Filed Pursuant to Rule 424(b)(5)
Registration No. 333-43573
PROSPECTUS SUPPLEMENT
- ---------------------
(To prospectus dated January 15, 1998)
$150,000,000
Hospitality Properties Trust
8-1/2% Monthly Income Senior Notes due 2009
----------------
The notes bear interest at the rate of 8-1/2% per year. Interest on the
notes is payable monthly on the 15th day of each month beginning January 15,
1999. The notes mature on January 15, 2009. We may not redeem the notes prior
to December 15, 2002. From and after December 15, 2002, we may redeem some or
all of the notes from time to time before they mature. The redemption price
will equal the outstanding principal of the notes being redeemed plus accrued
interest. The notes do not have the benefit of any sinking fund.
The notes are unsecured and rank equally with all of our other unsecured
senior indebtedness. The notes will be issued only in registered form in
denominations of $1,000.
----------------
<TABLE>
<CAPTION>
Per Note Total
-------- -----
<S> <C> <C>
Public Offering Price (1) ................................. 100% $150,000,000
Underwriting Discount ..................................... 2.75% $ 4,125,000
Proceeds, before expenses, to Hospitality Properties Trust 97.25% $145,875,000
</TABLE>
(1) Plus accrued interest from December 16, 1998, if settlement occurs after
that date.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus supplement or the accompanying prospectus is truthful or
complete. Any representation to the contrary is a criminal offense.
We have granted the underwriters a 30-day option to purchase additional
notes in an aggregate principal amount up to $22,500,000 on the same terms and
conditions as these notes in order to satisfy overallotments, if any.
We expect that the notes will be ready for delivery in book-entry form
only through The Depository Trust Company on or about December 16, 1998.
----------------
The Joint Book-Running Managers are:
Merrill Lynch & Co. Salomon Smith Barney
----------------
A.G. Edwards & Sons, Inc.
Legg Mason Wood Walker
Incorporated
Morgan Stanley Dean Witter
PaineWebber Incorporated
Prudential Securities Incorporated
----------------
The date of this prospectus supplement is December 11, 1998.
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Prospectus Supplement
Summary ................................................................... S-3
Recent Developments ....................................................... S-7
Capitalization ............................................................ S-9
Use of Proceeds ........................................................... S-9
The Company ............................................................... S-10
Management ................................................................ S-16
Description of the Notes .................................................. S-18
Certain Federal Income Tax Considerations ................................. S-24
Underwriting .............................................................. S-27
Ratings ................................................................... S-29
Legal Matters ............................................................. S-29
Experts ................................................................... S-29
Incorporation of Certain Information by Reference ......................... S-30
Where You Can Find More Information ....................................... S-30
Forward-Looking Statements ................................................ S-31
Glossary .................................................................. S-32
Index to Consolidated Financial Statements ................................ F-1
Prospectus
Available Information ..................................................... ii
Incorporation of Certain Documents by Reference ........................... ii
The Company ............................................................... 1
Use of Proceeds ........................................................... 1
Ratio of Earnings to Fixed Charges ........................................ 1
Description of Debt Securities ............................................ 2
Description of Shares ..................................................... 11
Description of Preferred Shares ........................................... 11
Description of Depositary Shares .......................................... 17
Description of Warrants ................................................... 20
Limitation of Liability; Shareholder Liability ............................ 20
Redemption; Trustees; Business Combinations and Control Share Acquisitions 21
Plan of Distribution ...................................................... 25
Legal Matters ............................................................. 26
Experts ................................................................... 26
</TABLE>
In this Prospectus Supplement, the term "HPT" includes Hospitality
Properties Trust and its consolidated subsidiaries. Unless otherwise noted, the
information contained in this Prospectus Supplement assumes that the
transactions described below in "Recent Developments--Investments" have been
completed, including the acquisition of the three hotels which we have not yet
acquired. This offering of notes is not contingent on the completion of these
transactions, and we cannot assure you that they will be completed.
In presenting "adjusted" information in this Prospectus Supplement, we
have assumed that the offering has been completed and that we have applied the
net proceeds of the notes as we currently intend. In presenting "adjusted pro
forma" information, we have made the same assumptions and have included the
completed offering of 2.75 million common shares of beneficial interest in
November 1998 and the completed offering of $115 million of senior notes due
2005 in November 1998 and the application of the net proceeds of these
offerings, and have assumed that we have completed all the transactions
described in the Unaudited Adjusted Pro Forma Consolidated Financial Statements
which are included and incorporated by reference in this Prospectus Supplement.
Unless we otherwise state in this Prospectus Supplement, we have assumed
throughout this Prospectus Supplement that the Underwriters' overallotment
option is not exercised.
S-2
<PAGE>
SUMMARY
This summary may not contain all of the information that is important to
you. You should carefully read this entire Prospectus Supplement and the
accompanying Prospectus. You should also read the documents we have referred
you to in "Incorporation of Certain Information by Reference."
THE COMPANY
Hospitality Properties Trust ("HPT") is a real estate investment trust
("REIT") formed to acquire, own and lease hotels. We currently own or have
entered agreements to acquire a total of 167 hotels with 22,367 rooms costing
approximately $1.8 billion. Our business strategy is to invest in high quality
hotels leased to experienced hotel operators for minimum rents which exceed our
cost of capital. The average age of our hotels is six years. We believe that
our hotels are among the newest, best designed and best located hotels in their
respective market segments.
HPT Investments by Hotel Brand
[Tabular Representation of Pie Chart]
Summerfield Suites(R)
15 hotels/1,822 rooms
$240 million .................................. 14%
Residence Inn by Marriott(R)
31 hotels/3,961 suites
$335 million .................................. 19%
Courtyard by Marriott(R)
63 hotels/8,982 rooms
$621 million .................................. 35%
Wyndham(R)
12 hotels/2,321 rooms
$183 million .................................. 10%
Sumner Suites(R)
14 hotels/1,641 suites
$140 million .................................. 8%
Candlewood(R)
32 hotels/3,640 suites
$241 million .................................. 14%
FINANCING POLICIES
Since our initial public offering in 1995, we have been conservatively
capitalized. We believe that our conservative financing policy has enabled us
to access the capital markets on favorable terms and will continue to
facilitate our growth. We have completed common share offerings in each year
since 1995, raising over $1.3 billion in gross proceeds. At December 11, 1998,
our total debt of $303 million constituted 21% of our total capitalization.
The notes have the benefit of financial covenants. The following table
shows the financial ratios contained in these covenants for HPT at September
30, 1998 on a historical basis and on an adjusted pro forma basis. You should
review the Unaudited Adjusted Pro Forma Consolidated Financial Statements and
our historical financial statements in connection with this table. The section
of the Prospectus Supplement titled "Description of the Notes" contains more
information concerning the covenants.
<TABLE>
<CAPTION>
Historical as of Adjusted Pro Forma
Covenant Required Ratio September 30, 1998 at September 30, 1998
-------- -------------- ------------------ ---------------------
<S> <C> <C> <C>
Debt/Adjusted Total Assets ....................... no more than 60% 18% 22%
Secured Debt/Adjusted Total Assets ............... no more than 40% 0% 0%
Consolidated Income Available for
Debt Service/Annual Debt Service ................ at least 1.5x 7.1x 4.8x
Total Unencumbered Assets/Unsecured Debt ......... at least 200% 531% 462%
</TABLE>
S-3
<PAGE>
BUSINESS POLICIES
Our ability to pay debt service depends upon our receipt of rents. We
believe that our lease structure is among the most secure of all hotel REITs.
Our leases are designed to increase our rents during cyclical upturns, secure
our minimum rents during cyclical downturns and generally provide for the
dependability of our cash flow. Important features of our leases include the
following:
Minimum Rent. All of our leases require minimum annual rent equal to at
least 10% of our investment in our hotels.
Percentage Rent. All of our leases require percentage rent equal to
between 5% and 10% of increases in gross hotel revenues over threshold amounts.
Long Term Leases. All of the leases for our hotels expire after 2007. The
average lease term remaining for our hotels is 13 years.
Pooled Leases. Each of our hotels is part of a combination of hotels. The
leases in each combination are subject to cross default with other leases to
the same tenant. The smallest combination includes nine hotels with 1,336 rooms
in which we have invested approximately $129 million; the largest combination
includes 53 hotels with 7,610 rooms in which we have invested approximately
$505 million.
Geographic Diversification. Each combination of hotels leased to a single
tenant is geographically diversified. In addition, many of our hotels are
located in the vicinity of major demand generators such as airports, medical or
educational facilities and large suburban office parks.
All or None Renewals. All renewal options for each combination of hotels
may only be exercised on an all or none basis and not for separate hotels.
Security Deposits. All of our leases require security deposits generally
equal to one year's minimum rent.
FF&E Reserves. All of our leases require the tenants to deposit 5% of
gross hotel revenues into escrow to fund periodic renovations (the "FF&E
Reserve"). For hotels owned throughout the 12 months ended September 30, 1998,
the FF&E Reserve averaged $1,542 per room per year.
Subordinated Fees. All management fees for our hotels are subordinated to
the rent due to us.
Guarantees for New Hotels. When we purchase and lease recently built
hotels, we require that payment of rent be guaranteed until the operations of
the hotels achieve negotiated rent coverage levels. Except for guarantors whose
obligations are investment grade rated, these guarantees are secured.
Rent Coverage. When we purchase hotels which have historical operations,
we set the purchase prices and rents at levels to provide historical as well as
projected rent coverage. During the 12 months ended September 30, 1998, 98
hotels owned by us which had been open at least one year at the beginning of
1998 (comprising four pooled leases) earned cash flow available for rent (after
paying all non-subordinated expenses and after a 5% FF&E Reserve) of 1.66 times
the minimum rent due to us. We believe that this is the highest rent coverage
ratio among all public hotel REITs.
PRINCIPAL PLACE OF BUSINESS
HPT is organized as a Maryland real estate investment trust. Its principal
place of business is 400 Centre Street, Newton, Massachusetts 02458 and its
telephone number is (617) 964-8389.
S-4
<PAGE>
THE OFFERING
The following is a brief summary of certain terms of this offering. For a
more complete description of the terms of the notes (including capitalized
terms), see "Description of the Notes" and "Glossary" in this Prospectus
Supplement and "Description of Debt Securities" in the accompanying Prospectus.
<TABLE>
<S> <C>
Aggregate Principal Amount ..... $150,000,000
Maturity Date .................. The notes will mature on January 15, 2009, unless previously redeemed.
Interest Payment Dates ......... The 15th day of each calendar month beginning on January 15, 1999.
Ranking ........................ The notes are senior obligations of Hospitality Properties Trust. They are
not secured by any of our property or assets, and as a result you will be
one of our unsecured creditors. The notes are not obligations of any of
our Subsidiaries. The notes will rank equally with all of our other
unsecured senior indebtedness, including indebtedness we incur in the
future. However, the notes will be effectively subordinated to any
mortgages and other secured indebtedness we incur, and to all
indebtedness and other liabilities of our Subsidiaries.
Optional Redemption ............ We may not redeem any of the notes prior to December 15, 2002. From
and after December 15, 2002, we may redeem some or all of the notes
from time to time before they mature. The redemption price will equal
the outstanding principal of the notes being redeemed plus accrued
interest. The notes will not have the benefit of a sinking fund.
Use of Proceeds ................ We estimate that our net proceeds from the offering will be
approximately $145.6 million. We intend to use these proceeds to repay
part of our bank borrowings and for general business purposes.
Limitations on Incurrence
of Debt ....................... Various covenants will apply to the notes, including the following:
(1) HPT will not incur Debt if the new Debt
would cause total Debt to be more than 60%
of Adjusted Total Assets.
(2) HPT will not incur Secured Debt if the new
Secured Debt would cause total Secured
Debt to be more than 40% of Adjusted Total
Assets.
(3) HPT will not incur Debt if the new Debt
would cause the ratio of Consolidated
Income Available for Debt Service to
Annual Debt Service for our most recently
completed four fiscal quarters to be less
than 1.5 to 1, determined on a pro forma
basis after giving effect to certain
assumptions.
(4) HPT will maintain Total Unencumbered
Assets of at least 200% of Unsecured Debt.
The capitalized terms used in this
description of certain covenants have
meanings specified in the indenture and
supplemental indenture under which the
notes will be issued. The specific
meanings are described in "Description of
the Notes" and "Glossary" in this
Prospectus Supplement.
</TABLE>
S-5
<PAGE>
SUMMARY HISTORICAL AND ADJUSTED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following table contains certain summary financial information with
respect to HPT. This information is derived from our audited and unaudited
financial statements and the Unaudited Adjusted Pro Forma Financial Statements
which are included or incorporated by reference in this Prospectus Supplement.
Those statements and their footnotes contain more detailed information which
you should read in connection with the following summary information.
<TABLE>
<CAPTION>
Historical Adjusted Pro Forma
---------------------------------------------------------------------------- -----------------------------
February 7,
1995 Nine Months
(inception) to Year Ended Nine Months Ended Year Ended Ended
December 31, December 31, September 30, December 31, September 30,
1995 1996 1997 1997 1998 1997 1998
---------------- ------------- --------------- ------------- --------------- -------------- --------------
(in thousands, except ratios) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Data:
Rental income ........... $19,531 $69,514 $ 98,561 $71,158 $ 113,702 $175,733 $ 131,938
FF&E reserve income ..... 4,037 12,169 14,643 11,138 11,683 14,643 11,683
Interest income ......... 74 946 928 474 1,354 928 1,354
Total revenues ......... 23,642 82,629 114,132 82,770 126,739 191,304 144,975
Net income before
extraordinary loss .... 11,349 51,664 59,153 44,853 64,336 87,048 64,638
Dividends declared ...... 11,486 62,841 73,408 48,915 82,672
Balance Sheet Data
(at end of period):
Real estate properties,
net ................... $326,752 $816,469 $1,207,868 $957,994 $1,646,891 $1,718,632
Total assets ............ 338,947 871,603 1,313,256 992,780 1,672,929 1,832,390
Total borrowings ........ -- 125,000 125,000 229,000 331,746 414,746
Total shareholders'
equity ................ 297,951 645,208 1,007,893 658,464 1,139,750 1,209,073
Other Data:
Consolidated Income
Available for
Debt Service (1) ...... $ 18,195 $65,539 $ 91,993 $66,845 $ 107,448 $165,215 $ 124,758
Ratio of earnings to
fixed charges (2) ..... 3.2x 10.2x 4.8x 5.2x 5.2x 3.5x 3.5x
</TABLE>
- -----------
(1) As defined under "Glossary."
