements and Schedule and Exhibits
(a) Index to Financial Statements and Financial Statement Schedule (see index
on page F-1).
(a) List of exhibits.
10 Advisory Agreement by and between REIT Management & Research, Inc. and
Hospitality Properties Trust dated January 1, 1998.
12 Ratio of Earnings to Fixed Charges.
23 Consent of Arthur Andersen LLP.
27 Financial data schedule.
6
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants...................................... F-2
Consolidated Balance Sheet as of December 31, 1997 and 1996 .................. F-3
Consolidated Statement of Income for the years ended December 31, 1997
and 1996 and the period February 7, 1995 (inception) to December 31, 1995..... F-4
Consolidated Statement of Shareholders' Equity for the years ended
December 31, 1997 and 1996 and the period February 7, 1995 (inception)
to December 31, 1995.......................................................... F-5
Consolidated Statement of Cash Flows for the years ended December 31,
1997 and 1996 and the period February 7, 1995 (inception) to December
31, 1995...................................................................... F-6
Notes to Consolidated Financial Statements.................................... F-7
Report of Independent Public Accountants on Schedule III ..................... F-11
Schedule III - Real Estate and Accumulated Depreciation ...................... F-12
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Trustees and Shareholders of
Hospitality Properties Trust:
We have audited the accompanying consolidated balance sheet of Hospitality
Properties Trust (the "Company") as of December 31, 1997 and 1996, and the
related consolidated statements of income, shareholders' equity and cash flows
for the years ended December 31, 1997, 1996 and the period from February 7,
1995 (inception) to December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Hospitality
Properties Trust as of December 31, 1997 and 1996 and the results of its
operations and its cash flows for the years ended December 31, 1997 and 1996,
and for the period from February 7, 1995 (inception) to December 31, 1995, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Washington, D.C.
January 16, 1998
F-2
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HOSPITALITY PROPERTIES TRUST
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
As of December 31,
----------------------------
1997 1996
(in thousands, except Share
data)
<S> <C> <C>
ASSETS
Real estate properties, at cost:
Land ................................................. $ 179,928 $ 143,462
Buildings and improvements ........................... 1,086,107 699,225
---------- ---------
1,266,035 842,687
Less accumulated depreciation ........................ (58,167) (26,218)
---------- ---------
1,207,868 816,469
Cash and cash equivalents ............................. 81,728 38,073
Rent receivable ....................................... 1,623 1,671
Restricted cash (FF&E reserve) ........................ 11,165 7,277
Other assets, net ..................................... 10,872 8,113
---------- ---------
$1,313,256 $ 871,603
========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Security deposits ..................................... $ 146,662 $ 81,360
Debt .................................................. 125,000 125,000
Dividends payable ..................................... 24,493 15,846
Due to affiliate ...................................... 2,464 2,376
Accounts payable and other ............................ 6,744 1,813
---------- ---------
Total liabilities .................................... 305,363 226,395
Shareholders' equity:
Preferred shares of beneficial interest, no par value,
100,000,000 shares authorized, none issued .......... -- --
Common shares of beneficial interest, $.01 par value,
100,000,000 shares authorized, 38,878,295 and
26,856,800 shares issued and outstanding ............ 389 269
Additional paid-in capital ........................... 1,033,073 656,253
Cumulative net income ................................ 122,166 63,013
Dividends (paid or declared) ......................... (147,735) (74,327)
---------- ---------
Total shareholders' equity ........................... 1,007,893 645,208
---------- ---------
$1,313,256 $ 871,603
========== =========
</TABLE>
See accompanying notes.
F-3
<PAGE>
HOSPITALITY PROPERTIES TRUST
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
February 7, 1995
Year Ended December 31, (inception) to
--------------------------- December 31,
1997 1996 1995
(in thousands, except per Share data)
<S> <C> <C> <C>
Revenues:
Rental income ............................................... $ 98,561 $ 69,514 $ 19,531
FF&E reserve income ......................................... 14,643 12,169 4,037
Interest income ............................................. 928 946 74
--------- -------- --------
Total revenues ............................................ 114,132 82,629 23,642
--------- -------- --------
Expenses:
Interest (including amortization of deferred finance costs
of $1,340, $341 and $24, respectively)...................... 15,534 5,646 5,063
Depreciation and amortization of real estate assets ......... 31,949 20,398 5,820
Terminated acquisition costs ................................ 713 -- --
General and administrative .................................. 6,783 4,921 1,410
--------- -------- --------
Total expenses ............................................ 54,979 30,965 12,293
--------- -------- --------
Net income ................................................... $ 59,153 $ 51,664 $ 11,349
========= ======== ========
Weighted average Shares outstanding .......................... 27,530 23,170 4,515
Net income per Share ......................................... $ 2.15 $ 2.23 $ 2.51
========= ======== ========
</TABLE>
See accompanying notes.
F-4
<PAGE>
HOSPITALITY PROPERTIES TRUST
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional Cumulative
Number Of Common Paid-In Net
Shares Shares Capital Income Dividends Total
(in thousands, except Share data)
<S> <C> <C> <C> <C> <C> <C>
Initial capitalization as of
February 7, 1995 (inception) . 40,000 $ -- $ 960 $ -- $ -- $ 960
Issuance of Common Shares of
Beneficial Interest, net ..... 12,560,000 126 296,980 -- -- 297,106
Stock grants .................. 900 -- 22 -- -- 22
Net income .................... -- -- -- 11,349 -- 11,349
Dividends (paid or declared) .. -- -- -- -- (11,486) (11,486)
---------- ---- ---------- -------- ---------- ----------
Balance at December 31, 1995 .. 12,600,900 $126 $ 297,962 $ 11,349 $ (11,486) $ 297,951
========== ==== ========== ======== ========== ==========
Issuance of Common Shares of
Beneficial Interest, net ..... 14,250,000 $143 $ 358,136 $ -- $ -- $ 358,279
Stock grants .................. 5,900 -- 155 -- -- 155
Net income .................... -- -- -- 51,664 -- 51,664
Dividends (paid or declared) .. -- -- -- -- (62,841) (62,841)
---------- ---- ---------- -------- ---------- ----------
Balance at December 31, 1996 .. 26,856,800 $269 $ 656,253 $ 63,013 $ (74,327) $ 645,208
========== ==== ========== ======== ========== ==========
Issuance of Common Shares of
Beneficial Interest, net ..... 12,000,000 $120 $ 376,146 $ -- $ -- $ 376,266
Stock grants .................. 21,495 -- 674 -- -- 674
Net income .................... -- -- -- 59,153 -- 59,153
Dividends (paid or declared) .. -- -- -- -- (73,408) (73,408)
---------- ---- ---------- -------- ---------- ----------
Balance at December 31, 1997 .. 38,878,295 $389 $1,033,073 $122,166 $ (147,735) $1,007,893
========== ==== ========== ======== ========== ==========
</TABLE>
See accompanying notes.
