Filed Pursuant to Rule 424(b)(5)
File No. 333-43573
PROSPECTUS SUPPLEMENT
(To Prospectus Dated January 15, 1998)
429,712 Shares
Hospitality Properties Trust
Common Shares of Beneficial Interest
Hospitality Properties Trust (the "Company" or "HPT") is a real estate
investment trust (a "REIT"), which owns hotels and leases them to unaffiliated
tenants. Upon completion of pending acquisitions, HPT will own 135 hotels with
18,497 rooms or suites located in 35 states. The Company's common shares of
beneficial interest (the "Shares") offered hereby are being issued and sold by
the Company. The Shares are traded on the New York Stock Exchange (the "NYSE")
under the symbol "HPT." On February 12, 1998 the last reported sale price for
the Shares on the NYSE was $34.50 per Share.
The Underwriter has agreed to purchase the Shares from the Company at a
price of $32.78 per share, resulting in aggregate proceeds to the Company of
$14,035,959.36 after payment of expenses by the Company estimated to be $50,000,
subject to the terms and conditions set forth in the Underwriting Agreement. The
Underwriter intends to deposit the Shares, valued at the last reported sales
price, with the trustee of National Equity Trust Equity Portfolio Series 2 (REIT
Portfolio) (the "Trust") in exchange for units in the Trust. The Company has
agreed to indemnify the Underwriter against certain liabilities, including
liabilities under the Securities Act of 1933, as amended.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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The Shares are offered by the Underwriter subject to prior sale, when,
as and if accepted by the Underwriter and subject to certain conditions. It is
expected that delivery of the Shares will be made on or about February 18, 1998,
through the facilities of The Depository Trust Company, New York, New York.
Prudential Securities Incorporated
February 12, 1998
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THE COMPANY
The Company is a REIT which acquires, owns and leases hotels to
unaffiliated hotel operators. The Company is organized as a Maryland real estate
investment trust; its principal place of business is at 400 Centre Street,
Newton, Massachusetts 02158; and its telephone number is (617) 964-8389.
RECENT DEVELOPMENTS
From January 1, 1997 through the date hereof, the Company has engaged
in the following significant activities.
Investments
Wyndham(R) Salt Lake City Hotel (381 rooms; $44.0 million). In January
1997 the Company purchased a full service hotel in Salt Lake City, Utah for
$44.0 million. This hotel is located adjacent to the Salt Lake City Salt Palace
Convention Center and contains 381 rooms, 14,469 square feet of meeting space
and two restaurants/lounges. This hotel was previously operated as a
Doubletree(R) hotel, but upon acquisition the Company leased it to a subsidiary
of Wyndham Hotel Corporation ("Wyndham") for an initial term ending in 2012 plus
renewal options. In 1998, the Company provided $3.3 million to Wyndham for
renovations to this hotel. The minimum rent payable to the Company for this
hotel is $4.7 million per year. This lease also requires percentage rent based
upon increases in gross revenues at the hotel and a deposit of 5% of gross hotel
revenues into escrow to fund periodic renovations (a "FF&E Reserve"). The lease
obligations due the Company are secured by a $4.7 million security deposit.
Because this hotel is being repositioned by Wyndham and the purchase price did
not meet the Company's underwriting criteria based upon historical operating
results, the Company required Wyndham to guarantee the lease obligations up to a
specified amount until a negotiated ratio of cash flow coverage of rent is
achieved from the operations of the hotel. This guaranty is secured by a cash
deposit. Also, the lease permits the Company to subject this lease to cross
default and all or none renewal options with leases for 11 other Company-owned
hotels leased to another subsidiary of Wyndham.