(2) These ratios were computed by dividing HPT's earnings by fixed charges. For
this purpose, earnings have been calculated by adding fixed charges to
income before income taxes and extraordinary items. Fixed charges consist
of interest costs including amortization of deferred financing costs.
S-6
<PAGE>
RECENT DEVELOPMENTS
From January 1, 1998 through the date hereof, we have engaged in the
following significant activities.
Investments
Closed Acquisitions for $508 Million. Since January 1998, we have
purchased 45 hotels (5,440 rooms/suites) for $508 million.
o 15 Summerfield Suites[RegTM] hotels (1,822 rooms/suites) for $240 million.
These hotels are leased on a combined basis to a subsidiary of Summerfield
Hotel Corporation. Summerfield is a 100% owned subsidiary of Patriot
American Hospitality, Inc. ("Patriot"), a publicly owned company listed on
the NYSE. This lease has an initial term ending in 2015. Under the lease
we are entitled to receive minimum rent of $25 million per year plus
percentage rent based upon increases in total sales at these hotels.
o 24 Candlewood[RegTM] hotels (2,696 rooms/suites) for $177 million. We have
agreed to purchase two combinations of Candlewood hotels. Each combination
of Candlewood hotels is leased to a subsidiary of Candlewood Hotel
Corporation ("Candlewood"), a publicly held company listed on Nasdaq. The
first purchase agreement involved our buying 15 hotels for $100 million.
We purchased five of these 15 hotels during 1997 and we purchased the
remaining 10 hotels between January and April 1998. The lease for the
first combination expires in 2011. The second purchase agreement, entered
into in May 1998, involved our buying 17 hotels for $141 million. As of
December 4, 1998, we have acquired 14 of these 17 hotels. The lease for
the second combination expires in 2011. Under both leases we are entitled
to receive annual minimum rents equal to 10% of the hotel purchase prices
plus percentage rent based upon increases in total sales at these hotels.
o Two Residence Inn by Marriott[RegTM] and Four Courtyard by Marriott[RegTM]
hotels (922 rooms/ suites) for $91 million. We currently own four
combinations of Marriott hotels. We purchased three of these combinations
involving 28 Residence Inn by Marriott[RegTM] and 57 Courtyard by
Marriott[RegTM] hotels in 1995, 1996 and 1997. All of our Marriott hotels
are leased to or managed by subsidiaries of Marriott International Inc.
("Marriott"), a publicly owned company listed on the NYSE. We entered into
an agreement to purchase the fourth combination of Marriott hotels (six
Residence Inn by Marriott[RegTM] and three Courtyard by Marriott[RegTM]
hotels) in 1997. We have now acquired all nine hotels in this fourth
combination. The lease term for this fourth combination of Marriott hotels
is through 2012. Under the leases for these hotels we are entitled to
receive annual minimum rent equal to 10% of our purchase price plus
percentage rent based upon increases in total sales at these hotels.
Committed Acquisitions for $29 Million. We have entered into agreements,
described above, to acquire an additional three Candlewood[RegTM] hotels (388
rooms/suites) for $29 million. When we acquire these hotels, we will add them
to the combination leases described above. We expect to buy two of these hotels
during 1998 and the remaining hotel in early 1999.
Other Investment Activities. In the normal course of our business, we
regularly evaluate opportunities to acquire and lease hotels. We currently have
several such investment opportunities under consideration. However, other than
the transactions described above, none of these investment opportunities has
matured to the point where we have entered into a purchase agreement. We may
agree to acquire and lease additional hotels involving material amounts before
the end of 1998.
S-7
<PAGE>
Financing
Investment Grade Ratings. In February 1998, HPT became the first and is
today the only hotel REIT to have its senior unsecured debt rated investment
grade by Moody's Investors Service (Baa3) and Standard and Poor's (BBB-).
$150 Million of Unsecured Notes. During February 1998, we issued $150
million of unsecured 7% Senior Notes which mature in February 2008.
$115 Million of Unsecured Monthly Income Senior Notes. During November
1998, we issued $115 million of unsecured 8-1/4% Monthly Income Senior Notes
which mature in November 2005.
Prepayment of All Secured Debt. At the end of 1997, certain of our
properties were encumbered by $125 million of mortgage debt and our revolving
credit facility was secured by mortgages on other properties. In February 1998,
we prepaid all of our secured obligations, and we now have no secured debt
outstanding.
Expanded Revolving Credit Facility. In June 1998, we closed a $300 million
unsecured, four-year, revolving credit facility with a syndicate of 14 banks
(the "Credit Facility"). The Credit Facility is priced at a spread over LIBOR
and expires in 2002.
$208 Million of Common Equity. During February and April 1998, we sold 3.9
million common shares of beneficial interest in offerings to five unit
investment trusts sponsored by certain investment banks. These offerings raised
a total of $135 million of gross proceeds ($128 million net after underwriters'
discounts). During November 1998, we sold 2.75 million common shares of
beneficial interest, raising $73 million of gross proceeds ($70 million net
after underwriter's discount).
S-8
<PAGE>
CAPITALIZATION
The following table sets forth HPT's capitalization as of September 30,
1998, adjusted assuming completion of this offering of the notes, and adjusted
pro forma assuming completion of this offering and consummation of the
transactions described in the Unaudited Adjusted Pro Forma Consolidated
Financial Statements, including the offerings of 2.75 million common shares of
beneficial interest and $115 million of senior notes due 2005 completed in
November 1998.
<TABLE>
<CAPTION>
As of September 30, 1998
-----------------------------------------------
Adjusted
Actual Adjusted Pro Forma
------------- -------------- --------------
(in thousands)
<S> <C> <C> <C>
Debt:
Credit Facility .................................... $ 182,000 $ 36,000 $ --
Senior notes due 2005 and 2008, net of
discount ......................................... 149,746 149,746 264,746
8-1/2% Monthly Income Senior Notes due 2009 ......... -- 150,000 150,000
---------- ---------- ----------
Total debt(1) ................................... 331,746 335,746 414,746
Shareholders' equity:
Preferred shares, no par value
100,000,000 authorized, none issued .............. -- -- --
Common shares, par value $0.01 per share
100,000,000 authorized, 42,845,539 issued
and adjusted and 45,595,539 adjusted
pro forma ........................................ 428 428 456
Additional paid-in capital ......................... 1,161,567 1,161,567 1,230,862
Cumulative net income .............................. 179,883 179,883 179,883
Dividends (paid or declared) ....................... (202,128) (202,128) (202,128)
---------- ---------- ----------
Total shareholders' equity ...................... 1,139,750 1,139,750 1,209,073
---------- ---------- ----------
Total capitalization ................................ $1,471,496 $1,475,496 $1,623,819
========== ========== ==========
</TABLE>
- ------------
(1) Excludes our obligation to refund security deposits upon lease expirations
and to refund guaranty deposits when the operating performance of the
related hotels reaches negotiated rent coverage levels.
USE OF PROCEEDS
We estimate that the net proceeds of this offering of the notes will be
approximately $145.6 million. We expect to use the net proceeds of this
offering to repay a portion of amounts outstanding under the Credit Facility,
for acquisitions of additional hotels and for general business purposes. The
Credit Facility bears interest at LIBOR plus a spread and matures on March 19,
2002. At September 30, 1998, the effective interest rate on the Credit Facility
was 6.7579% per annum. Until we use the proceeds of this offering, they will be
deposited in interest-bearing accounts or invested in short-term securities,
including securities which may not be investment grade rated.
S-9
<PAGE>
THE COMPANY
HPT is a REIT which acquires, owns and leases hotels to unaffiliated hotel
operators. One of our principal business objectives is to ensure stability of
cash flow from dependable and diverse revenue sources. To achieve this
objective, we seek to operate as follows: maintain a strong base of
shareholders' equity; invest in high quality properties operated by
unaffiliated hotel operating companies; use moderate debt leverage to fund
additional investments; design leases which require minimum rents which provide
positive spreads over our cost of investment capital; when market conditions
permit, refinance debt with additional equity or long term debt; and pursue
diversification so that we receive our rents from diverse properties and
operators.
Most other public hotel REITs seek to control the operations of hotels in
which they invest by leasing their properties to affiliated tenants. These
other hotel REITs generally design their affiliated leases to capture
substantially all net operating revenues from their hotels as cash available
for distribution ("CAD"). Our leases are designed so that net operating
revenues from our hotels may exceed our rents by considerable coverage margins.
S-10
<PAGE>
Hotels
Upon completion of the acquisitions described in "Recent
Developments--Investments", we will have investments totaling $1.8 billion in
167 hotels, with 22,367 rooms, located in 35 states.
Location of HPT Hotels
[Map of U.S. with shaded states indicating location of HPT Hotels]
<TABLE>
<CAPTION>
No. of No. of Investment
State Hotels Rooms (in thousands)
----- ------ ------ --------------
<S> <C> <C> <C>
Alabama ................... 4 463 $ 32,714
Arizona ................... 13 1,791 113,340
California ................ 19 2,584 233,909
Colorado .................. 2 252 14,520
Delaware .................. 1 152 12,100
Florida ................... 8 1,040 100,762
Georgia ................... 13 1,683 127,767
Illinois .................. 4 626 50,151
Indiana ................... 2 271 18,523
Iowa ...................... 2 206 14,200
Kansas .................... 2 188 9,962
Kentucky .................. 1 77 4,980
Louisiana ................. 1 231 27,663
Maryland .................. 4 526 44,851
Massachusetts ............. 9 1,206 81,100
Michigan .................. 4 524 29,530
Minnesota ................. 2 358 18,086
Missouri .................. 3 404 25,530
Nebraska .................. 1 131 6,279
Nevada .................... 1 120 9,093
New Jersey ................ 7 946 96,909
New Mexico ................ 3 359 31,933
New York .................. 3 403 28,500
North Carolina ............ 6 779 49,584
Ohio ...................... 3 308 24,714
Oklahoma .................. 1 122 10,414
Pennsylvania .............. 9 1,154 96,033
Rhode Island .............. 1 148 10,200
South Carolina ............ 1 108 5,800
Tennessee ................. 5 622 47,054
Texas ..................... 17 2,267 177,236
Utah ...................... 3 601 61,709
Virginia .................. 8 1,048 92,584
Washington ................ 3 522 43,529
Wisconsin ................. 1 147 8,500
--- ------- ----------
Total (35 states) ......... 167 22,367 $1,759,759
=== ========= ==========
</TABLE>
S-11
<PAGE>
The purchase of the remaining three hotels that we have agreed to acquire
is subject to the satisfaction of a number of conditions, including completion
of construction by the sellers. If these conditions are not satisfied, we may
not acquire one or more of these hotels.
We believe that our portfolio of hotels is among the newest of publicly
owned hotel REITs. The average age of our hotels is six years.
Courtyard by Marriott[RegTM] hotels are designed to attract both business
and leisure travelers. A typical Courtyard by Marriott[RegTM] hotel has 145
guest rooms. The guest rooms are larger than those in most other moderately
priced hotels and predominately offer king size beds. Most Courtyard by
Marriott[RegTM] hotels are situated on well landscaped grounds and typically
are built with a courtyard containing a patio, pool and socializing area that
may be glass enclosed depending upon location. Most of these hotels have
lounges or lobbies, meeting rooms, an exercise room, a small laundry room
available to guests and a restaurant or coffee shop. Generally, the guest rooms
are similar in size and furnishings to guest rooms in full service
Marriott[RegTM] hotels. In addition, many of the same amenities as would be
available in full service Marriott[RegTM] hotels are available in Courtyard by
Marriott[RegTM] hotels, except that restaurants may be open only for breakfast
buffets or serve limited menus, room service may not be available and meeting
and function rooms are limited in size and number. According to Marriott, as of
September 1998, 382 Courtyard by Marriott[RegTM] hotels were open and operating
nationally. We believe that the Courtyard by Marriott[RegTM] brand is a leading
brand in the mid-priced segment of the United States hotel industry.
We have invested or agreed to invest a total of $621 million in 63
Courtyard by Marriott[RegTM] hotels which have 8,982 rooms. For the 12 months
ended September 11, 1998, the average daily rate ("ADR"), occupancy and revenue
per available room ("REVPAR") for our 53 Courtyard by Marriott[RegTM] hotels
which were open for a full year as of January 1, 1998 were as follows:
HPT COURTYARD BY MARRIOTT[RegTM] HOTELS
---------------------------------------
ADR ................. $89.50
Occupancy ........... 80.2%
REVPAR .............. $71.78
Residence Inn by Marriott[RegTM] hotels are designed to attract business,
governmental and family travelers who stay more than five consecutive nights.
Residence Inn by Marriott[RegTM] hotels generally have between 80 and 130
studio, one bedroom and two-bedroom suites. Most Residence Inn by
Marriott[RegTM] hotels are designed as residential style buildings with
landscaped walkways, courtyards and recreational areas. Residence Inn by
Marriott[RegTM] hotels do not have restaurants. All offer complimentary
continental breakfast and complimentary evening hospitality hour. In addition,
each suite contains a fully equipped kitchen and many have fireplaces. Most
Residence Inn by Marriott[RegTM] hotels also have swimming pools, exercise
rooms, sports courts and guest laundries. According to Marriott, as of
September 1998, 277 Residence Inn by Marriott[RegTM] hotels were open and
operating nationally. We believe that the Residence Inn by Marriott[RegTM]
brand is the leading brand in the extended stay segment of the United States
hotel industry.