F-5
<PAGE>
HOSPITALITY PROPERTIES TRUST
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the Year Ended February 7, 1995
December 31, (inception) to
------------------------------ December 31,
1997 1996 1995
(in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ................................................... $ 59,153 $ 51,664 $ 11,349
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation and amortization .............................. 31,949 20,398 5,820
Amortization of deferred finance costs as interest ......... 1,340 341 24
FF&E reserve income ........................................ (14,643) (12,169) (4,037)
Changes in assets and liabilities:
Increase in rent receivable and other assets ............. (469) (1,566) (182)
Increase in accounts payable and other ................... 3,419 1,926 396
Increase in due to affiliate ............................. 476 1,149 770
---------- ---------- ----------
Cash provided by operating activities .................... 81,225 61,743 14,140
---------- ---------- ----------
Cash flows from investing activities:
Real estate acquisitions ..................................... (409,799) (491,638) (332,648)
Increase in security deposits ................................ 65,302 48,460 32,900
Purchase of FF&E reserve ..................................... (2,794) (5,500) (3,904)
---------- ---------- ----------
Cash used in investing activities ........................ (347,291) (448,678) (303,652)
---------- ---------- ----------
Cash flows from financing activities:
Proceeds from issuance of Shares, net ........................ 376,266 358,279 198,088
Draws on credit facility and debt issuance ................... 261,000 240,650 --
Repayments of credit facility ................................ (261,000) (115,650) --
Deferred finance costs incurred .............................. (1,784) (6,481) (1,885)
Borrowings and advances from HRP ............................. -- -- 165,241
Payments on borrowings and advances from HRP ................. -- -- (65,241)
Dividends paid ............................................... (64,761) (53,925) (4,556)
---------- ---------- ----------
Cash provided by financing activities .................... 309,721 422,873 291,647
---------- ---------- ----------
Increase in cash and cash equivalents ......................... $ 43,655 $ 35,938 $ 2,135
Cash and cash equivalents at beginning of period .............. 38,073 2,135 --
---------- ---------- ----------
Cash and cash equivalents at end of period .................... $ 81,728 $ 38,073 $ 2,135
========== ========== ==========
Supplemental cash flow information:
Cash paid for interest ....................................... $ 14,086 $ 4,652 $ 5,039
Non-cash investing and financing activities:
Property managers' deposits in FF&E reserve .................. 14,213 12,100 3,862
Purchases of fixed assets with FF&E reserve .................. (13,549) (15,665) (2,424)
Issuance of Shares to HRP .................................... -- -- 100,000
Cancellation of indebtedness to HRP .......................... -- -- (100,000)
</TABLE>
See accompanying notes.
F-6
<PAGE>
HOSPITALITY PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per Share and percent data)
1. Organization and Commencement of Operations
Hospitality Properties Trust (HPT) is a Maryland real estate investment
trust organized on February 7, 1995. HPT, which invests in income producing
hotel and lodging related real estate, was a 100% owned subsidiary of Health
and Retirement Properties Trust (HRP) from its inception through August 22,
1995, when it completed its initial public offering of Shares (the IPO). HRP
remains an affiliate of HPT, owning approximately 10.3% of HPT's issued and
outstanding Shares as of December 31, 1997. HPT commenced operations on March
24, 1995. At December 31, 1997 HPT, directly and through subsidiaries, had
purchased 119 properties and committed to purchase an additional 16 properties.
The properties of HPT and its subsidiaries (the Company) are leased to and
managed by subsidiaries (the Lessees and the Managers) of companies
unaffiliated with HPT: Host Marriott Corporation; Marriott International, Inc.
(Marriott); Patriot American Hospitality; Candlewood Hotel Company, Inc.; and
ShoLodge, Inc.
2. Summary of Significant Accounting Policies
Consolidation. These consolidated financial statements include the
accounts of HPT and its subsidiaries. All intercompany transactions have been
eliminated.
Real estate properties. Real estate properties are recorded at cost.
Depreciation is provided for on a straight-line basis over estimated useful
lives of 7 to 40 years. The Company periodically evaluates the carrying value
of its long-lived assets in accordance with Statement of Financial Accounting
Standards No. 121 (FAS 121), which it adopted on January 1, 1996. The adoption
of FAS 121 had no effect on the Company's financial statements.
Cash and cash equivalents. Highly liquid investments with maturities of
three months or less at date of purchase are considered to be cash equivalents.
The carrying amount of cash and cash equivalents is equal to its fair value.
Deferred finance costs. Costs incurred to secure certain borrowings are
capitalized and amortized over the terms of the related borrowing, and were
$7,371, $5,352 and $1,861 at December 31, 1997, 1996 and 1995, respectively,
net of accumulated amortization of $1,143, $313 and $24, respectively.
Financial Instruments--interest rate cap agreements. Certain subsidiaries
of HPT have entered interest rate protection agreements to limit the Company's
exposure to risks of rising interest rates. The cost of the agreements is
included in interest expense ratably over the life of the arrangement. Amounts
receivable from the counterparties to the cap agreements are accrued as
adjustments to interest expense. At December 31, 1997 and 1996, the net
carrying value of such agreements was $1,988 and $2,498, respectively, and the
fair value of such agreements was $802 and $2,756, respectively. Interest rates
have not exceeded the cap amounts and no balances were receivable under the cap
agreements at December 31, 1997 and 1996.
Revenue recognition. Rental income from operating leases is recognized on
a straight line basis over the life of the lease agreements. Additional rent
and interest income is recognized as earned.
Net income per share. Net income per share is computed using the weighted
average number of shares outstanding during the period. The Company has no
common share equivalents.
Use of estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect reported amounts. Actual results could
differ from those estimates.
Income taxes. The Company is a real estate investment trust under the
Internal Revenue Code of 1986. The Company is not subject to Federal income
taxes on its net income provided it distributes its taxable income to
shareholders and meets certain other requirements.
F-7
<PAGE>
HOSPITALITY PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except per Share and percent data)
New Accounting Pronouncements. 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 were adopted for the
Company's 1997 financial statements. The adoption of each of these had no
impact on the Company's financial statements. FAS 130 and FAS 131 must be
adopted for the Company's 1998 financial statements. The Company anticipates
that FAS 130 and FAS 131 will have no impact on the Company's financial
statements.
3. Real Estate Properties
The Company's hotel properties are leased pursuant to long term operating
leases with initial terms expiring between 2008 and 2014. The leases provide
for various renewal terms generally totaling 20-50 years unless the Lessee
properly notifies the Company in accordance with the leases. Each lease is a
triple net lease and generally requires the Lessee to pay: base rent,
percentage rent of between 5% and 10% of increases in total hotel sales over a
base year, 5% FF&E reserve escrows, and all operating costs associated with the
leased property. Each Lessee has posted a security deposit equal to one year's
base rent. Each of the Company's properties is part of a pool of properties
leased to a single tenant. At December 31, 1997, the Company maintained seven
pools of properties, ranging in number of properties from nine to 53. Each
property within a pool is subject to certain lease provisions including
all-or-none renewals, cross defaults and the ability to use FF&E reserves
generated by all hotels within a pool for the maintenance and refurbishment of
any hotel within such pool. The FF&E reserve may be used by the Manager and
Lessee to maintain the properties in good working order and repair. If the FF&E
reserve is not available to fund such expenditures, the Company may make such
expenditures, in which case annual base rent will be increased by a minimum of
10% of the amount so funded.