Fourteen Marriott(R) Hotels (1,819 rooms; $149 million). In March 1997
the Company agreed to acquire 10 Residence Inn by Marriott(R) hotels (1,276
suites) and four Courtyard by Marriott(R) hotels (543 rooms) for $149 million
from Marriott International, Inc. ("Marriott"). Marriott is a publicly owned
company listed on the NYSE under the symbol "MAR." All of these hotels were
developed by Marriott and are less than two years old. The Company purchased
these hotels in 1997 as they opened and leased them to a subsidiary of Marriott
through 2014 plus renewal options. The annual minimum rent payable under these
leases is $14.9 million. The leases require percentage rents beginning after
operations of these hotels are stabilized as well as FF&E Reserve escrows. The
leases for all 14 of these hotels are subject to cross default and all or none
renewal options. A security deposit equal to one year's minimum rent ($14.9
million) secures the lease obligations to the Company. In addition, Marriott has
guaranteed the lease payments until operations of these hotels are stabilized
and cover the minimum rent according to a formula negotiated between the Company
and Marriott.
Nine Marriott(R) Hotels (1,336 rooms; $129 million). In September 1997
the Company agreed to acquire from Marriott six Courtyard by Marriott(R) hotels
(829 rooms) and three Residence Inn by Marriott(R) hotels (507 suites) for $129
million. These hotels are being leased to a separate subsidiary of Marriott
through 2012 plus renewal options. The terms of these acquisitions and leases
are substantially similar to the terms described above for the 14 Marriott(R)
hotels acquired and leased by the Company. The purchase price and minimum rent
per room for these hotels are higher than the purchase prices and rents for
other Marriott hotels previously acquired by the Company because several of
these hotels are in higher cost urban locations. As of the date hereof, three of
these hotels have been acquired; the remaining six are expected to be acquired
periodically during the remainder of 1998.
Fourteen Sumner Suites(R) Hotels (1,641 suites; $140 million). In
November 1997 the Company acquired 14 Sumner Suites(R) hotels (1,641 suites) for
$140 million from ShoLodge, Inc. ("ShoLodge"). ShoLodge is a public company
listed on The Nasdaq National Market under the symbol "LODG." Sumner Suites(R)
is a proprietary brand of all suite hotels owned by ShoLodge. Thirteen of these
hotels were developed by ShoLodge within the past two years and the remaining
hotel is being substantially renovated at this time. Simultaneous with their
acquisition all
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of these hotels were leased to a subsidiary of ShoLodge for an initial term
ending in 2008 plus renewal options. The lease requires annual minimum rent of
$14.0 million plus percentage rent and FF&E Reserve escrows. The lease provides
that all 14 hotels are subject to cross default and all or none renewal options.
The lease requires a $14.0 million security deposit. In addition, the lease
obligations are guaranteed up to a specified amount by ShoLodge until a
negotiated ratio of cash flow coverage of rent is achieved from the operations
of these hotels; this guaranty is secured by a cash deposit.
Fifteen Candlewood(R) Hotels (1,592 suites; $100 million). In November
1997 the Company agreed to acquire 15 Candlewood(R) hotels for $100 million from
Candlewood Hotel Company, Inc. ("Candlewood"). Candlewood is a publicly owned
company listed on The Nasdaq National Market under the symbol "CNDL."
Candlewood(R) hotels are extended stay hotels developed by Candlewood. As these
hotels are acquired they are leased to a subsidiary of Candlewood for an initial
term ending in 2011 plus renewal options. The lease requires annual minimum rent
equal to 10% of the purchase prices paid (totaling $10.0 million per year when
all 15 hotels are acquired) plus percentage rent and FF&E Reserve escrows.
Security deposits equal to one year's minimum rent totaling $10.0 million are
required. Candlewood guarantees the lease obligations to the Company until a
negotiated ratio of operating cash flow coverage of rent is achieved from the
operations of these hotels; this guaranty is secured by a cash deposit. As of
the date hereof, ten of these hotels have been acquired and leased; the
remaining five of these hotels are expected to be acquired before March 31,
1998.