We have invested or agreed to invest a total of $335 million in 31
Residence Inn by Marriott[RegTM] hotels which have 3,961 suites. For the 12
months ended September 11, 1998, the ADR, occupancy and REVPAR for our 18
Residence Inn by Marriott[RegTM] hotels which were open for a full year as of
January 1, 1998 were as follows:
HPT RESIDENCE INN BY MARRIOTT[RegTM] HOTELS
-------------------------------------------
ADR ................. $102.36
Occupancy ........... 83.6%
REVPAR .............. $85.57
S-12
<PAGE>
Wyndham[RegTM] Hotels. Eleven of our Wyndham[RegTM] hotels are Wyndham
Garden[RegTM] hotels. Wyndham Garden[RegTM] hotels are mid-sized, full service
hotels located primarily near suburban business centers and airports, and are
designed to attract business travelers and small business groups. Each hotel
contains 140 to 250 rooms and approximately 1,500 to 5,000 square feet of
meeting space. Amenities and services include desks large enough to accommodate
personal computers, room service and access to 24-hour telecopy and
mail/package service. The meeting facilities at Wyndham Garden[RegTM] hotels
generally can accommodate groups of between 10 and 200 people and include a
flexible meeting room design and audiovisual equipment. Wyndham Garden[RegTM]
hotels also feature a lobby lounge, most of which have a fireplace, a library
typically overlooking a landscaped garden and a swimming pool. In addition,
many Wyndham Garden[RegTM] hotels contain a whirlpool and an exercise facility.
Each Wyndham Garden[RegTM] hotel contains a cafe restaurant which serves a full
breakfast, lunch and dinner menu. We believe that the Wyndham Garden[RegTM]
brand is one of the leading brands in the full service segment of the United
States hotel industry. The one additional Wyndham[RegTM] hotel owned by us is a
full service hotel located in downtown Salt Lake City adjacent to the Salt Lake
City Salt Palace Convention Center. This hotel includes 381 rooms, 14,469
square feet of meeting space and two restaurants/lounges and was renovated
recently at a cost in excess of $3.5 million. We believe this hotel is a
leading convention hotel in Salt Lake City.
The 12 Wyndham and Wyndham Garden[RegTM] hotels owned by us represent a
total investment of $183 million and contain 2,321 rooms. All 12 of our Wyndham
hotels are leased on a combined basis to a subsidiary of Wyndham International,
Inc. ("Wyndham") which is an affiliate of Patriot. For the 12 months ended
September 30, 1998, these hotels had ADR, occupancy and REVPAR as follows:
HPT WYNDHAM[RegTM] HOTELS
-------------------------
ADR ................. $95.44
Occupancy ........... 74.3%
REVPAR .............. $70.91
Summerfield Suites[RegTM] hotels are upscale, all suite extended stay
hotels which offer guests separate living and sleeping areas, full kitchens,
large work areas, a complimentary breakfast and an evening social hour. Private
voice mail, video players, on site convenience stores and "room service"
contracted from area restaurants also are generally available. In addition,
Summerfield Suites[RegTM] offers "signature" two bedroom, two bathroom suites
designed for equal-status business travelers in training classes or attending
meetings and for families on weekends.
The 15 Summerfield Suites[RegTM] hotels owned by us represent a total
investment of $240 million and contain 1,822 suites (2,766 rooms). For the 12
months ended September 30, 1998, these hotels had ADR, occupancy and REVPAR as
follows:
HPT SUMMERFIELD SUITES[RegTM] HOTELS
------------------------------------
ADR ................. $120.14
Occupancy ........... 81.0%
REVPAR .............. $ 97.31
Sumner Suites[RegTM] hotels are all suite hotels that cater to
value-oriented business travelers. Sumner Suites[RegTM] hotels compete in the
all suite segment of the lodging industry against such brands as Embassy
Suites[RegTM], Hampton Inns and Suites[RegTM] and AmeriSuites[RegTM]. Each
Sumner Suites[RegTM] guest room offers an efficient space for working which
includes two phones with data ports and voice mail, a living area which
includes a coffee maker, microwave, mini-refrigerator, sleeper-sofa and 25-inch
television, and a separate bedroom area with either one king or two double
beds. Each Sumner Suites[RegTM] hotel has an attractive lobby lounge where free
continental breakfast is provided in the
S-13
<PAGE>
mornings and cocktails are generally available in the evening. In addition, all
Sumner Suites[RegTM] hotels have meeting rooms that can accommodate up to 150
persons, fitness facilities and a pool. Sumner Suites[RegTM] hotels are
generally high-rise hotels of six or seven stories and are of masonry
construction.
We have invested $140 million in our 14 Sumner Suites[RegTM] hotels which
include 1,641 guest suites. All of our Sumner Suites hotels are leased on a
combined basis to one subsidiary of Sholodge Inc. ("Sholodge"), a publicly
owned company listed on Nasdaq. Twelve of these hotels were built and opened
between April 1996 and August 1997, one of these hotels opened in late 1995 and
one recently re-flagged hotel is currently undergoing extensive renovations. We
believe that the current performance of our Sumner Suites[RegTM] hotels is not
indicative of their operating potential because of their recent development or
renovation. For the 12 months ended October 4, 1998, the ADR, occupancy and
REVPAR for all 14 of these Summer Suites[RegTM] hotels were $76.12, 60.1% and
$45.75, respectively.
Candlewood[RegTM] Hotels are extended stay hotels which offer studio and
one bedroom suites that cater to business travelers expecting to stay five or
more days. Candlewood[RegTM] hotels compete in the mid-priced extended stay
segment of the lodging industry against such other brands as Sierra
Suites[RegTM], TownePlace Suites by Marriott[RegTM] and MainStay Suites[RegTM].
Each Candlewood[RegTM] suite contains a fully equipped kitchen area, a
combination living and work area and a sleeping area. The kitchen includes a
full-size microwave, full-size refrigerator, stove, dishwasher and coffee
maker. The living area contains a convertible sofa, recliner, 25-inch
television, videocassette player and compact disc player. The work area
includes an oversized desk and executive chair, two phone lines, voice mail and
a speaker phone. Each Candlewood[RegTM] suite contains a king size bed. Other
amenities offered at each Candlewood[RegTM] hotel include a fitness center,
free guest laundry facilities, and a Candlewood Cupboard[RegTM] area where
guests can purchase light meals, snacks and other refreshments. We believe that
Candlewood[RegTM] will become one of the leading brands in the mid-priced,
extended stay segment of the United States hotel industry.
We have invested or agreed to invest $241 million to acquire 32
Candlewood[RegTM] hotels which include 3,640 suites. One of these hotels was
opened in May 1996, 14 were opened in 1997 and 17 were opened or are expected
to be opened during 1998. We believe that the current performance of the
Candlewood[RegTM] hotels is not indicative of their operating potential because
of their recent development. However, for the 14 HPT-owned Candlewood[RegTM]
hotels acquired by us which were open prior to January 1, 1998 (including nine
opened less than nine months), ADR, occupancy and REVPAR for the nine months
ended September 30, 1998 were $54.88, 72.6% and $39.84, respectively.
S-14
<PAGE>
Leases
Our 167 hotels are grouped into nine combinations which are leased to
separate affiliates of publicly owned hotel companies. The following chart
summarizes important features of our leases, including leases to be entered
into as described in "Recent Developments--Investments."
<TABLE>
<CAPTION>
Residence Courtyard by
Inn by Marriott[RegTM]
Marriott[RegTM] (6 hotels)
(10 hotels) and
Residence and Residence
Courtyard by Inn by Courtyard by Inn by
Marriott[RegTM] Marriott[RegTM] Marriott[RegTM] Marriott[RegTM]
(53 hotels) (18 hotels) (4 hotels) (3 hotels)
--------------- --------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Number of states 24 14 7 8
- ------------------------------------------------------------------------------------------------
Dollars invested $505.4 million $172.2 million $148.8 million $129.3 million
- ------------------------------------------------------------------------------------------------
Tenant subsidiary of subsidiary of subsidiary of subsidiary of
Host Marriott Host Marriott Marriott Marriott
Corp. Corp.
- ------------------------------------------------------------------------------------------------
Manager subsidiary of subsidiary of subsidiary of subsidiary of
Marriott Marriott Marriott Marriott
- ------------------------------------------------------------------------------------------------
Minimum rent $50.5 million $17.2 million $14.9 million $12.9 million
per year
- ------------------------------------------------------------------------------------------------
Initial lease term 2012 2010 2014 2012
expiration
- ------------------------------------------------------------------------------------------------
Renewal options all or none all or none all or none all or none
3 for 12 years 1 for 10 years 1 for 12 years 2 for 10 years
2 for 15 years 1 for 10 years
- ------------------------------------------------------------------------------------------------
Security deposit $50.5 million $17.2 million $14.9 million $12.9 million
- ------------------------------------------------------------------------------------------------
FF&E Reserves $1,453/room $1,641/suite n/a (new n/a (new
for 12 months construction) construction)
ended
September 30,
1998
- ------------------------------------------------------------------------------------------------
Cross defaults yes yes yes yes
within
each group
- ------------------------------------------------------------------------------------------------
Management subordinated subordinated subordinated subordinated
fees
- ------------------------------------------------------------------------------------------------
Rent coverage: 1.80x 1.82x n/a (new n/a (new
12 months ended construction) construction)
September 30,
1998 (hotel
operating results
after FF&E
Reserves and all
non-subordinated
charges)
- ------------------------------------------------------------------------------------------------
Other security -- -- Marriott has Marriott has
provided provided
a limited a limited
guarantee guarantee
until cash until cash
flow reaches flow reaches
a negotiated a negotiated
rent coverage rent coverage
ratio ratio
<CAPTION>
Sumner Summerfield
Wyndham[RegTM] Suites[RegTM] Candlewood[RegTM] Suites[RegTM] Candlewood[RegTM]
(12 hotels) (14 hotels) (15 hotels) (15 hotels) (17 hotels)
-------------- ------------- ----------------- ------------- ------------------
<S> <C> <C> <C> <C> <C>
Number of states 8 8 13 8 13
- ---------------------------------------------------------------------------------------------------------------------
Dollars invested $182.6 million $140.0 million $100.0 million $240.0 million $141.4 million
- ---------------------------------------------------------------------------------------------------------------------
Tenant subsidiary of subsidiary of subsidiary of subsidiary of subsidiary of
PAH/ ShoLodge Candlewood PAH/ Candlewood
Wyndham Wyndham
- ---------------------------------------------------------------------------------------------------------------------
Manager subsidiary of subsidiary of subsidiary of subsidiary of subsidiary of
PAH/ ShoLodge Candlewood PAH/ Candlewood
Wyndham Wyndham
- ---------------------------------------------------------------------------------------------------------------------
Minimum rent $18.3 million $14.0 million $10.0 million $25.0 million $14.1 million
per year
- ---------------------------------------------------------------------------------------------------------------------
Initial lease term 2012 2008 2011 2015 2011
expiration
- ---------------------------------------------------------------------------------------------------------------------
Renewal options all or none all or none all or none all or none all or none
4 for 12 years 5 for 10 years 3 for 15 years 4 for 12 years 3 for 15 years
- ---------------------------------------------------------------------------------------------------------------------
Security deposit $18.3 million $14.0 million $10.0 million $15.0 million $14.1 million
- ---------------------------------------------------------------------------------------------------------------------
FF&E Reserves $1,740/room n/a (new n/a (new $1,953/room n/a (new
for 12 months construction) construction) (pro forma construction)
ended assuming
September 30, purchase and
1998 lease
consummated
October 1, 1997)
- ---------------------------------------------------------------------------------------------------------------------
Cross defaults yes yes yes yes yes
within
each group
- ---------------------------------------------------------------------------------------------------------------------
Management subordinated subordinated subordinated subordinated subordinated
fees
- ---------------------------------------------------------------------------------------------------------------------
Rent coverage: 11 Wyndham n/a (new n/a (new 1.34x n/a (new
12 months ended Garden[RegTM] construction) construction) (pro forma construction)
September 30, hotels cover assuming
1998 (hotel 1.74x purchase and
operating results lease
after FF&E consummated
Reserves and all October 1, 1997)
non-subordinated
charges)
- ---------------------------------------------------------------------------------------------------------------------
Other security for the ShoLodge Candlewood -- Candlewood
Salt Lake has provided has provided has provided
City hotel, a secured a secured a secured
Wyndham limited limited limited
has provided guarantee guarantee guarantee
a secured until cash until until
limited flow reaches cash flow cash flow
guarantee a negotiated reaches a reaches a
until cash rent coverage negotiated negotiated
flow reaches ratio rent coverage coverage
a negotiated ratio ratio
rent coverage
ratio
</TABLE>
S-15
<PAGE>
MANAGEMENT
The Trustees and executive officers of HPT are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Barry M. Portnoy ................ 53 Managing Trustee
Gerard M. Martin ................ 64 Managing Trustee
John G. Murray .................. 38 President, Chief Operating Officer and Secretary
Thomas M. O'Brien ............... 32 Treasurer and Chief Financial Officer
John L. Harrington .............. 62 Independent Trustee
William J. Sheehan .............. 54 Independent Trustee
Arthur G. Koumantzelis .......... 68 Independent Trustee
</TABLE>
Barry M. Portnoy is a Managing Trustee of HPT and has been since its
initial public offering in 1995. Mr. Portnoy is also a Managing Trustee of HRPT
Properties Trust, a NYSE listed REIT, and a 50% owner and Director of REIT
Management & Research, Inc. Mr. Portnoy has been actively involved in real
estate and real estate finance activities for approximately 20 years. Mr.
Portnoy is an attorney and was a partner of the law firm of Sullivan &
Worcester LLP, Boston, Massachusetts from 1978 through March 31, 1997, where he
served as Chairman from 1994 through March 1997.
Gerard M. Martin is a Managing Trustee of HPT and has been since its
initial public offering in 1995. Mr. Martin is also a Managing Trustee of HRPT
Properties Trust and a 50% owner and Director of REIT Management & Research,
Inc. Mr. Martin has been active in the real estate industry for approximately
30 years.
John G. Murray is President, Chief Operating Officer and Secretary of HPT.
Mr. Murray is also an Executive Vice President of REIT Management & Research,
Inc. Mr. Murray served in various capacities for HRPT Properties Trust from
1993 through August 1995. Prior to joining HRPT Properties Trust in 1993, Mr.