During 1995, the Company purchased and leased 37 hotels for a total
purchase price of approximately $329,000. In 1996, the Company purchased and
leased an additional 45 hotels for an aggregate purchase price of approximately
$484,000. During 1997, the company agreed to purchase and lease up to an
additional 53 hotels for an aggregate purchase price of approximately $562,000.
As of December 31, 1997, the Company had completed the acquisition and leasing
of 119 hotels properties and had outstanding commitments, subject to the
satisfaction of certain conditions by the sellers of such properties, to
purchase an additional 16 hotel properties for an aggregate purchase price of
$155,158.
Future minimum lease payments to be received by the Company during the
remaining initial terms of its leases total $1,742,784 ($120,062 annually). As
of December 31, 1997, the weighted average remaining initial term of the
Company's leases was 14 years, and the weighted average remaining total term
(including all renewal options) was 53.4 years.
4. Indebtedness
As of December 31, 1997 and 1996, the Company had no borrowings
outstanding under its $200,000 revolving acquisition credit facility ("Credit
Facility") which provides for interest on borrowings at one-month LIBOR plus a
premium. Borrowings, if any, may be repaid and reborrowed as necessary until
December 31, 1998, at which time outstanding balances may, at the Company's
option (subject to lender consent), be either repaid or converted into a
10-year loan. The Credit Facility is secured by certain assets of HPT and one
of its subsidiaries. The weighted average interest rate on Credit Facility
borrowings outstanding during 1997 and 1996 was 7.27% and 7.05%, respectively.
There were no borrowings outstanding at any time under the Credit Facility
during the 1995 period.
During 1997, the Company temporarily expanded its credit facility with the
same lender to provide up to an additional $255,000 (the "Expanded Facility")
through December 31, 1997. No amounts were outstanding under the Expanded
Facility as of December 31, 1997.
During 1996, certain subsidiaries of the Company issued $125,000 of notes
(Notes) which 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 premium.
F-8
<PAGE>
HOSPITALITY PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except per Share and percent data)
The Notes are non-recourse to HPT and its subsidiaries and are secured by first
mortgages on hotels owned by certain subsidiaries of the Company having a net
carrying value of $319,538 at December 31, 1997. Approximately $30,820 of
annual minimum lease payments are attributed to such hotels. Generally, among
other restrictions, the terms of the Notes limit the ability of certain
subsidiaries of the Company to incur significant secured or unsecured
liabilities and restrict the use of proceeds from any sale or other disposition
of the encumbered assets. The Notes carried a weighted average interest rate in
1997 of 6.44% and from their date of issuance to December 31, 1996 of 6.32%. At
December 31, 1997 and 1996, the Notes carried an interest rate of 6.69% and
6.07%, respectively. The carrying amount of the Notes is equal to their fair
value.
5. Transactions with Affiliates
The Company has an agreement with HRPT Advisors, Inc. (the "Advisor")
whereby the Advisor provides investment, management and administrative services
to the Company. The Advisor is compensated at an annual rate equal to 0.7% of
HPT's average real estate investments up to the first $250,000 of such
investments and 0.5% thereafter plus an incentive fee based upon improvements
in cash available for distribution per Share (as defined). Cash advisory fees
earned for the years ended 1997, 1996 and for period from February 7, 1995
(inception) to December 31, 1995 were $5,299, $3,915 and $1,292 respectively.
As of December 31, 1997 the Advisor owned 264,595 shares of HPT. Incentive
advisory fees are paid to Advisors in restricted Common Shares based on a
formula. The Company accrued $551 and $463 in incentive fees during 1997 and
1996 respectively. In February of 1997 the Company issued 14,595 restricted
Common Shares to the Advisor satisfying the 1996 fee. The 1997 fee will be paid
in restricted Common Shares in 1998.
From time to time the Company may seek short term borrowings from the
Advisor. During 1997, the Company made one such borrowing of $7,000 which was
outstanding for 60 days. Interest paid to the Advisor totaled $62. The Advisor
is under no obligation to make funds available to the Company.
As of January 1, 1998, the functions of the Advisor were assumed by REIT
Management & Research, Inc. ("RMR"), a newly formed affiliate of the Advisor
under a new advisory agreement on substantially the same terms as the previous
agreement. The Advisor and RMR are each owned by Gerard M. Martin and Barry M.
Portnoy, who also serve as Managing Trustees of the Company.
6. Concentration
The Company's assets are income producing lodging related real estate
located throughout the United States. The Company's lessees are:
<TABLE>
<CAPTION>
Annual
Number of Initial % of Minimum % of
Subsidiaries of Properties Investment Total Rent Total
<S> <C> <C> <C> <C> <C>
Host Marriott Corp. .................. 53 $ 505,000 37% $ 50,500 37%
Host Marriott Corp. .................. 18 172,000 13% 17,200 13%
Patriot American Hospitality ......... 12 180,000 13% 18,000 13%
Marriott International, Inc. ......... 14 149,000 11% 14,900 11%
Marriott International, Inc. ......... 9 129,000 9% 12,900 9%
ShoLodge, Inc. ....................... 14 140,000 10% 14,000 10%
Candlewood Hotel Company ............. 15 100,000 7% 10,000 7%
-- ---------- -- -------- --
135 $1,375,000 100% $137,500 100%
</TABLE>
At December 31, 1997 the Company was committed to purchase 16 of the
properties shown in the table above with allocated initial investment and
annual minimum rent of $155,158 and $15,516, respectively.
At December 31, 1997 the Company's 119 hotels contain 16,527 rooms and are
located in 30 states, with 5% to 11% of its hotels in each of Virginia,
Pennsylvania, Massachusetts, Arizona, Georgia, Texas, and California. Including
the commitments to purchase 16 properties, the Company's 135 hotels contain
18,497 rooms and are located in 35 states.
F-9
<PAGE>
HOSPITALITY PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except per Share and percent data)
7. Pro Forma Information (Unaudited)
In December 1997 the Company agreed to acquire and net lease 53 hotels for
a total of $562,000 (including 16 hotels which as of December 31, 1997 had not
been acquired). In December 1997 the Company completed an offering of 12,000
Shares. Assuming the acquisition and leasing of these hotels and the completion
of the December Shares offering had occurred on January 1, 1997, unaudited pro
forma 1997 revenues, net income and earnings per share would have been $153,116,
$83,715, and $2.17 respectively.
In the opinion of management, all adjustments necessary to reflect the
effects of the transactions discussed above have been reflected in the pro
forma data. The unaudited pro forma data is not necessarily indicative of what
the actual consolidated results of operations for the Company would have been
for the years indicated, nor does it purport to represent the results of
operations for the Company for future periods.
8. Selected Quarterly Financial Data (Unaudited)
The following is a summary of the unaudited quarterly results of
operations of the Company for 1997, 1996 and 1995.