Financing
Equity Offerings. In December 1997, the Company issued 12,000,000
Shares in a public offering. The gross proceeds of the offering were
approximately $397 million ($33.0625 per share), and the net proceeds to the
Company were approximately $376 million. The proceeds from this offering of
Shares were used to repay all amounts then outstanding under the Company's
revolving credit facility, to purchase certain hotels and for general business
purposes. The Company has had discussions with other investment banks concerning
unit investment trust arrangements similar to the one described herein and the
Company is considering whether to participate in such arrangements. No assurance
can be given that any other Shares offering will be consummated.
Debt Offering. The Company is considering an offering (the "Debt
Offering") of senior unsecured notes, the proceeds of which will be used to
repay all of the Company's floating rate secured indebtedness. No assurance can
be given that the Debt Offering will be consummated.
Credit Facilities. The Company has a revolving line of credit with DLJ
Mortgage Capital, Inc. ("DLJMC") for $200 million which is secured by mortgages
on certain hotels owned by the Company (the "DLJMC Credit Facility"). As of the
date hereof, no amounts are outstanding under the DLJMC Credit Facility.
The Company has recently held discussions with several banks concerning
the possibility of replacing the DLJMC Credit Facility. After completion of this
Offering, the Company expects to conclude discussions and to enter a new
unsecured revolving line of credit with a syndicate of banks for at least $250
million and terminate the DLJMC Credit Facility. No assurance can be given that
this new credit facility will be available to the Company on acceptable terms or
in a timely manner.
Other Matters
Wyndham Merger. The Company currently owns 12 hotels leased to
subsidiaries of Wyndham. In January 1998 Wyndham merged with Patriot American
Hospitality, Inc. ("PAH"), a publicly owned company listed on the NYSE under the
symbol "PAH." The Company believes that this merger as consummated violates
certain of the Wyndham lease terms and the Company has advised Wyndham of this
belief. Wyndham has not disputed the Company's interpretation of these terms but
has requested that the Company consent to the merger. The Company and Wyndham
have reached substantive agreement on the terms of this consent, including
payment to the Company of a consent fee and a contingent increase in rent to the
Company. The Company and Wyndham have agreed to a standstill arrangement so that
the Wyndham/PAH merger might be consummated while the terms of the Company's
consent are being documented and pending receipt of certain required third party
consents. The Company believes that the agreement for its consent will be
documented and the consent consummated. If
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Wyndham were to breach its lease obligations the Company might be required to
find a new tenant for its 12 Wyndham hotels. In addition, if the Company were
unable to find a new tenant for these hotels within one year, Wyndham's breach
might cause a default in the Company's $125 million of outstanding mortgage
bonds which are partially secured by 11 of these 12 Wyndham(R) hotels. Although
there can be no assurances with regard to the consequences of a Wyndham breach
if it were to occur, the Company believes that these 12 hotels have increased in
value since they were acquired and that it would be able to find a substitute
tenant or tenants willing to pay equal or greater rent than the rent now paid by
Wyndham.
Marriott Spin Off and Merger. The Company currently owns or has
agreements to acquire 23 hotels which are or will be leased to Marriott
subsidiaries. Certain obligations due to the Company under these purchase
contracts and leases are guaranteed by Marriott. In October 1997 Marriott
announced a plan to dividend to its shareholders a new company which will own
and operate Marriott's lodging and senior living businesses and to merge the
remaining company with Sodexho SA. As a result of this spin off and merger the
current guarantor of the obligations due to the Company would have a negative
net worth and its obligations are not expected to be investment grade rated.
Upon learning of this planned transaction the Company entered negotiations with
Marriott and, as a result of those negotiations, an agreement was entered into
effective upon consummation of the Marriott spin off and merger transaction.
This agreement required that the spin off entity created by Marriott assume the
guaranty obligations to the Company. Subsidiaries of the spin off entity have
also become managers of the 94 hotels which are currently managed by
subsidiaries of Marriott. The new spin off entity is expected to be investment
grade rated.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Shares offered
hereby, after payment of expenses related to this offering, will be
approximately $14 million. The net proceeds are expected to be used to purchase
hotels and for other general business purposes. Until the proceeds of this
Offering are used, they will be deposited in interest-bearing accounts or
invested in short-term securities, including securities which may not be
investment grade rated.