Murray was Director of Finance, Business Analysis and Planning at Fidelity
Brokerage Services, Inc. from 1992 to 1993.
Thomas M. O'Brien is the Treasurer and Chief Financial Officer of HPT. Mr.
O'Brien is also a Vice President of REIT Management & Research, Inc. Prior to
joining HPT in March 1996, Mr. O'Brien was employed by Arthur Andersen LLP for
eight years. Mr. O'Brien is a certified public accountant.
John L. Harrington is the Chief Executive Officer of the Boston Red Sox
Baseball Club, Executive Director and Trustee of the Yawkey Foundation and a
Trustee of the JRY Trust. Mr. Harrington is also a director of a bank
subsidiary of Fleet Financial Group, Inc. Mr. Harrington was a Trustee of HRPT
Properties Trust from 1991 through August 1995 and has been a Trustee of HPT
since its initial public offering in 1995.
William J. Sheehan has been a Trustee of HPT since its initial public
offering in 1995, and has been the Chief Financial Officer of Ian Schrager
Hotels LLC (formerly Ian Schrager Hotels, Inc.) since May 1995. From 1993
through May 1995, Mr. Sheehan was a self employed consultant on financial and
operating matters to companies in the hotel industry. From 1982 until 1993, he
was employed by Omni Hotels, most recently as Vice Chairman (1992 to 1993) and
President and Chief Executive Officer (1988 to 1992). Mr. Sheehan is a
certified hotel administrator, a Fellow of the Educational Institute of the
American Hotel and Motel Association and has been a speaker at various hotel
industry conferences.
S-16
<PAGE>
Arthur G. Koumantzelis has been a Trustee of HPT since its initial public
offering in 1995, and is President and Chief Executive Officer of Gainesborough
Investments LLC, a private investment company, since June 1998. From 1990 to
1998, Mr. Koumantzelis was Senior Vice President and Chief Financial Officer of
Cumberland Farms, Inc., a private company engaged in the convenience store
business and in the distribution and retail sale of gasoline. Mr. Koumantzelis
was a trustee of HRPT Properties Trust from 1992 through August 1995.
HPT's Declaration of Trust provides that a majority of the Board of
Trustees will be composed of Independent Trustees who are neither affiliated
with HPT's investment advisor nor serve as officers of HPT. Messrs. Harrington,
Sheehan and Koumantzelis are HPT's Independent Trustees. The Board of Trustees
makes all major investments and policy decisions affecting HPT.
REIT Management & Research, Inc. provides management services and
investment advice to HPT pursuant to an investment advisory agreement (the
"Advisory Agreement"). REIT Management & Research, Inc. also acts as an
investment advisor to HRPT Properties Trust and has other business interests.
Messrs. Portnoy and Martin own REIT Management & Research, Inc. Messrs. Portnoy
and Martin and Mr. David J. Hegarty are the directors of REIT Management &
Research, Inc. The officers of REIT Management & Research, Inc. are Mr.
Hegarty, President and Secretary, Mr. Murray, Executive Vice President, John A.
Mannix, Vice President, Mr. O'Brien, Vice President, Ajay Saini, Vice
President, David M. Lepore, Vice President, and John Popeo, Treasurer.
Under the terms of the Advisory Agreement, HPT pays REIT Management &
Research, Inc. an annual advisory fee calculated on the basis of total assets
under management (0.7% of the first $250 million plus 0.5% of additional
assets) and an incentive fee for each year equal to 15% of the annual increase
in CAD per common share multiplied by the weighted average number of common
shares outstanding in each year, but in no event more than $0.02 per common
share multiplied by the weighted average number of common shares outstanding in
each year. The incentive fees earned are paid in common shares.
We do not have any employees or administrative officers separate from REIT
Management & Research, Inc. Employees of REIT Management & Research, Inc.
provide services which might otherwise be provided by employees. Similarly,
REIT Management & Research, Inc. provides office space to us. Although we do
not have significant general and administrative operating expenses in addition
to fees payable under the Advisory Agreement, we are required to pay various
other expenses relating to our activities, including the costs and expenses of
acquiring, owning and disposing of our real estate interests (including taxes,
appraisals, third party diligence, brokerage, audit and legal fees), our cost
of borrowing money and our cost of securities listing, transfer, registration
and compliance with public reporting requirements. Also, we pay the fees and
expenses of our Independent Trustees.
S-17
<PAGE>
DESCRIPTION OF THE NOTES
The following description of the particular terms of the notes supplements
and, to the extent inconsistent with, replaces the description of the general
terms and provisions of debt securities set forth under "Description of Debt
Securities" in the accompanying Prospectus to which reference is hereby made.
We have provided a Glossary at the end of this Prospectus Supplement to define
certain capitalized words used in discussing the terms of the notes.
General
We will issue the notes under an Indenture dated as of February 25, 1998
and a Supplemental Indenture dated as of December 16, 1998 (together, the
"Indenture") between us and State Street Bank and Trust Company, as Trustee.
The Indenture is subject to, and governed by, the Trust Indenture Act of 1939,
as amended. This Prospectus Supplement briefly outlines some of the provisions
of the Indenture. These summaries are not complete. If you would like more
information on these provisions, review the copy of the Indenture that we have
filed with the Securities and Exchange Commission. See "Incorporation of
Certain Information By Reference" in this Prospectus Supplement and "Available
Information" in the accompanying Prospectus for information about how to locate
these documents. You may also review the Indenture at the Trustee's corporate
trust office at Two International Place, Boston, Massachusetts 02110. All
section references appearing below are to sections of the Indenture.
The notes will be a separate series under the Indenture, initially in the
aggregate principal amount of $150,000,000. This series may be "reopened" and
we may from time to time issue additional notes of the same series. The notes
will mature (unless previously redeemed) on January 15, 2009. The notes will be
issued only in fully registered form without coupons, in denominations of
$1,000 and integral multiples thereof. The notes will be evidenced by a global
note in book-entry form, except under the limited circumstances described below
under "--Book Entry System and Form of Notes."
The notes will be senior unsecured obligations of HPT and will rank
equally with each other and with all of our other unsecured and unsubordinated
indebtedness outstanding from time to time. The notes will be effectively
subordinated to our mortgages and other secured indebtedness, and to
indebtedness and other liabilities of our Subsidiaries. Accordingly, such prior
indebtedness will have to be satisfied in full before you will be able to
realize any value from the secured or indirectly held properties.
As of September 30, 1998, on an adjusted pro forma basis after giving
effect to the issuance of the notes and the application of the proceeds from
the sale of the notes, our total outstanding indebtedness (including under the
Credit Facility) was approximately $415 million and the total indebtedness and
other liabilities (excluding certain security deposit obligations and the
obligations to refund guarantee deposits when the operating performance of the
related hotels reaches negotiated rent coverage levels) of our Subsidiaries was
less than $1 million. In addition, our Subsidiaries are guarantors of the
Credit Facility. The Credit Facility is currently an unsecured revolving credit
facility in the amount of $300 million. As of September 30, 1998, we had no
secured indebtedness. We and our Subsidiaries may incur additional
indebtedness, including secured indebtedness, subject to the provisions
described below under "--Certain Covenants--Limitations on Incurrence of Debt."
Except as described under "--Certain Covenants" and "--Merger,
Consolidation or Sale" below and under "Description of Debt Securities--Merger,
Consolidation or Sale" and "--Certain Covenants" in the accompanying
Prospectus, the Indenture does not contain any other provisions that would
limit our ability to incur indebtedness or that would afford you protection in
the event of (1) a highly leveraged or similar transaction involving us or any
of our affiliates, (2) a change of control, or (3) a reorganization,
restructuring, merger or similar transaction involving us that may
S-18
<PAGE>
adversely affect you. In addition, subject to the limitations set forth under
"--Certain Covenants" and "--Merger, Consolidation or Sale" below or under
"Description of Debt Securities--Merger, Consolidation or Sale" and "--Certain
Covenants" in the accompanying Prospectus, we may, in the future, enter into
certain transactions such as the sale of all or substantially all of our assets
or a merger or consolidation that would increase the amount of our indebtedness
or substantially reduce or eliminate our assets, which might have an adverse
effect on our ability to service our indebtedness, including the notes. We have
no present intention of engaging in a highly leveraged or similar transaction.
Interest and Maturity
The notes will bear interest at the rate per annum set forth on the cover
page of this Prospectus Supplement from December 16, 1998 or from the
immediately preceding Interest Payment Date (as defined below) to which
interest has been paid. Interest is payable in arrears on the 15th of each
month (the "Interest Payment Dates"), commencing January 15, 1999, to the
persons in whose names the notes are registered in the security register
applicable to the notes at the close of business on the 1st of each month (the
"Regular Record Dates"), as the case may be, immediately before the Interest
Payment Dates regardless of whether the Regular Record Date is a Business Day.
Accrued interest is also payable on the date of maturity or earlier redemption
of the notes (the "Maturity Date"). Interest on the notes will be computed on
the basis of a 360-day year of twelve 30-day months.
Optional Redemption of the Notes
We may not redeem the notes prior to December 15, 2002. From and after
December 15, 2002, we may redeem some or all of the notes from time to time
before they mature. The redemption price will equal the outstanding principal
of the notes being redeemed plus accrued interest.
We are required to give notice of such a redemption not less than 30 days
nor more than 60 days prior to the redemption date by first class mail to each
holder's address appearing in the securities register maintained by the
Trustee. In the event we elect to redeem less than all of the notes, the
particular notes to be redeemed will be selected by the Trustee by such method
as the Trustee shall deem fair and appropriate.
We are not required to make any sinking fund or redemption payments prior
to the stated maturity of the notes.
Certain Covenants
Limitations on Incurrence of Debt. We will not, and will not permit any
Subsidiary to, incur any Debt if, immediately after giving effect to the
incurrence of such additional Debt and the application of the proceeds thereof,
the aggregate principal amount of all outstanding Debt of HPT and its
Subsidiaries on a consolidated basis determined in accordance with generally
accepted accounting principles ("GAAP") is greater than 60% of the sum
("Adjusted Total Assets") of (without duplication) (1) the Total Assets of HPT
and its Subsidiaries as of the end of the calendar quarter covered in HPT's
Annual Report on Form 10-K, or the Quarterly Report on Form 10-Q, as the case
may be, most recently filed with the SEC (or, if such filing is not permitted
under the Securities Exchange Act of 1934, as amended, with the Trustee) prior
to the incurrence of such additional Debt and (2) the purchase price of any
real estate assets or mortgages receivable acquired, and the amount of any
securities offering proceeds received (to the extent that such proceeds were
not used to acquire real estate assets or mortgages receivable or used to
reduce Debt), by HPT or any Subsidiary since the end of such calendar quarter,
including those proceeds obtained in connection with the incurrence of such
additional Debt.
S-19
<PAGE>
In addition to the above limitations on the incurrence of Debt, we will
not, and will not permit any Subsidiary to, incur any Secured Debt if,
immediately after giving effect to the incurrence of such additional Secured
Debt and the application of the proceeds thereof, the aggregate principal
amount of all outstanding Secured Debt of HPT and its Subsidiaries on a
consolidated basis is greater than 40% of Adjusted Total Assets.
In addition to the above limitations on the incurrence of Debt, we will
not, and will not permit any Subsidiary to, incur any Debt if the ratio of
Consolidated Income Available for Debt Service to the Annual Debt Service for
the four consecutive fiscal quarters most recently ended prior to the date on
which such additional Debt is to be incurred shall have been less than 1.5x, on
a pro forma basis after giving effect thereto and to the application of the
proceeds therefrom, and calculated on the assumption that (1) such Debt and any
other Debt incurred by HPT and its Subsidiaries since the first day of such
four-quarter period and the application of the proceeds therefrom, including to
refinance other Debt, had occurred at the beginning of such period; (2) the
repayment or retirement of any other Debt by HPT and its Subsidiaries since the
first date of such four-quarter period had been repaid or retired at the
beginning of such period (except that, in making such computation, the amount
of Debt under any revolving credit facility shall be computed based upon the
average daily balance of such Debt during such period); (3) in the case of
Acquired Debt or Debt incurred in connection with any acquisition since the
first day of such four-quarter period, the related acquisition had occurred as
of the first day of such period with appropriate adjustments with respect to
such acquisition being included in such pro forma calculation; and (4) in the
case of any acquisition or disposition by HPT or its Subsidiaries of any asset
or group of assets since the first day of such four-quarter period, whether by
merger, stock purchase or sale, or asset purchase or sale, such acquisition or
disposition or any related repayment of Debt had occurred as of the first day
of such period with the appropriate adjustments with respect to such
acquisition or disposition being included in such pro forma calculation. If the
Debt giving rise to the need to make the foregoing calculation or any other
Debt incurred after the first day of the relevant four-quarter period bears
interest at a floating rate then, for purposes of calculating the Annual Debt
Service, the interest rate on such Debt will be computed on a pro forma basis
as if the average interest rate which would have been in effect during the
entire such four-quarter period had been the applicable rate for the entire
such period.
Maintenance of Total Unencumbered Assets. We and our Subsidiaries will at
all times maintain Total Unencumbered Assets of not less than 200% of the
aggregate outstanding principal amount of the Unsecured Debt of HPT and its
Subsidiaries on a consolidated basis.
See "Description of Debt Securities--Certain Covenants" in the
accompanying Prospectus for a description of additional covenants applicable to
us.
Merger, Consolidation or Sale
We may consolidate with, or sell, lease or convey all or substantially all
of our assets to, or merge with or into, any other entity, provided that:
(1) either we are the continuing entity, or the successor entity (if other
than us) formed by or resulting from any such consolidation or merger or
which shall have received the transfer of such assets is an entity
organized and existing under the laws of the United States or any state
thereof and shall expressly assume the due and punctual payment of the
principal of (and premium, if any, on) and any interest on all of the
notes and the due and punctual performance and observance of all of the
covenants and conditions contained in the Indenture to be performed by
us;
S-20
<PAGE>
(2) immediately after giving effect to such transaction and treating any
indebtedness which becomes an obligation of HPT or any Subsidiary as a
result thereof as having been incurred by HPT or such Subsidiary at the
time of such transaction, no event of default under the Indenture, and no
event which after notice or the lapse of time, or both, would become such
an event of default, shall have occurred and be continuing; and
(3) an officers' certificate and legal opinion covering such conditions is
delivered to the Trustee.