<TABLE>
<CAPTION>
1997
----------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C>
Revenues ......................... $25,477 $28,276 $29,017 $31,362
Net Income ....................... 14,910 14,926 15,017 14,300
Net Income per Share ............. .56 .56 .56 .48
Dividends paid per Share (3) ..... .59 .61 .62 .63
</TABLE>
<TABLE>
<CAPTION>
1996
-------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C>
Revenues ......................... $ 10,334 $ 23,011 $24,878 $24,406
Net Income ....................... 6,622 14,623 15,446 14,973
Net Income per Share ............. .53 .56 .58 .56
Dividends paid per Share (3)...... .58 .58 .59 .59
1995
------------
Third Fourth
Quarter(1) Quarter
Revenues ......................... $ 7,853 $ 9,998
Net income ....................... 3,623 6,989
Net income per Share ............. .24(2) .55
Dividends paid per Share (3)...... .24 .55
</TABLE>
- ------------
(1) HPT's IPO occurred August 22, 1995 and accordingly the third quarter 1995
figures for revenues and net income partially relate to periods prior to the
IPO.
(2) Represents the per Share amount of net income from the IPO date to
September 30, 1995.
(3) Amounts represent dividends declared with respect to the periods shown.
F-10
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Trustees and Shareholders of
Hospitality Properties Trust:
We have audited in accordance with generally accepted auditing standards
the consolidated financial statements of Hospitality Properties Trust and have
issued our report thereon dated January 16, 1998. Our audit was made for the
purpose of forming an opinion on those statements taken as a whole. The schedule
on pages F-12 and F-13 is the responsibility of Hospitality Properties Trust's
management and is presented for the purpose of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in the audit
of the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Washington, D.C.
January 16, 1998
F-11
<PAGE>
HOSPITALITY PROPERTIES TRUST
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
(Dollars in millions)
<TABLE>
<CAPTION>
Gross Amount at
Initial Costs December 31, 1997
---------------------- ---------------------------------
Subsequent
Buildings & Costs Buildings & Accumulated Date of
Description Encumbrances Land Improvements Capitalized Land Improvements Total Depreciation Acquisition
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
59 Courtyard
by Marriott(R)
hotels $ -- $ 98 $443 $4 $98 $447 $545 $(24) 1995/1996/1997
29 Residence
Inn by
Marriott(R)
hotels 70 49 221 1 49 222 271 (6) 1996/1997
14 Sumner
Suites(R)
hotels -- 13 114 -- 13 114 127 -- 1997
12 Wyndham
Garden(R) hotels 55 16 153 -- 16 153 169 (6) 1996/1997
5 Candlewood(R)
hotels -- 3 30 -- 3 30 33 -- 1997
-------------------------------------------------------------------------------------------------
Total $ 125 $179 $961 $5 $179 $966 $1,145 $(36)
=================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Date
Of Depreciation
Description Construction Life
<S> <C> <C>
59 Courtyard 1987
by Marriott(R) through
hotels 1997 15-40 years
29 Residence
Inn by 1989
Marriott(R) through
hotels 1997 15-40 years
14 Sumner
Suites(R) 1992/1993
hotels 1996/1997 15-40 years
1987
12 Wyndham through
Garden(R) hotels 1990 15-40 years
5 Candlewood(R)
hotels 1996/1997 15-40 years
</TABLE>
The accompanying notes are an integral part of this schedule.
F-12
<PAGE>
HOSPITALITY PROPERTIES TRUST
NOTES TO SCHEDULE III
DECEMBER 31, 1997
(In thousands)
(A) The change in accumulated depreciation for the period from February 7,
1995 (inception) to December 31, 1997 is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of period.................. $ 16,701 $ 3,679 $ --
Additions: Depreciation expense................ 19,241 13,022 3,679
------------------------ ------------------- ----------------
Balance at close of period...................... $ 35,942 $ 16,701 $ 3,679
======================== =================== ================
</TABLE>
(B) The change in total cost of properties for the period from January 1,
1996 to December 31, 1997 is as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Balance at beginning of period........................... $ 773,497 $ 305,447
Additions: Hotel acquisitions and capital expenditures.. 371,476 468,050
------------------------- ------------------------
Balance at close of period............................... $ 1,144,973 $ 773,497
========================= ========================
</TABLE>
(C) The net tax basis of the Company's real estate properties was
$1,108,000 million as of December 31, 1997.
F-13
<PAGE>
SIGNATURES
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
By: /s/ Thomas M. O'Brien
----------------------------------
Thomas M. O'Brien, Treasurer
and Chief Financial Officer
Date: February 11, 1998
EXHIBIT 10
ADVISORY AGREEMENT
THIS ADVISORY AGREEMENT (this "Agreement") is entered into effective as
of January 1, 1998, by and between Hospitality Properties Trust, a Maryland real
estate investment trust (the "Company"), HRPT Advisors, Inc., a Delaware
corporation (the "Advisor"), and, solely with respect to Section 15 of this
Agreement with respect to certain non-competition covenants, Barry M.
Portnoy and Gerard M. Martin.
WHEREAS, the Company is a Maryland real estate investment trust
pursuant to a Declaration of Trust effective May 12, 1995 (as amended and
restated from time to time, the "Declaration") for the purpose of buying,
selling, leasing, holding and financing real and personal property and granting
and holding mortgages thereon;
WHEREAS, the Advisor is a corporation organized for the purpose of
providing management and administrative services with respect to the ownership
of real property;
WHEREAS, Barry M. Portnoy and Gerard M. Martin are both directors and
50% shareholders of the Advisor;
WHEREAS, the Company has qualified and intends to continue to qualify
as a real estate investment trust as defined in the Internal Revenue Code of
1986, as amended, (said Code, as in effect from time to time, together with any
regulations and rulings thereunder, being hereinafter referred to as the
"Internal Revenue Code"); and
WHEREAS, the Company desires to make use of the advice and assistance
of the Advisor and certain sources of information available to the Advisor, and
the Advisor desires to undertake the duties and responsibilities herein set
forth, on behalf of and subject to the supervision of the Company's Board of
Trustees (the "Trustees"), all as provided for herein;
NOW, THEREFORE, in consideration of the mutual agreements herein set
forth, the parties hereto agree as follows:
1. General Duties of the Advisor. The Advisor shall use its best
efforts to present to the Company a continuing and suitable investment program
consistent with the investment policies and objectives of the Company. Subject
to the supervision of the Trustees and upon their direction, and consistent with
the provisions of the Declaration, the Advisor shall:
(a) serve as the Company's investment advisor, with its
obligations to include providing research and economic and statistical data in
connection with the Company's investments and recommending changes in the
Company's investment policies, when appropriate;
<PAGE>
(b) investigate and evaluate investment opportunities and make
recommendations concerning such opportunities to the Trustees;
(c) manage the Company's short term investments including the
acquisition and sale of money market instruments in accordance with the
Company's policies;
(d) administer the day to day operations of the Company;
(e) investigate, select and conduct relations and enter into
appropriate contracts on behalf of the Company with other individuals,
corporations and entities in furtherance of the investment activities of the
Company;
(f) upon request of the Trustees, act as attorney in fact or
agent in acquiring and disposing of investments and funds of the Company and in
handling, prosecuting and settling any claims of the Company;
(g) upon request of the Trustees, invest and reinvest any
money of the Company;
(h) obtain for the Company, when appropriate, the services of
property managers or management firms to perform customary property management
services with regard to the real estate properties owned by or in the possession
of the Company, and perform such supervisory or monitoring services on behalf of
the Company with respect to the activities of such property managers or
management firms as would be performed by a prudent owner, including but not
limited to closely supervising the activities of such property managers or
management firms, visiting the properties, participating in property management
budgeting, reviewing the accounting of property income and expenses, reporting
on the financial status of the properties and reviewing the accounting of
property income and expenses, reporting on the financial status of the
properties and reviewing and approving marketing plans, but excluding the actual
on-site property management functions performed by said property managers or
management firms;
(i) obtain for the Company such services as may be required
for other activities relating to the investment portfolio of the Company;
(j) administer such day-to-day bookkeeping and accounting
functions as are required for the proper management of the assets of the
Company, contract for audits and prepare or cause to be prepared such reports as
may be required by any governmental authority in connection with the ordinary
conduct of the Company's business, including without limitation, periodic
reports, returns or statements required under the Securities Exchange Act of
1934, as amended, the Internal Revenue Code after, the securities and tax
securities of any jurisdiction in which the Company is obligated to file such
reports, or the rules and regulations promulgated under any of the foregoing;
(k) provide office space, office equipment and the use of
accounting or computing equipment when required, and provide personnel necessary
for the performance of the foregoing services; and
-2-
<PAGE>
(l) from time to time, or at any time requested by the
Trustees, make reports thereto of its performance of the foregoing services to
the Company.