Events of Default, Notice and Waiver
The Indenture provides that the following events are "events of default"
with respect to the notes:
(1) default for 30 days in the payment of any installment of interest payable
on any note when due and payable;
(2) default in the payment of the principal of (or premium, if any, on) any
note when due and payable;
(3) default in the performance, or breach, of any covenant of HPT contained
in the Indenture (other than a covenant added to the Indenture solely for
the benefit of a series of debt securities other than the notes), which
continues for 60 days after written notice as provided in the Indenture;
(4) default under any bond, debenture, note, mortgage, indenture or
instrument under which there may be issued or by which there may be
secured or evidenced any indebtedness for money borrowed by HPT (or by
any Subsidiary, the repayment of which HPT has guaranteed or for which
HPT is directly responsible or liable as obligor or guarantor) having an
aggregate principal amount outstanding of at least $20,000,000, whether
such indebtedness now exists or shall hereafter be incurred or created,
which default shall have resulted in such indebtedness becoming or being
declared due and payable prior to the date on which it would otherwise
have become due and payable, without such indebtedness having been
discharged or such acceleration having been rescinded or annulled within
a period of 10 days after written notice to HPT by the Trustee or to HPT
and the Trustee by the holders of at least 25% in principal amount of the
outstanding notes as provided in the Indenture; or
(5) certain events of bankruptcy, insolvency or reorganization, or court
appointment of a receiver, liquidator or trustee of HPT or any
Significant Subsidiary or for all or substantially all of either of their
property.
Upon the acceleration of notes in accordance with the terms of the
Indenture following the occurrence of an event of default, the principal amount
of the notes, plus accrued and unpaid interest thereon will become due and
payable. See "Description of Debt Securities--Events of Default, Notice and
Waiver" in the accompanying Prospectus for a description of rights, remedies
and other matters relating to events of default.
Discharge, Defeasance and Covenant Defeasance
The provisions of the Indenture relating to defeasance and covenant
defeasance described under "Description of Debt Securities--Discharge,
Defeasance and Covenant Defeasance" in the accompanying Prospectus will apply
to the notes.
S-21
<PAGE>
Book-Entry System and Form of Notes
The notes will be issued in the form of a single fully registered global
note without coupons that will be deposited with The Depository Trust Company,
New York, New York, and registered in the name of its nominee, Cede & Co. This
means that we will not issue certificates to each owner of notes. One global
note will be issued to DTC, which will keep a computerized record of its
participants (for example, your broker) whose clients have purchased the notes.
The participant will then keep a record of its clients who purchased the notes.
Unless it is exchanged in whole or in part for a certificated note, the global
note may not be transferred, except that DTC, its nominees, and their
successors may transfer the global note as a whole to one another.
Beneficial interests in the global note will be shown on, and transfers of
the global note will be made only through, records maintained by DTC and its
participants.
DTC has provided us with the following information: DTC is a
limited-purpose trust company organized under the New York Banking Law, a
"banking organization" within the meaning of the New York Banking Law, a member
of the United States Federal Reserve System, a "clearing corporation" within
the meaning of the New York Uniform Commercial Code and a "clearing agency"
registered under the provisions of Section 17A of the Securities Exchange Act
of 1934, as amended. DTC holds securities that its participants ("Direct
Participants") deposit with DTC. DTC also records the settlement among Direct
Participants of securities transactions, such as transfers and pledges, in
deposited securities through computerized records for Direct Participants'
accounts. This eliminates the need to exchange certificates. Direct
Participants include securities brokers and dealers (including the
Underwriters), banks, trust companies, clearing corporations and certain other
organizations.
DTC's book-entry system is also used by other organizations such as
securities brokers and dealers, banks and trust companies that work through a
Direct Participant. The rules that apply to DTC and its Direct Participants are
on file with the SEC.
DTC is owned by a number of its Direct Participants and by the NYSE, The
American Stock Exchange, Inc. and the National Association of Securities
Dealers, Inc.
We expect that, pursuant to procedures established by DTC, ownership of
beneficial interests in the notes evidenced by the global note will be shown
on, and the transfer of that ownership will be effected only through, records
maintained by DTC or its nominee (with respect to beneficial interests of
Direct Participants) and records of Direct Participants (with respect to
beneficial interests of persons who hold through Direct Participants). Neither
we nor the Trustee will have any responsibility or liability for any aspect of
the records of DTC or for maintaining, supervising or reviewing any records of
DTC or any of its Direct Participants relating to beneficial ownership
interests in the notes. The laws of some states require that certain purchasers
of securities take physical delivery of such securities in definitive form.
Such limits and laws may impair your ability to own, pledge or transfer
beneficial interests in the global note.
So long as DTC or its nominee is the registered owner of the global note,
DTC or such nominee, as the case may be, will be considered the sole owner or
holder of the notes represented by the global note for all purposes under the
Indenture. Except as described below, as an owner of a beneficial interest in
notes evidenced by the global note you will not be entitled to have any of the
individual notes represented by such global note registered in your name, you
will not receive or be entitled to receive physical delivery of any such notes
in definitive form and you will not be considered the owner or holder thereof
under the Indenture for any purpose, including with respect to the giving of
any direction, instructions or approvals to the Trustee thereunder.
Accordingly, you must rely on the procedures of DTC and, if you are not a
Direct Participant, on the procedures of the Direct Participant through which
you own your interest, to exercise any rights of a "holder" under the
Indenture. We understand that, under existing industry practice, if we request
any action
S-22
<PAGE>
of holders or if an owner of a beneficial interest in a global note desires to
give or take any action which a holder is entitled to give or take under the
Indenture, DTC would authorize the Direct Participants holding the relevant
beneficial interest to give or take such action, and such Direct Participants
would authorize beneficial owners through such Direct Participants to give or
take such actions or would otherwise act upon the instructions of beneficial
owners holding through them.
Payments of principal of, any premium, if any, and any interest or
additional amount on individual notes represented by a global note registered
in the name of the holder of the global note or its nominee will be made by the
Trustee to or at the direction of the holder of the global note or its nominee,
as the case may be, as the registered owner of the global note under the
Indenture. Under the terms of the Indenture, we and the Trustee may treat the
persons in whose name notes, including a global note, are registered as the
owners thereof for the purpose of receiving such payments. Consequently,
neither we nor the Trustee has or will have any responsibility or liability for
the payment of such amounts to beneficial owners of notes (including principal,
premium, if any, and interest or additional amount).
We believe, however, that it is currently the policy of DTC to immediately
credit the accounts of relevant Direct Participants with such payments in
amounts proportionate to their respective holdings of beneficial interests in
the relevant security as shown on the records of DTC. Payments by Direct
Participants to the beneficial owners of notes will be governed by standing
instructions and customary practice and will be the responsibility of DTC's
Direct Participants. Redemption notices with respect to any notes will be sent
to the holder of the global note (i.e, DTC, its nominee or any subsequent
holder). If less than all of the notes of any series are to be redeemed, we
expect the holder of the global note to determine the amount of interest of
each Direct Participant in the notes to be redeemed by lot. Neither we, the
Trustee, any paying agent nor the security registrar for such notes will have
any responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the global note
for such notes.
Neither we nor the Trustee will be liable for any delay by the holder of a
global note or DTC in identifying the beneficial owners of notes and we and the
Trustee may conclusively rely on, and will be protected in relying on,
instructions from the holder of a global note or DTC for all purposes.
The notes, which are represented by the global note, will be exchangeable
for certificate notes with the same terms in authorized denominations only if:
o DTC notifies us that it is unwilling or unable to continue as depositary
or if DTC ceases to be a clearing agency registered under applicable law
and a successor depositary is not appointed by us within 90 days; or
o we determine not to require all of the notes to be represented by a global
note and notify the Trustee of our decision, in which case we will issue
individual notes in denominations of $1,000 and integral multiples
thereof.
Same-Day Settlement and Payment
The Underwriters will make settlement for the notes in immediately
available funds. We will make all payments of principal and interest in respect
of the notes in immediately available funds.
The notes will trade in DTC's Same-Day Funds Settlement System until
maturity or until the notes are issued in certificated form, and secondary
market trading activity in the notes will therefore be required by DTC to
settle in immediately available funds. We expect that secondary trading in the
certificated securities, if any, will also be settled in immediately available
funds. No assurance can be given as to the effect, if any, of settlement in
immediately available funds on trading activity in the notes.
S-23
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following summary of certain United States Federal income tax
consequences of the purchase, ownership and disposition of the notes is based
upon the Internal Revenue Code of 1986, as amended (the "Tax Code"), United
States treasury regulations, and rulings and decisions now in effect, all of
which are subject to change (including changes in effective dates) or possible
differing interpretations. The following discussion deals only with notes held
as capital assets and does not purport to deal with persons in special tax
situations, such as financial institutions, banks, insurance companies,
regulated investment companies, dealers in securities or currencies, persons
holding notes as a hedge against currency risks or as a position in a
"straddle" for tax purposes, or persons whose functional currency is not the
United States dollar. It also does not deal with holders other than original
purchasers (except where otherwise specifically noted). Before purchasing the
notes, you should consult your own tax advisor concerning the application of
United States Federal income tax laws to your particular situation as well as
any consequences of the purchase, ownership and disposition of the notes
arising under the laws of any other taxing jurisdiction.
"U.S. Holder" means a beneficial owner of a note that is for United States
Federal income tax purposes:
(1) a citizen or resident of the United States,
(2) a corporation or partnership (or other entity treated as a corporation or
partnership for United States Federal income tax purposes) created or
organized in or under the laws of the United States, any State thereof or
the District of Columbia (unless otherwise provided by United States
treasury regulations),
(3) an estate the income of which is subject to United States Federal income
taxation regardless of its source,
(4) a trust if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more United
States persons have the authority to control all substantial decisions of
the trust (or certain electing trusts in existence on August 20, 1996 to
the extent provided in United States treasury regulations), or
(5) any other person whose income or gain in respect of a note is effectively
connected with the conduct of a United States trade or business.
"Non-U.S. Holder" means a beneficial owner of a note that is not a U.S.
Holder.
The Notes
For United States Federal income tax purposes, each note will be treated
as indebtedness issued by HPT.
U.S. Holders
If you are a U.S. Holder:
Payments of Interest. Interest on a note will generally be includible in
your gross income as ordinary interest income at the time such payments are
received or accrued in accordance with your regular method of tax accounting.
Such interest will be treated as U.S. source income for United States Federal
income tax purposes. Purchase price for a note that is allocable to prior
accrued interest may be treated as offsetting a portion of the interest income
from the next scheduled interest payment on the note.
Disposition of a Note. Upon the sale, exchange, redemption, retirement or
other disposition of a note, you generally will recognize taxable gain or loss
in an amount equal to the difference, if any,
S-24
<PAGE>
between the amount realized upon such sale, exchange, redemption, retirement,
or other disposition (other than amounts representing accrued and unpaid
interest which will be taxable as interest income) and your adjusted tax basis
in the note. Such gain or loss generally will be capital gain or loss, and will
be long-term capital gain or loss if you have held the note for more than one
year at the time of disposition; preferential rates of tax may apply to gains
recognized upon the disposition of notes held for more than one year.
Gain or Income Received by a Foreign Corporation. A foreign corporation
whose income or gain in respect of a note is effectively connected with the
conduct of a United States trade or business, in addition to being subject to
regular United States Federal income tax, may be subject to a branch profits
tax equal to 30% of its "effectively connected earnings and profits" within the
meaning of the Tax Code, for the taxable year, as adjusted for certain items,
unless it qualifies for a lower rate under an applicable tax treaty (as
modified by the branch profits tax rules under the Tax Code).
Non-U.S. Holders
If you are a non-U.S. Holder:
General. Generally, you will not be subject to United States Federal
income taxes on payments of principal, premium (if any), or interest on a note,
or on any gain upon disposition or retirement of a note, if (1) you do not own
directly or indirectly 10% or more of the shares of beneficial interest of HPT
and (2) the last United States payor in the chain of payment (the "Withholding
Agent") has received from you in the year in which a payment of interest or
principal occurs, or in either of the two preceding calendar years, a statement
signed by you under penalties of perjury certifying that you are not a U.S.
Holder and providing your name and address. You may make this statement on an
Internal Revenue Service Form W-8 or a substantially similar form, and you must
inform the Withholding Agent of any change in the information on the statement
within 30 days of such change. If you hold a note through a securities clearing
organization or certain other financial institutions, the organization or
institution may provide a signed statement to the Withholding Agent. However,
in such case, the signed statement must be accompanied by a copy of the IRS
Form W-8 or the substitute form you provided to the organization or
institution. Interest received or gain recognized by you which does not qualify
for exemption from taxation will be subject to United States Federal income tax
and withholding tax at a rate of 30% unless reduced or eliminated by applicable
tax treaty.
New Treasury Regulations. United States treasury regulations issued on
October 6, 1997 alter the withholding rules on interest paid to a non-U.S.
Holder of a note. Under subsequent administrative guidance, these new
regulations are generally effective with respect to interest paid after
December 31, 1999. Withholding will generally be excused under these new
regulations if you own (directly or indirectly) less than 10% of the shares of
beneficial interest of HPT and if you execute the necessary IRS Form W-8.
Moreover, under the new regulations, to obtain a reduced rate of withholding
under an income tax treaty, you generally will be required to provide an IRS
Form W-8 certifying your entitlement to benefits under the treaty. The new
regulations also provide special rules to determine whether, for purposes of
determining the applicability of a tax treaty, interest paid to a non-U.S.
Holder that is an entity should be treated as paid to the entity or to those
holding the ownership interests in that entity, and whether such entity or such
holders in the entity are entitled to benefits under the tax treaty. The new
regulations also alter the information reporting and backup withholding rules
applicable to non-U.S. Holders and, among other things, provide certain
presumptions under which a non-U.S. Holder is subject to backup withholding and
information reporting until certification of non-U.S. status is received from
such non-U.S. Holder. The foregoing is not intended to be a complete discussion
of the new regulations, and we urge you to consult your tax advisor regarding
the effect of the new regulations on an investment in the notes.