In performing its services under this Agreement, the Advisor may
utilize facilities, personnel and support services of various of its Affiliates
(as defined below). The Advisor shall be responsible for paying such Affiliates
for their personnel and support services and facilities out of its own funds.
Notwithstanding the above, the Company may request, and will pay for the direct
costs of, services provided by Affiliates of the Advisor provided that such
request is approved by a majority vote of the Directors who are not Affiliates
of the Advisor and who do not perform any services for the Company except as
Trustee (the "Independent Trustees").
As used in this Agreement, the term "Affiliate" means, as to any
Person, (i) any other Person directly or indirectly controlling, controlled by
or under common control with such Person, (ii) any other Person that owns
beneficially, directly or indirectly, five percent (5%) or more of the
outstanding capital stock, shares or equity interests of such Person, or (iii)
any officer, director, employee, general partner or trustee of such Person or of
any Person controlling, controlled by or under common control with such Person
(excluding Trustees who are not otherwise Affiliates of such Person). The term
"Person" means and includes individuals, corporations, limited partnerships,
general partnerships, joint stock companies or associations, joint ventures,
associations, companies, trusts, banks, trust companies, land trusts, business
trusts, limited liability companies, and other entities.
2. Bank Accounts. The Advisor shall establish and maintain one or more
bank accounts in its own name or, at the direction of the Trustees, in the name
of the Company, and shall collect and deposit into such account or accounts and
disburse therefrom any monies on behalf of the Company, provided that no funds
in any such account shall be commingled with any funds of the Advisor or any
other Person. The Advisor shall from time to time render an appropriate
accounting of such collections and payments to the Trustees and to the auditors
of the Company.
3. Records. The Advisor shall maintain appropriate books of account and
records relating to services performed pursuant to this Agreement, which books
of account and records shall be available for inspection by representatives of
the Company upon reasonable notice during ordinary business hours.
4. Information Furnished Advisor. The Trustees shall at all times keep
the Advisor fully informed with regard to the investment policies of the
Company, the capitalization policy of the Company, and generally the Trustees'
then-current intentions as to the future of the Company. In particular, the
Trustees shall notify the Advisor promptly of their intention to sell or
otherwise dispose of any of the Company's investments or to make any new
investment. The Company shall furnish the Advisor with a certified copy of all
financial statements, a signed copy of each report prepared by independent
certified public accountants, and such other information with regard to its
affairs as the Advisor may from time to time reasonably request. The Company
shall retain legal counsel and accountants to provide such legal and accounting
advice and services as the Advisor or the Trustees shall deem necessary or
appropriate to adequately perform the functions of the Company.
-3-
<PAGE>
5. REIT Qualification. Anything else in this Agreement to the contrary
notwithstanding, the Advisor shall refrain from any action (including, without
limitation, the furnishing or rendering of services to tenants of property or
managing real property) which, in its judgment made in good faith, or in the
judgement of the Trustees as transmitted to the Advisor in writing, would (a)
adversely affect the status of the Company as a real estate investment trust as
defined and limited in the Internal Revenue Code or which would make the Company
subject to the Investment Company Act of 1940, as amended, or (b) violate any
law, rule, regulation or statement of policy of any governmental body or agency
having jurisdiction over the Company or over its securities, or (c) otherwise
not be permitted by the Declaration or Bylaws of the Company, except if such
action shall be ordered by the Trustees, in which event the Advisor shall
promptly notify the Trustees of the Advisor's judgment that such action would
adversely affect such status or violate any such law, rule or regulation or the
Declaration or Bylaws of the Company and shall refrain from taking such action
pending further clarification or instructions from the Trustees. In addition,
the Advisor shall take such affirmative steps which, in its judgment made in
good faith, or in the judgment of the Trustees as transmitted to the Advisor in
writing, would prevent or cure any action described in (a), (b) or (c) above.
6. Self-Dealing. Neither the Advisor nor any Affiliate of the Advisor
shall sell any property or assets to the Company or purchase any property or
assets from the Company, directly or indirectly, except as approved by a
majority of the Independent Trustees. In addition, except as otherwise provided
in Sections 1, 9, or 10 hereof, or except as approved by a majority of the
Independent Trustees, neither the Advisor nor any Affiliate of the Advisor shall
receive any commission or other remuneration, directly or indirectly, in
connection with the activities of the Company or any joint venture or
partnership in which the Company is a party. Except for compensation received by
the Advisor pursuant to Section 9 hereof, all commissions or other remuneration
received by the Advisor or an Affiliate of the Advisor and not approved by the
Independent Trustees under Sections 1 or 10 hereof or this Section 6 shall be
reported to the Company annually within ninety (90) days following the end of
the Company's fiscal year.
Upon request of any Trustee, the Advisor shall from time to time
promptly furnish the Company with information on a confidential basis as to any
investments within the Company's investment policies made by the Advisor for its
own account.
7. No Partnership or Joint Venture. The Company and the Advisor are not
partners or joint venturers with each other and neither the terms of this
Agreement nor the fact that the Company and the Advisor have joint interests in
any one or more investments shall be construed so as to make them such partners
or joint venturers or impose any liability as such on either of them.
8. Fidelity Bond. The Advisor shall not be required to obtain or
maintain a fidelity bond in connection with the performance of its services
hereunder.
9. Compensation. The Advisor shall be paid, for the services rendered
by it to the Company pursuant to this Agreement, an annual advisory fee (the
"Advisory Fee") equal to 0.70 percent of the Average Invested Capital (as
defined below) computed as of the last day of the Company's fiscal year up to
$250,000,000, and 0.50 percent of the Average Invested Capital equal to or
exceeding $250,000,000. In addition, the Advisor shall be paid an annual
incentive fee (the
-4-
<PAGE>
"Incentive Fee"), consisting of a number of shares of the Company's Common
Shares of Beneficial Interest ("Common Shares") with a value (determined as
provided below) equal to 15 percent of the amount by which Cash Available for
Distribution to Shareholders (as defined below) for such fiscal year exceeds
Cash Available for Distribution to Shareholders for the fiscal year immediately
prior to such fiscal year, but in no event shall the Incentive Fee payable in
respect of any year exceed $.02 multiplied by the weighted average number of
Common Shares outstanding during such year.