S-25
<PAGE>
Estate Taxes. The notes will not be includable in your estate unless you
own directly or indirectly 10% or more of the shares of beneficial interest of
HPT or, at the time of your death, payments in respect of the notes would have
been effectively connected with your conduct of a trade or business in the
United States.
Backup Withholding
Backup withholding of United States Federal income tax at a rate of 31%
may apply to payments made in respect of the notes if you are not an "exempt
recipient" and you fail to provide certain identifying information (such as
your taxpayer identification number) in the required manner. Generally,
individuals are not exempt recipients, whereas corporations and certain other
entities generally are exempt recipients. If you are a U.S. Holder, payments
made to you in respect of the notes must be reported to the IRS, unless you are
an exempt recipient or establish an exemption. Compliance with the
identification procedures described in the preceding section would establish an
exemption from backup withholding for you if you are a non-U.S. Holder and are
not an exempt recipient.
In addition, if you sell a note through a broker, the broker must withhold
31% of your entire sales proceeds, unless either (1) the broker determines that
the seller is a corporation or other exempt recipient or (2) you provide, in
the required manner, certain identifying information and, if you are a non-U.S.
Holder, you certify that you are a non-U.S. Holder (and certain other
conditions are met). Such a sale must also be reported by the broker to the
IRS, unless either (1) the broker determines that you are an exempt recipient
or (2) you certify your non-U.S. status (and certain other conditions are met).
Certification of your non-U.S. status if you are a non-U.S. Holder would be
made normally on an IRS Form W-8 under penalties of perjury, although in
certain cases it may be possible to submit other documentary evidence.
Any amounts withheld under the backup withholding rules from a payment to
you would be allowed as a refund or a credit against your United States Federal
income tax provided you furnish the required information to the IRS.
S-26
<PAGE>
UNDERWRITING
Subject to the terms and conditions contained in the underwriting
agreement, we have agreed to sell to Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Salomon Smith Barney Inc., A.G. Edwards & Sons, Inc., Legg Mason
Wood Walker, Incorporated, Morgan Stanley & Co. Incorporated, PaineWebber
Incorporated and Prudential Securities Incorporated (the "Underwriters"), and
the Underwriters have severally agreed to purchase the respective principal
amount of notes set forth opposite their names below. In the underwriting
agreement, the several Underwriters have agreed, subject to the terms and
conditions set forth in the underwriting agreement, to purchase all of the
notes offered in this Prospectus Supplement if any of the notes are purchased.
In the event of a default by an Underwriter, the underwriting agreement
provides that, in certain circumstances, the purchase commitments of the
non-defaulting Underwriters may be increased or the underwriting agreement may
be terminated.
<TABLE>
<CAPTION>
Principal
Underwriter Amount of Notes
----------- ----------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated ..................... $ 21,600,000
Salomon Smith Barney Inc. .................... 21,400,000
A.G. Edwards & Sons, Inc. .................... 21,400,000
Legg Mason Wood Walker, Incorporated ......... 21,400,000
Morgan Stanley & Co. Incorporated ............ 21,400,000
PaineWebber Incorporated ..................... 21,400,000
Prudential Securities Incorporated ........... 21,400,000
------------
Total ............................ $150,000,000
============
</TABLE>
The Underwriters have advised us that they propose initially to offer the
notes to the public at the public offering price set forth on the cover page of
this Prospectus Supplement, and to certain dealers at such price less a
concession not in excess of 2.5% of the principal amount thereof. The
Underwriters may allow, and those dealers may reallow, a discount not in excess
of 2% of the principal amount on sales to certain other dealers. After the
initial public offering, the public offering price and concession may be
changed.
We have granted to the Underwriters an option to purchase additional notes
up to an aggregate amount of $22,500,000, at the public offering price plus
accrued interest, if any, less the underwriting discount shown on the cover
page of this Prospectus Supplement, solely to cover overallotments, if any. The
option may be exercised at any time within 30 days after the date of this
Prospectus Supplement. To the extent that the option is exercised, each
Underwriter will be committed, subject to certain conditions, to purchase
additional notes proportionate to the Underwriter's initial commitment as
indicated in the preceding table.
The following table shows the per note and total underwriting discount to
be paid by us to the Underwriters. This information is presented assuming
either no exercise or full exercise by the Underwriters of their overallotment
option.
<TABLE>
<CAPTION>
Per Note Without Option With Option
-------- -------------- ------------
<S> <C> <C> <C>
Public offering price ...................... 100% $150,000,000 $172,500,000
Underwriting discount ...................... 2.75% $ 4,125,000 $ 4,743,750
Proceeds, before expenses, to HPT .......... 97.25% $145,875,000 $167,756,250
</TABLE>
We estimate that we will spend approximately $4.4 million for printing,
rating agency, trustee, legal, accounting, underwriting discount and other
expenses related to the offering of the notes.
The notes constitute a new issue of securities with no established trading
market. We do not intend to list the notes on any national securities exchange.
No assurance can be given as to whether
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<PAGE>
or not a trading market for the notes will develop or as to the liquidity of
any trading market for the notes which may develop.
Until the distribution of the notes is completed, rules of the SEC may
limit the ability of the Underwriters to bid for and purchase the notes. As an
exception to these rules, the Underwriters are permitted to engage in certain
transactions that stabilize the price of the notes. Such transactions consist
of bids or purchases for the purpose of pegging, fixing or maintaining the
price of the notes.
If the Underwriters create a short position in the notes in connection
with this offering, i.e., they sell more notes than are set forth on the cover
page of this Prospectus Supplement, the Underwriters may reduce that short
position by purchasing notes in the open market.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases.
Neither we nor any of the Underwriters make any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the notes. In addition, neither we nor
any of the Underwriters make any representation that the Underwriters will
engage in such transactions or that such transactions, once commenced, will not
be discontinued without notice.
We have agreed to indemnify the Underwriters against certain liabilities,
including liabilities under the Securities Act of 1933, as amended, or to
contribute to payments the Underwriters may be required to make in respect
thereof.
In the ordinary course of their respective business, the Underwriters and
their affiliates have engaged in, and may in the future engage in, commercial
banking and investment banking transactions with us.
S-28
<PAGE>
RATINGS
This Prospectus Supplement refers to ratings currently assigned to HPT's
unsecured senior long-term debt. A rating assigned to such debt will reflect
the applicable rating agency's assessment of the likelihood that the holders of
such debt will receive the payments of interest and principal required to be
made. The rating will not be a recommendation to purchase, hold, or sell the
notes or any other debt of HPT, and such rating will not comment as to the
marketability of the notes or any other debt of HPT, any market price or
suitability for a particular investor. There is no assurance that any rating
will remain for any given period of time or that any rating will not be lowered
or withdrawn entirely by a rating agency if in such rating agency's judgment
circumstances so warrant. Each rating should be evaluated independently of any
other rating.
LEGAL MATTERS
Sullivan & Worcester LLP, Boston, Massachusetts, our lawyers, have issued
an opinion about the legality of the notes. Brown & Wood LLP, New York, New
York, the Underwriters' lawyers, will also issue an opinion for the
Underwriters. Sullivan & Worcester LLP and Brown & Wood LLP will rely, as to
certain matters of Maryland law, upon an opinion of Ballard Spahr Andrews &
Ingersoll, LLP, Baltimore, Maryland. Barry M. Portnoy was a partner in the firm
of Sullivan & Worcester LLP until March 31, 1997 and is one of our Managing
Trustees. Mr. Portnoy is also a Managing Trustee of HRPT Properties Trust and a
director and 50% owner of REIT Management & Research, Inc., the investment
advisor to HPT. Sullivan & Worcester LLP represents HRPT Properties Trust, REIT
Management & Research, Inc. and certain of their affiliates on various matters.
EXPERTS
In addition to the matters referred to in the accompanying Prospectus
under the caption "Experts," the (i) consolidated financial statements and
related schedule of HPT for the years ended December 31, 1997, 1996 and 1995
appearing in HPT's Current Report on Form 8-K dated February 11, 1998 and (ii)
financial statements of HMH HPT Courtyard, Inc., a significant lessee as of
January 3, 1997 and January 2, 1998 and for the two fiscal years ended January
2, 1998 and the period from March 24, 1995 (inception) to December 29, 1995
appearing in HPT's Annual Report on Form 10-K for the year ended December 31,
1997, and incorporated by reference in this Prospectus Supplement and the
accompanying Prospectus and elsewhere in the related registration statement, as
well as the consolidated financial statements of HPT for the years ended
December 31, 1997, 1996 and 1995 included herein, have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their reports
with respect thereto. Such reports are included or incorporated herein and in
the registration statement by reference in reliance upon the authority of said
firm as experts in giving said reports.
In addition, the combined financial statements of SC Suites Summerfield
Partnerships as of January 2, 1998 and January 3, 1997 and for the years ended
January 2, 1998, January 3, 1997 and December 29, 1995, appearing in HPT's
Current Report on Form 8-K dated April 15, 1998, and incorporated by reference
in this Prospectus Supplement and the accompanying Prospectus and elsewhere in
the related registration statement, have been audited by Ernst & Young LLP,
independent auditors, as indicated in their report with respect thereto. Such
report is incorporated herein and in the registration statement by reference in
reliance on their report given on their authority as experts in auditing and
accounting.
S-29
<PAGE>
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we may disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this Prospectus Supplement, and information that we
subsequently file with the SEC will automatically update and supersede this
information. We incorporate by reference the documents listed below which were
filed with the SEC under the Securities Exchange Act of 1934, as amended
("Exchange Act"):
o Annual Report on Form 10-K for the year ended December 31, 1997;
o Quarterly Reports on Form 10-Q for the quarters ended March 31, 1998, June
30, 1998 and September 30, 1998; and
o Current Reports on Form 8-K dated February 11, 1998, February 12, 1998,
February 13, 1998, February 18, 1998, February 20, 1998, February 24,
1998, April 15, 1998, April 16, 1998, April 21, 1998, October 29, 1998,
November 6, 1998, November 11, 1998, December 4, 1998 and December 11,
1998.
We also incorporate by reference each of the following documents that we
will file with the SEC after the date of this Prospectus Supplement but before
the end of the notes offering:
o Reports filed under Sections 13(a) and (c) of the Exchange Act;
o Definitive proxy or information statements filed under Section 14 of the
Exchange Act in connection with any subsequent stockholders' meeting; and
o Any reports filed under Section 15(d) of the Exchange Act.
You may request a copy of any of the filings (excluding exhibits), at no
cost, by writing or telephoning us at the following address:
Investor Relations
Hospitality Properties Trust
400 Centre Street
Newton, Massachusetts 02458
(617) 964-8389
WHERE YOU CAN FIND MORE INFORMATION
You may read and copy any material that we file with the SEC at the SEC's
Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. You
may obtain information on the operation of the Public Reference Room by calling
the SEC at 1-800-SEC-0330. You may access our electronic filings on the SEC's
Internet site, http://www.sec.gov, which contains reports, proxy and
information statements and other information regarding issuers that file
electronically with the SEC.
S-30
<PAGE>
FORWARD-LOOKING STATEMENTS
This Prospectus Supplement contains forward-looking statements. We have
based these statements on our current expectations or projections about future
events and on assumptions we have made. These forward-looking statements are
subject to certain risks and uncertainties which could cause actual results or
events to differ materially from those we anticipate or project. Prospective
purchasers should not place undue reliance on these forward-looking statements.
We undertake no obligation to update or revise any forward-looking statements
as a result of new information, future events or otherwise.
----------------
You should rely only on the information contained or incorporated by
reference in this Prospectus Supplement or the accompanying Prospectus. We have
not, and the Underwriters have not, authorized any other person to provide you
with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
Underwriters are not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this Prospectus Supplement or the accompanying
Prospectus, as well as information we previously filed with the SEC and
incorporated by reference, is accurate as of the date on the front cover of
this Prospectus Supplement only. Our business, financial condition, results of
operations and prospects may have changed since that date.
----------------
The Declaration of Trust of HPT, amended and restated on August 21, 1995,
a copy of which, together with all amendments thereto, 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 of Trust, as so amended, collectively as trustees, but
not individually or personally, and that no trustee, officer, shareholder,
employee or agent of HPT shall be held to any personal liability, jointly or
severally, for any obligation of, or claim against, HPT. All persons dealing
with HPT, in any way, shall look only to the assets of HPT for the payment of
any sum or the performance of any obligation.
S-31
<PAGE>
GLOSSARY
"Acquired Debt" means Debt of a person or entity (1) existing at the time
such person becomes a Subsidiary or (2) assumed in connection with the
acquisition of assets from such person or entity, in each case, other than Debt
incurred in connection with, or in contemplation of, such person or entity
becoming a Subsidiary or such acquisition. Acquired Debt is deemed to be
incurred on the date of the related acquisition of assets from any person or
entity or the date the acquired entity becomes a Subsidiary.
"Annual Debt Service" as of any date means the maximum amount which is
expensed in any 12-month period for interest on Debt of HPT and its
Subsidiaries.
"Business Day" means any day other than a Saturday or Sunday or a day on
which banking institutions in The City of New York are required or authorized
to close.
"Capital Stock" means, with respect to any entity, any capital stock
(including preferred stock), shares, interests, participation or other
ownership interests (however designated) of such entity and any rights (other
than debt securities convertible into or exchangeable for capital stock),
warrants or options to purchase any thereof.
"Consolidated Income Available for Debt Service" for any period means
Earnings from Operations of HPT and its Subsidiaries plus amounts which have
been deducted, and minus amounts which have been added, for the following
(without duplication): (1) interest on Debt of HPT and its Subsidiaries, (2)
cash reserves made by lessees as required by our leases for periodic
replacement and refurbishment of our assets, (3) provision for taxes of HPT and
its Subsidiaries based on income, (4) amortization of debt discount and
deferred financing costs, (5) provisions for gains and losses on properties and
property depreciation and amortization, (6) the effect of any noncash charge
resulting from a change in accounting principles in determining Earnings from
Operations for such period and (7) amortization of deferred charges.
"Debt" of HPT or any Subsidiary means, without duplication, any
indebtedness of HPT or any Subsidiary, whether or not contingent, in respect of
(1) borrowed money or evidenced by bonds, notes, debentures or similar
instruments,
(2) indebtedness for borrowed money secured by any encumbrance existing on
property owned by HPT or any Subsidiary, to the extent of the lesser of
(x) the amount of indebtedness so secured and (y) the fair market value
of the property subject to such encumbrance,
(3) the reimbursement obligations, contingent or otherwise, in connection
with any letters of credit actually issued (other than letters of credit
issued to provide credit enhancement or support with respect to other
indebtedness of HPT or any Subsidiary otherwise reflected as Debt
hereunder) or amounts representing the balance deferred and unpaid of the
purchase price of any property or services, except any such balance that
constitutes an accrued expense or trade payable, or all conditional sale
obligations or obligations under any title retention agreement,
(4) the principal amount of all obligations of HPT or any Subsidiary with
respect to redemption, repayment or other repurchase of any Disqualified
Stock, or
(5) any lease of property by HPT or any Subsidiary as lessee which is
reflected on HPT's consolidated balance sheet as a capitalized lease in
accordance with GAAP, to the extent, in the case of items of indebtedness
under (1) through (3) above, that any such items (other than letters of
credit) would appear as a liability on HPT's consolidated balance sheet
in accordance with GAAP.
S-32
<PAGE>
Debt also includes, to the extent not otherwise included, any obligation by HPT
or any Subsidiary to be liable for, or to pay, as obligor, guarantor or
otherwise (other than for purposes of collection in the ordinary course of
business), Debt of another Person (other than HPT or any Subsidiary) (it being
understood that Debt shall be deemed to be incurred by HPT or any Subsidiary
whenever HPT or such Subsidiary shall create, assume, guarantee or otherwise
become liable in respect thereof).
"Disqualified Stock" means, with respect to any entity, any Capital Stock
of such entity which by the terms of such Capital Stock (or by the terms of any
security into which it is convertible or for which it is exchangeable or
exercisable), upon the happening of any event or otherwise (1) matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise
(other than Capital Stock which is redeemable solely in exchange for common
stock or shares), (2) is convertible into or exchangeable or exercisable for
Debt or Disqualified Stock, or (3) is redeemable at the option of the holder
thereof, in whole or in part (other than Capital Stock which is redeemable
solely in exchange for common stock or shares), in each case on or prior to the
stated maturity of the notes.
"Earnings from Operations" for any period means net earnings excluding
gains and losses on sales of investments, extraordinary items and property
valuation losses, as reflected in the financial statements of HPT and its
Subsidiaries for such period, determined on a consolidated basis in accordance
with GAAP.
"Secured Debt" means Debt secured by any mortgage, lien, charge, pledge or
security interest of any kind.
"Significant Subsidiary" means any Subsidiary which is a "significant
subsidiary" (within the meaning of Regulation S-X, promulgated by the SEC under
the Securities Act of 1933, as amended) of HPT.
"Subsidiary" means any corporation or other entity of which a majority of
(1) the voting power of the voting equity securities or (2) the outstanding
equity interests of which are owned, directly or indirectly, by HPT or one or
more other Subsidiaries of HPT. For the purposes of this definition, "voting
equity securities" means equity securities having voting power for the election
of directors, whether at all times or only so long as no senior class of
security has such voting power by reason of any contingency.
"Total Assets" as of any date means the sum of (1) the Undepreciated Real
Estate Assets and (2) all other assets of HPT and its Subsidiaries determined
in accordance with GAAP (but excluding accounts receivable and intangibles).
"Total Unencumbered Assets" means the sum of (1) those Undepreciated Real
Estate Assets not subject to an encumbrance for borrowed money and (2) all
other assets of HPT and its Subsidiaries not subject to an encumbrance for
borrowed money determined in accordance with GAAP (but excluding accounts
receivable and intangibles).
"Undepreciated Real Estate Assets" as of any date means the cost (original
cost plus capital improvements) of real estate assets of HPT and its
Subsidiaries on such date, before depreciation and amortization determined on a
consolidated basis in accordance with GAAP.
"Unsecured Debt" means Debt which is not secured by any of the properties
of HPT or any Subsidiary.
S-33
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Unaudited Adjusted Pro Forma Consolidated Financial Statements
Introduction to Unaudited Adjusted Pro Forma Consolidated Financial Statements ... F-2
Unaudited Adjusted Pro Forma Consolidated Balance Sheet as of September 30, 1998 . F-3
Unaudited Adjusted Pro Forma Consolidated Statements of Income for the year ended
December 31, 1997 and for the nine months ended September 30, 1998 ............. F-4
Notes to Unaudited Adjusted Pro Forma Consolidated Financial Statements .......... F-5
Historical Consolidated Financial Statements
Report of Independent Public Accountants ......................................... F-7
Consolidated Balance Sheet as of September 30, 1998 and December 31, 1997 and 1996 F-8
Consolidated Statement of Income for the nine months ended September 30, 1998 and
1997, the years ended December 31, 1997 and 1996 and the period February 7, 1995
(inception) to December 31, 1995 ............................................... F-9
Consolidated Statement of Shareholders' Equity for the nine months ended September
30, 1998, the years ended December 31, 1997 and 1996 and the period February 7,
1995 (inception) to December 31, 1995 .......................................... F-10
Consolidated Statement of Cash Flows for the nine months ended September 30, 1998
and 1997, the years ended December 31, 1997 and 1996 and the period February 7,
1995 (inception) to December 31, 1995 .......................................... F-11
Notes to Consolidated Financial Statements ....................................... F-12
</TABLE>
F-1
<PAGE>
HOSPITALITY PROPERTIES TRUST
INTRODUCTION TO UNAUDITED ADJUSTED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited adjusted pro forma consolidated balance sheet at
September 30, 1998 is intended to present the consolidated financial position
of HPT as if the transactions described in the notes hereto (the
"Transactions") were consummated at September 30, 1998. The following unaudited
adjusted pro forma consolidated statements of income for the year ended
December 31, 1997 and the nine months ended September 30, 1998 are intended to
present the results of operations of HPT as if the Transactions were
consummated as of January 1, 1997. These unaudited adjusted pro forma
consolidated financial statements should be read in conjunction with, and are
qualified in their entirety by reference to, the separate consolidated
financial statements of HPT and of certain hotel properties HPT has acquired
and the pro forma consolidated financial statements of HPT, incorporated herein
by reference to HPT's Current Reports on Form 8-K dated February 11, 1998,
April 15, 1998 and December 11, 1998, HPT's Quarterly Report on Form 10-Q for
its quarter ended September 30, 1998 and HPT's Annual Report on Form 10-K for
its year ended December 31, 1997.
In addition to pro forma adjustments relating to operating hotel
properties acquired during 1997 and 1998, these unaudited adjusted pro forma
consolidated financial statements include adjustments for the results of
certain hotel properties which were under development during 1997 and 1998. See
Notes B and K. HPT believes that presentation of combined pro forma and
adjusted financial data is meaningful and relevant to an understanding of the
effects of the Transactions on HPT. No assurance can be given that these
adjusted pro forma consolidated financial statements reflect the consolidated
financial results which would have been realized if the acquisition and
development of the relevant hotel properties was completed as of December 31,
1997 or January 1, 1997.
These unaudited adjusted pro forma consolidated financial statements are
not necessarily indicative of what the actual consolidated financial position
or results of operations of HPT would have been as of the date or for the
period indicated, nor do they purport to represent the expected consolidated
financial position or results of operations of HPT for any future period.
Differences may result from, among other considerations, future changes in
HPT's portfolio of investments, changes in interest rates, changes in the
capital structure of HPT, delays in the acquisition of certain properties or
any determination not to complete the acquisition of any hotel properties and
changes in operating expenses.
F-2
<PAGE>
HOSPITALITY PROPERTIES TRUST
UNAUDITED ADJUSTED PRO FORMA CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
As of September 30, 1998
------------------------------------------------------
Adjusted
Historical (A) Pro Forma
(159 Hotels) Adjustments (167 Hotels)
(in thousands)
<S> <C> <C> <C>
ASSETS
Real estate properties .................................. $1,744,675 $ 71,741(B) $1,816,416
Accumulated depreciation ................................ (97,784) -- (97,784)
---------- ----------- ----------
1,646,891 71,741 1,718,632
Cash and cash equivalents ............................... 1,421 79,997(C) 81,418
Restricted cash (FF&E Reserve) .......................... 16,588 -- 16,588
Other assets, net ....................................... 8,029 7,723(D) 15,752
---------- ----------- ----------
$1,672,929 $ 159,461 $1,832,390
========== =========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Senior notes due 2005 and 2008, net of discount ......... $ 149,746 $ 115,000(E) $ 264,746
8-1/2% Monthly Income Senior Notes due 2009 ............. -- 150,000(F) 150,000
Revolving debt .......................................... 182,000 (182,000)(G) --
Security and other deposits ............................. 191,250 7,138(H) 198,388
Other liabilities ....................................... 10,183 -- 10,183
Shareholders' equity:
Common shares of beneficial interest ................... 428 28(I) 456
Additional paid-in capital ............................. 1,161,567 69,295(I) 1,230,862
Cumulative net income .................................. 179,883 -- 179,883
Dividends .............................................. (202,128) -- (202,128)
---------- ----------- ----------
Total shareholders' equity ............................ 1,139,750 69,323 1,209,073
---------- ----------- ----------
$1,672,929 $ 159,461 $1,832,390
========== =========== ==========
</TABLE>
F-3
<PAGE>
HOSPITALITY PROPERTIES TRUST
UNAUDITED ADJUSTED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31, 1997
--------------------------------------------------
Adjusted
Pro Forma
Historical(J) Adjustments (167 Hotels)
(in thousands, except per share data)
<S> <C> <C> <C>
Revenues:
Rental income ............................................... $ 98,561 $ 77,172(K) $ 175,733
FF&E reserve income ......................................... 14,643 --(L) 14,643
Interest income ............................................. 928 -- 928
--------- --------- ---------
Total revenues ......................................... 114,132 77,172 191,304
--------- --------- ---------
Expenses:
Depreciation and amortization of real estate assets ......... 31,949 26,099(M) 58,048
Interest .................................................... 15,534 19,228(N) 34,762
Terminated acquisition costs ................................ 713 -- 713
General and administrative .................................. 6,783 3,950(O) 10,733
--------- --------- ---------
Total expenses ......................................... 54,979 49,277 104,256
--------- --------- ---------
Net income ................................................... $ 59,153 $ 27,895 $ 87,048
========= ========= =========
Weighted average common shares outstanding ................... 27,530 18,066(P) 45,596
========= ========= =========
Net income per common share .................................. $ 2.15 $ 1.91
========= =========
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1998
--------------------------------------------------
Adjusted
Pro Forma
Historical(J) Adjustments (167 Hotels)
(in thousands, except per share data)
<S> <C> <C> <C>
Revenues:
Rental income ............................................... $ 113,702 $ 18,236(K) $ 131,938
FF&E reserve income ......................................... 11,683 --(L) 11,683
Interest income ............................................. 1,354 -- 1,354
--------- --------- ---------
Total revenues ......................................... 126,739 18,236 144,975
--------- --------- ---------
Expenses:
Depreciation and amortization of real estate assets ......... 39,617 6,116(M) 45,733
Interest .................................................... 15,178 10,892(N) 26,070
General and administrative .................................. 7,608 926(O) 8,534
--------- --------- ---------
Total expenses ......................................... 62,403 17,934 80,337
--------- --------- ---------
Income before extraordinary item ............................. $ 64,336 $ 302 $ 64,638
========= ========= =========
Weighted average common shares outstanding ................... 41,685 3,911(P) 45,596
========= ========= =========
Income before extraordinary item per common share ............ $ 1.54 $ 1.42
========= =========
</TABLE>
F-4
<PAGE>
HOSPITALITY PROPERTIES TRUST
NOTES TO UNAUDITED ADJUSTED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
Consolidated Balance Sheet Adjustments
A. Represents the unaudited historical consolidated balance sheet of HPT at
September 30, 1998.
B. Represents the purchase of the 8 hotels under contract to be acquired but not
acquired as of September 30, 1998:
<TABLE>
<S> <C>
Cash purchase prices:
One Courtyard by Marriott[RegTM] hotel .............. $ 8,806
Seven Candlewood[RegTM] hotels ...................... 55,440
Purchase price withheld as security deposits ......... 7,138
Closing costs ........................................ 357
-------
Total ............................................... $71,741
=======
</TABLE>
Included in the above are certain hotel properties HPT has purchased or
expects to purchase from sellers upon completion of construction, of which
five have been purchased by HPT in November and December 1998 for an
aggregate purchase price of $42,584.
C. Represents pro forma impact on cash as follows:
<TABLE>
<S> <C>
Cash transactions:
Cash raised in offering of the 8-1/2% Monthly Income Senior Notes due
2009, net of offering costs ......................................... $ 145,600
Cash raised in November 1998 offering of senior notes due 2005, net of
offering costs ...................................................... 111,700
Cash raised in offering of 2.75 million common shares of beneficial
interest in November 1998, net of offering costs .................... 69,300
Cash used to repay Credit Facility ................................... (182,000)
Cash used for acquisitions, including closing costs .................. (64,603)
----------
Net impact on cash ................................................... $ 79,997
==========
</TABLE>
D. Represents the recording of deferred costs in connection with the issuance of
the senior notes due 2005 and the 8-1/2% Monthly Income Senior Notes due
2009.
E. Represents issuance of senior notes due 2005 in November 1998.
F. Represents issuance of the 8-1/2% Monthly Income Senior Notes due 2009.
G. Represents pro forma net repayments under the Credit Facility after
completion of the issuance of the 8-1/2% Monthly Income Senior Notes due 2009
and other transactions described in Note C above.
H. Represents security deposits and other deposits held or to be held by HPT as
a result of purchasing and leasing the following hotels:
<TABLE>
<S> <C>
One Courtyard by Marriott[RegTM] hotel ......... $ 978
Seven Candlewood[RegTM] hotels ................. 6,160
------
Total ......................................... $7,138
======
</TABLE>
I. Represents issuance of 2.75 million common shares of beneficial interest in
November 1998.