Payment of the Incentive Fee shall be made by issuance of Common
Shares, under the Company's 1995 Incentive Share Award Plan or otherwise. The
number of Common Shares to be issued in payment of the Incentive Fee shall be
the whole number of shares (disregarding any fraction) equal to the value of the
Incentive Fee, as provided above, divided by the average closing price of the
Common Shares on the New York Stock Exchange during the month of December in the
year for which the computation is made. (The Advisory Fee and Incentive Fee are
hereinafter collectively referred to as the "Fees.")
For purposes of this Agreement: "Average Invested Capital" of the
Company shall mean the daily weighted average of the total book value of the
assets of the Company invested, directly or indirectly, in equity interests in
and loans secured by real estate and personal property owned in connection with
such real estate (collectively, "Properties"), before reserves for depreciation
or bad debts or other similar noncash reserves, computed by taking the weighted
average of such values. "Cash Available for Distribution" shall mean, for any
period, the net income of the Company, before real estate depreciation,
amortization and other non-cash or non-recurring items, less the amount, if any,
included in the calculation thereof which represents rental income recognized by
the Company in respect of amounts which, pursuant to leasing arrangements
relating to any of the Properties, the Company is required to escrow or reserve
for renovations and refurbishments. Calculation of Average Invested Capital
shall be made annually by the Company; calculation of Cash Available for
Distribution to Shareholders shall be made annually by the Company's independent
certified public accountants.
The Advisory Fee shall be computed and paid within thirty (30) days
following the end of each fiscal month by the Company, and the Incentive Fee
shall be computed and paid within thirty (30) days following the public
availability of the Company's annual audited financial statements for each
fiscal year. Such computations shall be based upon the Company's monthly or
annual financial statements, as the case may be, and shall be in reasonable
detail. A copy of such computations shall promptly be delivered to the Advisor
accompanied by payment of the Fees shown thereon to be due and payable.
The payment of the aggregate annual Fees paid for any fiscal year shall
be subject to adjustment as of the end of each fiscal year. On or before the
30th day after public availability of the Company's annual audited financial
statements for each fiscal year, the Company shall deliver to the Advisor an
Officer's Certificate (a "Certificate") reasonably acceptable to the Advisor and
certified by an authorized officer of the Company setting forth (i) the Average
Invested Capital and Funds From Operations for the Company's fiscal year ended
upon the immediately preceding December 31, and (ii) the Company's computation
of the Fees payable for said fiscal year.
-5-
<PAGE>
If the aggregate annual Fees payable for said fiscal year as shown in
such Certificate exceed the aggregate amounts previously paid with respect
thereto by the Company, the Company shall include its check for such deficit and
deliver the same to the Advisor with such Certificate.
If the aggregate annual Fees payable for said fiscal year as shown in
such Certificate are less than the aggregate amounts previously paid with
respect thereto by the Company, the Company shall specify in such Certificate
whether the Advisor should (i) remit to the Company its check in an amount equal
to such difference or (ii) grant the Company a credit against the Fees next
coming due in the amount of such difference until such amount has been fully
paid or otherwise discharged.
10. Compensation for Additional Services. If, and to the extent that,
the Company shall request the Advisor to render services on behalf of the
Company other than those required to be rendered by the Advisor in accordance
with the terms of this Agreement, such additional services shall be compensated
separately on terms to be agreed upon between the Advisor and the Company from
time to time.
11. Expenses of the Advisor. Without regard to the compensation
received by the Advisor from the Company pursuant to this Agreement, the Advisor
shall bear the following expenses incurred in connection with the performance of
its duties under this Agreement:
(a) employment expenses of the personnel employed by the
Advisor, including but not limited to, salaries, wages, payroll taxes and the
cost of employee benefit plans;
(b) fees and travel and other expenses paid to directors,
officers and employees of the Advisor, except fees and travel and other expenses
of such persons who are Trustees or officers of the Company incurred in their
capacities as Trustees or officers of the Company;
(c) rent, telephone, utilities, office furniture, equipment
and machinery and other office expenses of the Advisor, except to the extent
such expenses relate solely to an office maintained by the Company separate from
the office of the Advisor; and
(d) miscellaneous administrative expenses incurred in
supervising, monitoring and inspecting real property and other investments of
the Company or relating to performance by the Advisor of its obligations
hereunder.
12. Expenses of the Company. Except as expressly otherwise provided in
this Agreement, the Company shall pay all its expenses not payable by the
Advisor, and, without limiting the generality of the foregoing, it is
specifically agreed that the following expenses of the Company shall be paid by
the Company and shall not be paid by the Advisor:
(a) the cost of borrowed money;
(b) taxes on income and taxes and assessments on real
property, if any, and all other taxes applicable to the Company;
-6-
<PAGE>
(c) legal, auditing, accounting, underwriting, brokerage,
listing, reporting, registration and other fees, and printing, engraving and
other expenses and taxes incurred in connection with the issuance, distribution,
transfer, trading, registration and stock exchange listing of the Company's
securities, including transfer agent's, registrar's and indenture trustee's fees
and charges;
(d) expenses of organizing, restructuring, reorganizing or
terminating the Company, or of revising, amending, converting or modifying the
Company's organizational documents;
(e) fees and travel and other expenses paid to Trustees and
officers of the Company in their capacities as such (but not in their capacities
as officers or employees of the Advisor) and fees and travel and other expenses
paid to advisors, contractors, mortgage services, consultants, and other agents
and independent contractors employed by or on behalf of the Company;
(f) Expenses directly connected with the acquisition,
disposition or ownership of real estate interests or other property (including
the costs of foreclosure, insurance premiums, legal services, brokerage and
sales commissions, maintenance, repair, improvement and local management or
property), other than expenses with respect thereto of employees of the Advisor,
to the extent that such expenses are to be borne by the Advisor pursuant to
Section 11 above;
(g) all insurance costs incurred in connection with the
Company (including officer and trustee liability insurance) or in connection
with any officer and trustee indemnity agreement to which the Company is a
party;
(h) expenses connected with payments of dividends or interest
or contributions in cash or any other form made or caused to be made by the
Trustees to holders of securities of the Company;
(i) all expenses connected with communications to holders of
securities of the Company and other bookkeeping and clerical work necessary to
maintaining relations with holders of securities, including the cost of printing
and mailing certificates for securities and proxy solicitation materials and
reports to holders of the Company's securities;
(j) legal, accounting and auditing fees and expenses, other
than those described in subsection (c) above; and
(k) expenses relating to any office or office facilities
maintained by the Company separate from the office of the Advisor.
13. Annual Operating Expenses Limitation Requiring Refunds by the
Advisor. There shall be a limitation (the "Limitation") on Operating Expenses
(as defined below) of the Company for each fiscal year which shall be the lower
of the following:
-7-
<PAGE>
(a) the greater of (i) 2% of the Average Invested Capital of
the Company for such fiscal year; and (ii) 25% of the Net Income (as defined
below) of the Company for such fiscal year; or
(b) the lowest of any applicable operating expense limitations
that may be imposed by law or regulation in a state in which any securities of
the Company are or will be qualified for sale or by a national securities
exchange on which any securities of the Company are or may be listed, as such
limitations may be altered from time to time.
For purposes of this Agreement, "Operating Expenses" shall be
calculated on the basis of the Company's annual audited financial statements and
shall be deemed to mean the aggregate annual expenses regarded as ordinary
operating expenses in accordance with generally accepted accounting principles
(including the Fees), exclusive of the following:
(i) the expenses set forth in subsections (a) through
(d), inclusive, and (f) of Section 12 hereof;
(ii) non-cash expenditures, including provisions for
depreciation, depletion, bad debt reserve and
amortization;
(iii) losses on the disposition of assets and provisions
for such losses;
(iv) options granted to the Advisor; and
(v) other extraordinary charges including, without
limitation, litigation costs.
For purposes of this Agreement, "Net Income" for any period shall be
calculated on the basis of the Company's audited financial statements and shall
be deemed to mean total revenues applicable to such period, less the expenses
applicable to such period, including additions to reserves for depreciation or
bad debts or other similar noncash reserves, determined in accordance with
generally accepted accounting principles.
On or before the 30th day after public availability of the Company's
annual audited financial statements for each fiscal year, the Advisor shall
refund (to the extent of the aggregate Fees it has received with respect to such
year) to the Company the amount, if any, by which the Operating Expenses
exceeded the Limitation; provided however, that unless such action is prohibited
by laws or regulations, the Company may instead permit such refund to be
effected by a reduction in the amount of the Fees to be paid by the Company
during the fiscal years following the fiscal year with respect to which such
refund is to be made until such time as any such refund is fully paid and
provided the Limitation imposed by this Section 13 shall require that only so
much of such excess need be refunded as is conclusively determined by the
Trustees, including a majority of the Independent Trustees, to be unjustified.
14. Limits of Advisor Responsibility. The Advisor assumes no
responsibility other than to render the services described herein in good faith
and shall not be responsible for any action of the Trustees in following or
declining to follow any advice or recommendation of the Advisor. The
-8-
<PAGE>
Advisor, its shareholders, directors, officers, employees and Affiliates will
not be liable to the Company, its shareholders, or others, except by reason of
acts constituting bad faith, willful or wanton misconduct or gross negligence.
The Company shall reimburse, indemnify and hold harmless the Advisor, its
shareholders, directors, officers and employees and its Affiliates for and from
any and all expenses, losses, damages, liabilities, demands, charges and claims
of any nature whatsoever in respect of or arising from any acts or omissions of
the Advisor undertaken in good faith and in accordance with the standard set
forth above pursuant to the authority granted to it by this Agreement.
15. Other Activities of Advisor. Neither the Advisor nor Gerard M.
Martin nor Barry M. Portnoy shall, without the consent of the Company's
Independent Trustees, (i) provide advisory services to, or serve as a director
or officer of, any other REIT which is principally engaged in the business of
ownership of hotel properties or (ii) make direct investments in hotel
facilities. Nothing herein shall prevent the Advisor from engaging in other
activities or businesses or from acting as advisor to any other Person
(including other real estate investment trusts) provided that no such activity
shall conflict with the Advisor's obligations under the immediately preceding
sentence; provided, further, however, that the Advisor shall notify the Company
in writing in the event that it does so act as an advisor to another real estate
investment trust. The Advisor shall be free from any obligation to present to
the Company any particular investment opportunity which comes to the Advisor.
Without limiting the foregoing provisions, the Advisor agrees, upon the request
of any Trustee of the Company, to disclose certain investment information
concerning the Advisor or certain of its Affiliates, provided, however, that
such disclosure shall be required only if it does not constitute a breach of any
fiduciary duty or obligation of the Advisor.
Directors, officers, employees and agents of the Advisor or of its
Affiliates may serve as Trustees, officers, employees, agents, nominees or
signatories of the Company. When executing documents other otherwise acting in
such capacities for the Company, such persons shall use their respective titles
in the Company. Such persons shall receive no compensation from the Company for
their services to the Company in any such capacities.
16. Term, Termination. This Agreement shall continue in force and
effect until December 31, 1998 unless extended or sooner terminated in
accordance with the terms of this Section 16. The expiration date of the then
current term of this Agreement is referred to herein as the "Termination Date."
The Company shall give written notice to the Advisor prior to the Termination
Date of its intention to renew this Agreement and the period of such extension.
Such renewal shall be determined by a majority of the Independent Trustees of
the Company.
Notwithstanding any other provision of this Agreement to the contrary,
this Agreement, or any extension hereof, may be terminated by either party
hereto upon sixty (60) days' written notice to the other party, pursuant to a
majority vote of the Independent Trustees; or, in the case of a termination by
the Advisor, by a majority vote of the directors of the Advisor.
Paragraph 19 hereof shall govern the rights, liabilities and
obligations of the parties upon termination of this Agreement; and, except as
provided in paragraph 20, such termination shall be without further liability of
either party to the other than for breach or violation of this Agreement prior
to termination.
-9-
<PAGE>
17. Assignment. The Company may terminate this Agreement at any time in
the event of its assignment by the Advisor except an assignment to a
corporation, association, trust, or other successor organization which may take
over the property and carry on the affairs of the Advisor; provided that,
following such assignment, the persons who controlled the operations of the
Advisor immediately prior to the assignment shall control the operation of the
successor organization, including the performance of its duties under this
Agreement, and such successor organization shall be bound by the same
restrictions by which the Advisor was bound prior to such assignment. Such
assignment or any other assignment of this Agreement by the Advisor shall bind
the assignee hereunder in the same manner as the Advisor is bound hereunder.
This Agreement shall not be assignable by the Company without the prior written
consent of the Advisor, except in the case of any assignment by the Company to a
corporation or other organization which is the successor to the Company, in
which case such successor shall be bound hereby and by the terms of said
assignment in the same manner and to the same extent as the Company is bound
hereby.
18. Default, Bankruptcy, Etc. of the Advisor. At the sole option of the
Company, this Agreement may be terminated immediately upon written notice of
such termination from the Trustees to the Advisor if any of the following events
shall have occurred:
(a) the Advisor shall have violated any provision of this
Agreement and, after written notice from the Trustees of such violation, shall
have failed to cure such default within thirty (30) days;
(b) a petition shall have been filed against the Advisor for
an involuntary proceeding under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, and such petition shall not have been
dismissed within ninety (90) days of filing; or a court having jurisdiction
shall have appointed a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official of the Advisor for any substantial portion of
its property, or ordered the winding upon or liquidation of its affairs, and
such appointment or order shall not have been rescinded or vacated within ninety
(90) days of such appointment or order; or
(c) the Advisor shall have commenced a voluntary proceeding
under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or shall have made any general assignment for the benefit
of creditors, or shall have failed generally to pay its debts as they became
due.
The Advisor agrees that, if any of the events specified in Paragraphs
(b) or (c) of this Section 18 shall occur, it will give written notice thereof
to the Trustees within seven (7) days following the occurrence of such event.