F-5
<PAGE>
HOSPITALITY PROPERTIES TRUST
NOTES TO UNAUDITED ADJUSTED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands)
Consolidated Statements of Income Adjustments
J. Represents the historical consolidated statement of income for the period
presented.
K. Represents the adjusted pro forma effect of leases entered into since January
1, 1997 and to be entered. This adjusted pro forma effect is derived as
follows:
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31, 1997 September 30, 1998
------------------- -------------------
<S> <C> <C>
Pro forma minimum rent ................................. $ 173,205 $ 129,957
Pro forma percentage rent .............................. 2,528 1,981
Amounts included in historical minimum rent ............ (96,033) (111,721)
Amounts included in historical percentage rent ......... (2,528) (1,981)
--------- ----------
$ 77,172 $ 18,236
========= ==========
</TABLE>
Certain of the hotels purchased by HPT were under development during the
nine months ended September 30, 1998 and others are currently under
development by the sellers of these properties. HPT is not contractually
obligated to acquire these hotels until they are substantially completed.
The adjusted pro forma consolidated income statement assumes these hotels
were completed and acquired on January 1, 1997. Percentage rent, which is
based upon a percentage of gross revenue increases, cannot be calculated
for unopened hotels under development.
L. FF&E Reserve escrow accounts for all of HPT's Courtyard by Marriott[RegTM]
and Residence Inn by Marriott[RegTM] hotels are owned by HPT and periodic
payments into these escrow accounts are recorded as additional rent under
generally accepted accounting principles ("GAAP"). No pro forma adjustment
for the FF&E Reserve income related to newly constructed hotels purchased and
to be purchased by HPT from Marriott has been made, as this amount cannot be
calculated.
The FF&E Reserve for the renovation and refurbishment of HPT's
Wyndham[RegTM], Sumner Suites[RegTM], Candlewood[RegTM] and Summerfield
Suites[RegTM] hotels remains the property of the respective tenants during
the lease term. HPT has a security interest in these escrow accounts and at
the end of the lease term, any remaining funds in these FF&E Reserves must be
paid to HPT. Under GAAP, the FF&E Reserve for the leases relating to these
hotels is not recorded as income by HPT.
M. Represents the impact of the Transactions on depreciation expense for the
entire period presented.
N. Represents the following adjustments to interest expense:
o Elimination of interest on the $125 million CMBS Notes repaid upon the
issuance of the 7% Senior Notes in February 1998 including amortization
of deferred financing costs.
o Elimination of interest on $182 million of Credit Facility repaid with
the net proceeds of the senior notes due 2005 and of the 8-1/2% Monthly
Income Senior Notes due 2009 and proceeds from HPT's November 1998 equity
offering.
o Record interest, including amortization of deferred financing costs, on
the senior notes due 2005.
o Record interest, including amortization of deferred financing costs, of
$9.9 million and $13.2 million, respectively, for the nine months ended
September 30, 1998 and the year ended December 31, 1997, on the proposed
$150 million offering of 8-1/2% Monthly Income Senior Notes due 2009.
o Record amortization of deferred financing costs related to the Company's
$300 million Credit Facility.
O. Represents the estimated impact of the Transactions on general and
administrative expenses of HPT for the period presented.
P. Represents the impact of additional common shares issued by HPT in the
period presented and the transaction described in Note I.
F-6
<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-7
<PAGE>
HOSPITALITY PROPERTIES TRUST
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
As of December 31,
As of September 30, --------------------------
1998 1997 1996
(unaudited)
(in thousands, except Share and per Share data)
<S> <C> <C> <C>
ASSETS
Real estate properties, at cost:
Land ................................................. $ 230,428 $ 179,928 $143,462
Buildings and improvements ........................... 1,514,247 1,086,107 699,225
---------- ---------- ---------
1,744,675 1,266,035 842,687
Less accumulated depreciation ........................ (97,784) (58,167) (26,218)
---------- ---------- ---------
1,646,891 1,207,868 816,469
Cash and cash equivalents ............................. 1,421 81,728 38,073
Rent receivable ....................................... 1,944 1,623 1,671
Restricted cash (FF&E reserve) ........................ 16,588 11,165 7,277
Other assets, net ..................................... 6,085 10,872 8,113
---------- ---------- ---------
$1,672,929 $1,313,256 $871,603
========== ========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Security deposits ..................................... $ 191,250 $ 146,662 $ 81,360
Debt .................................................. 331,746 125,000 125,000
Dividends payable ..................................... -- 24,493 15,846
Due to affiliate ...................................... 2,826 2,464 2,376
Accounts payable and other ............................ 7,357 6,744 1,813
---------- ---------- ---------
Total liabilities .................................... 533,179 305,363 226,395
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, 42,845,539
(unaudited), 38,878,295 and 26,856,800 shares
issued and outstanding ............................. 428 389 269
Additional paid-in capital ........................... 1,161,567 1,033,073 656,253
Cumulative net income ................................ 179,883 122,166 63,013
Dividends (paid or declared) ......................... (202,128) (147,735) (74,327)
---------- ---------- ---------
Total shareholders' equity ........................... 1,139,750 1,007,893 645,208
---------- ---------- ---------
$1,672,929 $1,313,256 $871,603
========== ========== =========
</TABLE>
See accompanying notes.
F-8
<PAGE>
HOSPITALITY PROPERTIES TRUST
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
February 7, 1995
Nine Months Ended Year Ended (inception) to
September 30, December 31, December 31,
------------------------ ------------------------- -----------------
1998 1997 1997 1996 1995
(unaudited)
(in thousands, except per Share data)
<S> <C> <C> <C> <C> <C>
Revenues:
Rental income ............................ $113,702 $ 71,158 $ 98,561 $ 69,514 $ 19,531
FF&E reserve income ...................... 11,683 11,138 14,643 12,169 4,037
Interest income .......................... 1,354 474 928 946 74
-------- -------- --------- -------- --------
Total revenues ......................... 126,739 82,770 114,132 82,629 23,642
-------- -------- --------- -------- --------
Expenses:
Interest (including amortization of
deferred finance costs of $2,200,
$989, $1,340, $341 and $24,
respectively) .......................... 15,178 10,602 15,534 5,646 5,063
Depreciation and amortization of real
estate assets .......................... 39,617 22,528 31,949 20,398 5,820
Terminated acquisition costs ............. -- -- 713 -- --
General and administrative ............... 7,608 4,787 6,783 4,921 1,410
-------- -------- --------- -------- --------
Total expenses ......................... 62,403 37,917 54,979 30,965 12,293
-------- -------- --------- -------- --------
Income before extraordinary items ......... 64,336 44,853 59,153 51,664 11,349
Extraordinary loss from extinguishment
of debt ................................. (6,619) -- -- -- --
-------- -------- --------- -------- --------
Net income ................................ $ 57,717 $ 44,853 $ 59,153 $ 51,664 $ 11,349
======== ======== ========= ======== ========
Weighted average Shares outstanding ....... 41,685 26,871 27,530 23,170 4,515
Basic earnings (loss) per common share:
Income before extraordinary item .......... $ 1.54 $ 1.67 $ 2.15 $ 2.23 $ 2.51
Extraordinary item ........................ ( .16) -- -- -- --
-------- -------- --------- -------- --------
Net income ................................ $ 1.38 $ 1.67 $ 2.15 $ 2.23 $ 2.51
======== ======== ========= ======== ========
</TABLE>
See accompanying notes.
F-9
<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
(unaudited:)
Issuance of Common Shares of
Beneficial Interest, net ........... 3,942,413 39 128,494 -- -- 128,533
Stock grants ......................... 24,831 -- -- -- -- --
Net income ........................... -- -- -- 57,717 -- 57,717
Dividends (paid or declared) ......... -- -- -- -- (54,393) (54,393)
---------- ---- ---------- -------- ---------- ----------
Balance at September 30, 1998 42,845,539 $428 $1,161,567 $179,883 $ (202,128) $1,139,750
========== ==== ========== ======== ========== ==========
</TABLE>
See accompanying notes.
F-10
<PAGE>
HOSPITALITY PROPERTIES TRUST
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the For the
Nine Months Ended Year Ended February 7, 1995
September 30, December 31, (inception) to
------------------------- ------------------------- December 31,
1998 1997 1997 1996 1995
(unaudited) (in thousands)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income ..................................... $ 57,717 $ 44,853 $ 59,153 $ 51,664 $ 11,349
Adjustments to reconcile net income to cash
provided by operating activities:
Extraordinary item .......................... 6,619 -- -- -- --
Depreciation and amortization ............... 39,617 22,528 31,949 20,398 5,820
Amortization of deferred finance costs
as interest ............................... 2,200 989 1,340 341 24
FF&E reserve income ......................... (11,683) (11,138) (14,643) (12,169) (4,037)
Changes in assets and liabilities:
(Increase)/decrease in rent
receivable and other assets ............ 1,707 718 (469) (1,566) (182)
Increase/(decrease) in accounts
payable and other ...................... (154) (310) 3,419 1,926 396
Increase/(decrease) in due to
affiliate .............................. 1,349 (691) 476 1,149 770
---------- ---------- ---------- ---------- ----------
Cash provided by operating
activities ............................. 97,372 56,949 81,225 61,743 14,140
---------- ---------- ---------- ---------- ----------
Cash flows from investing activities:
Real estate acquisitions ....................... (472,380) (155,897) (409,799) (491,638) (332,648)
Increase in security deposits .................. 44,588 20,999 65,302 48,460 32,900
Purchase of FF&E reserve ....................... -- (1,500) (2,794) (5,500) (3,904)
---------- ---------- ---------- ---------- ----------
Cash used in investing activities ........... (427,792) (136,398) (347,291) (448,678) (303,652)
---------- ---------- ---------- ---------- ----------
Cash flows from financing activities:
Proceeds from issuance of Shares, net .......... 127,696 -- 376,266 358,279 198,088
Draws on credit facility and debt issuance ..... 415,730 104,000 261,000 240,650 --
Repayments of credit facility .................. (209,000) -- (261,000) (115,650) --
Deferred finance costs incurred ................ (5,427) (573) (1,784) (6,481) (1,885)
Borrowings and advances from HRP ............... -- -- -- -- 165,241
Payments on borrowings and advances
from HRP ..................................... -- -- -- -- (65,241)
Dividends paid ................................. (78,886) (48,096) (64,761) (53,925) (4,556)
---------- ---------- ---------- ---------- ----------
Cash provided by financing activities ....... 250,113 55,331 309,721 422,873 291,647
---------- ---------- ---------- ---------- ----------
Increase/(decrease) in cash and cash
equivalents .................................... (80,307) (24,118) 43,655 35,938 2,135
Cash and cash equivalents at beginning
of period ...................................... 81,728 38,073 38,073 2,135 --
---------- ---------- ---------- ---------- ----------
Cash and cash equivalents at end of period ...... $ 1,421 $ 13,955 $ 81,728 $ 38,073 $ 2,135
========== ========== ========== ========== ==========
Supplemental cash flow information:
Cash paid for interest ......................... $ 12,205 $ 9,602 $ 14,086 $ 4,652 $ 5,039
Non-cash investing and financing activities:
Property managers' deposits in FF&E reserve .... 10,495 9,717 14,213 12,100 3,862
Purchases of fixed assets with FF&E reserve .... (6,260) (6,117) (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-11
<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.
F-12
<PAGE>
HOSPITALITY PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except per Share and percent data)
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.
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.
Interim Financial Statements. The accompanying interim financial
statements have been prepared without audit. Certain interim information and
footnote disclosures required by generally accepted accounting principles for
complete financial statements have been omitted or condensed. In the opinion of
management, all adjustments (which include only normal recurring adjustments)
considered necessary for a fair presentation have been included. Operating
results for interim periods are not necessarily indicative of the results that
may be expected for a full year.
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 combination 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
F-13
<PAGE>
HOSPITALITY PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except per Share and percent data)
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.
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 at December 31, 1997 and
1996 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
F-14
<PAGE>
HOSPITALITY PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except per Share and percent data)
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.
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.
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.
6. Concentration
The Company's assets are income producing lodging related real estate
located throughout the United States. The Company's lessees at December 31,
1997 were:
<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.
7. Pro Forma Information (Unaudited)
In December of 1997 and April of 1996 the Company completed offerings of
12,000,000 and 14,250,000 common shares of beneficial interest and the
acquisition of 37 and 45 additional hotels, respectively. If such transactions
occurred on January 1, 1996, unaudited pro forma 1996 revenues, net income and
earnings per share would have been $134,635, $74,038, and $1.91, respectively,
and the unaudited pro forma 1997 revenues, net income and earnings per share
would have been $137,599, $65,572, and $1.85, respectively.
F-15
<PAGE>
HOSPITALITY PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except per Share and percent data)
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
</TABLE>
<TABLE>
<CAPTION>
1995
------------------------
Third Fourth
Quarter(1) Quarter
<S> <C> <C>
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.
9. Subsequent Events (Unaudited)
Between January 1, 1998 and September 30, 1998, the Company invested $465
million in 40 hotels, leased to various unaffiliated entities. The leases for
these hotels have initial terms ending between 2010 and 2015; all have renewal
options aggregating between twenty and 48 years. Also during the first six
months of 1998 the Company repaid the Notes (see Note 4) and all of the
Company's properties were released from mortgages. The Company issued $150
million of unsecured senior notes which are due in 2008 carry a 7% coupon. The
Company's Credit Facility (see Note 4) has been replaced with a new $300
million unsecured revolving credit facility which matures in 2002.
F-16
<PAGE>
================================================================================
$150,000,000
Hospitality Properties Trust
8-1/2% Monthly Income Senior Notes due 2009
----------------------
PROSPECTUS SUPPLEMENT
----------------------
The Joint Book-Running Managers are:
Merrill Lynch & Co. Salomon Smith Barney
---------------
A.G. Edwards & Sons, Inc.
Legg Mason Wood Walker
Incorporated
Morgan Stanley Dean Witter
PaineWebber Incorporated
Prudential Securities Incorporated
December 11, 1998
================================================================================