19. Action Upon Termination. From and after the effective date of any
termination of this Agreement pursuant to Sections 16, 17 or 18 hereof, the
Advisor shall be entitled to no compensation for services rendered hereunder for
the then-current term of this Agreement, but shall be paid, on a pro rata basis,
all compensation due for services performed prior to such termination (reduced
by the amount, if any, of the Fees to be refunded by the Advisor pursuant to
Section 13 hereof, which section shall apply pro rata to the applicable portion
of the fiscal year in which
-10-
<PAGE>
termination occurs in the event of a termination occurring at other than the end
of the Company's fiscal year. Upon such termination, the Advisor immediately
shall:
(a) pay over to the Company all monies collected and held for
the account of the Company by it pursuant to this Agreement, after deducting
therefrom any accrued Fees (reduced by amounts owed by the Advisor to the
Company pursuant to the last paragraph of Section 13 hereof) and reimbursements
for its expenses to which it is then entitled;
(b) deliver to the Trustees a full and complete accounting,
including a statement showing all sums collected by it and a statement of all
sums held by it for the period commencing with the date following the date on
its last accounting to the Trustees; and
(c) deliver to the Trustees all property and documents of the
Company then in its custody or possession.
The amount of Fees paid to the Advisor upon termination shall be
subject to adjustment pursuant to the following mechanism. On or before the 30th
day after public availability of the Company's annual audited financial
statements for the fiscal year in which termination occurs, the Company shall
deliver to the Advisor a Certificate reasonably acceptable to the Advisor and
certified by an authorized officer of the Company setting forth (i) the Average
Invested Real Estate Assets, Cash Available for Distribution to Shareholders and
Funds From Operations for the Company's fiscal year ended upon the immediately
preceding December 31, and (ii) the Company's computation of the Fees payable
upon the date of termination (reduced by the aggregate amount of any excess
expenses to be refunded pursuant to Section 13 hereof, which Section shall apply
to the applicable portion of the fiscal year in which termination occurs in the
event of a termination occurring at other than the end of the Company's fiscal
year.
If the annual Fees owed upon termination as shown in such Certificate
exceed the Fees paid by the Company upon termination, the Company shall include
its check for such deficit and deliver the same to the Advisor with such
Certificate.
If the Annual Fees owed upon termination as shown in such Certificate
are less than the Fees paid by the Company upon termination, the Advisor shall
remit to the Company its check in an amount equal to such difference.
20. Trustee Action. Wherever action on the part of the Trustees is
contemplated by this Agreement, action by a majority of the Trustees, including
a majority of the Independent Trustees, shall constitute the action provided for
herein.
21. Notices. Any notice, report or other communication required or
permitted to be given hereunder shall be in writing unless some other method of
giving such notice, report or other communication is accepted by the party to
whom it is given, and shall be given by being delivered at the following
addresses to the parties hereto:
If to the Company:
-11-
<PAGE>
Hospitality Properties Trust
400 Centre Street
Newton, MA 02158
Attention: President
If to the Advisor:
REIT Management & Research, Inc.
400 Centre Street
Newton, MA 02158
Attention: President
Such notice shall be effective upon its receipt by the party to whom it
is directed. Either party hereto may at any time given notice to the other party
in writing of a change of its address for purposes of this paragraph 21.
22. Amendments. The Agreement shall not be amended, changed, modified,
terminated, or discharged in whole or in part except by an instrument in writing
signed by each of the parties hereto, or by their respective successors or
assigns, or otherwise as provided herein.
23. Successors and Assigns. This Agreement shall be binding upon any
successors or permitted assigns of the parties hereto as provided herein.
24. Governing Law. The provisions of this Agreement shall be governed
by and construed in accordance with the laws of the Commonwealth of
Massachusetts.
25. Captions. The captions included herein have been inserted for ease
of reference only and shall not be construed to affect the meaning, construction
or effect of this Agreement.
26. Entire Agreement. This Agreement constitutes the entire agreement
of the parties hereto with respect to the subject matter hereof and supersedes
and cancels any pre-existing agreements with respect to such subject matter.
27. Attorneys' Fees. If any legal action is brought for the enforcement
of this Agreement, or because of an alleged dispute, breach, default or
misrepresentation in connection with any of the provisions of this Agreement,
the successful or prevailing party or parties shall be entitled to recover
reasonable attorneys' fees and other costs incurred in that action in addition
to any other relief to which it or they may be entitled.
-12-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers, under seal, as of the day and year
first above written.
ATTEST: HOSPITALITIES PROPERTIES TRUST
/s/ John D. Murray By: /s/ Thomas M. O'Brien
- ----------------------------- -------------------------------
Its Treasurer and Chief
Financial Officer
WITNESS: REIT MANAGEMENT & RESEARCH, INC.
/s/ Sylvia DiGregorio By: /s/ John Popeo
- ------------------------------ ------------------------------
Its Treasurer
THE PROVISIONS OF SECTION 15
HEREOF ARE HEREBY AGREED TO:
/s/ Gerard M. Martin
- ------------------------------
Gerard M. Martin
/s/ Barry M. Portnoy
- ------------------------------
Barry M. Portnoy
-13-
Exhibit 12
Hospitality Properties Trust
Computation of Ratio to Fixed Charges
(in thousands, except ratio amounts)
<TABLE>
<CAPTION>
For the Period
February 7,
For the Year For the Year 1995
ended ended (inception) to
December 31, December 31, December 31,
1997 1996 1995
<S> <C> <C> <C>
Income $59,153 $51,664 $11,349
Fixed Charges 15,534 5,646 5,063
------- ------- --------
Adjusted Earnings $74,687 $57,310 $16,412
======= ======= =======
Fixed Charges:
Interest on indebtedness and
amortization of
deferred finance cost $15,534 $5,646 $5,063
------- ------- -------
Total Fixed Charges $15,534 $5,646 $5,063
======= ======= =======
Ratio of Earnings to Fixed Charges 4.81x 10.15x 3.24x
======= ======= =======
</TABLE>
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation by
reference in Hospitality Properties Trust's Registration Statement No. 333-43573
of our reports dated January 16, 1998 included in Hospitality Properties Trust's
Form 8-K dated February 11, 1998 and to all references to our Firm included in
this registration statement.
/s/ Arthur Andersen LLP
Washington, D.C.
February 12, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000945394
<NAME> HOSPITALITY PROPERTIES TRUST
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 81,728
<SECURITIES> 0
<RECEIVABLES> 1,623
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,266,035
<DEPRECIATION> 58,167
<TOTAL-ASSETS> 1,313,256
<CURRENT-LIABILITIES> 0
<BONDS> 125,000
0
0
<COMMON> 389
<OTHER-SE> 1,033,073
<TOTAL-LIABILITY-AND-EQUITY> 1,313,256
<SALES> 0
<TOTAL-REVENUES> 114,132
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 39,445
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,534
<INCOME-PRETAX> 59,153
<INCOME-TAX> 0
<INCOME-CONTINUING> 59,153
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 59,153
<EPS-PRIMARY> 2.15
<EPS-DILUTED> 2.15
</TABLE>