FEDERAL INCOME TAX CONSEQUENCES
The following description of certain changes to federal income tax
matters relating to the Company is intended to supplement, and is qualified in
its entirety by reference to, the more detailed description of certain federal
income tax matters contained in the Company's Annual Report on Form 10-K for its
fiscal year ended December 31, 1996 (the "Annual Report"), which is incorporated
in this Prospectus Supplement and the accompanying Prospectus by reference.
The Taxpayer Relief Act of 1997 liberalized certain of the requirements
for qualifying and operating as a REIT under Sections 856 through 860 of the
Internal Revenue Code of 1986, as amended (the "Code"). These amendments apply
to the Company for its taxable year commencing January 1, 1998, but are not
expected to alter significantly either the Company's operations or its continued
federal tax qualification and taxation as a REIT. In comparison to the rules and
requirements in effect for the Company's 1997 taxable year (as discussed in the
Annual Report in the section captioned "Taxation of the Company"), the
amendments, inter alia: (i) eliminate REIT disqualification as the sanction for
failing to solicit certain shareholder ownership statements and instead impose a
penalty of $25,000 ($50,000 for intentional violations), and permit a REIT that
solicits necessary shareholder ownership statements and otherwise exercises
reasonable due diligence to rely on its actual knowledge for purposes of
satisfying the requirement that at no time during the last half of its taxable
year was more than 50% in value of its outstanding shares owned directly or
indirectly by five or fewer individuals; (ii) repeal the requirement that less
than 30% of a REIT's gross income be derived from sales or dispositions of
certain short-term property; (iii) treat income from a larger class of hedging
instruments as qualifying income for purposes of the 95% gross income
requirement; (iv) permit a REIT to receive de minimis amounts of otherwise
impermissible service income from tenants, and nevertheless have the rental
income from such tenants qualify as rents from real property for purposes of the
75% and 95% gross income requirements; and (v) permit a REIT to retain and pay
income tax on net long term capital gain, and without an actual distribution
thereof, pass through to its shareholders such gain and a refundable credit for
such taxes paid.
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Treasury Regulations issued on October 6, 1997 (the "New Regulations")
alter the withholding rules on dividends paid to a non-U.S. shareholder,
generally effective with respect to dividends paid after December 31, 1998.
Under the New Regulations, to obtain a reduced rate of withholding under an
income tax treaty, a non-U.S. shareholder generally will be required to provide
an Internal Revenue Service Form W-8 certifying such non-U.S. shareholder's
entitlement to benefits under the treaty. The New Regulations also provide
special rules to determine whether, for purposes of determining the
applicability of a tax treaty, dividends paid to a non-U.S. shareholder that is
an entity should be treated as paid to the entity or to those holding an
interest in that entity, and whether such entity or such holders in the entity
are entitled to benefits under the tax treaty. The New Regulations also alter
the information reporting and backup withholding rules applicable to non-U.S.
shareholders and, among other things, provide certain presumptions under which a
non-U.S. shareholder is subject to backup withholding and information reporting
until the Company receives certification from such shareholder of its non-U.S.
status. The foregoing is not intended to be a complete discussion of the New
Regulations, and prospective investors are urged to consult their tax advisors
with respect to the effect of the New Regulations on an investment in the
Shares.
UNDERWRITING
Under the terms and subject to the conditions set forth in the
Underwriting Agreement dated the date hereof (the "Underwriting Agreement"),
between Prudential Securities Incorporated (the "Underwriter") and the Company,
the Underwriter has agreed to purchase and the Company has agreed to sell to the
Underwriter 429,712 Shares at the price set forth on the cover page of this
Prospectus Supplement.
The Underwriting Agreement provides that the obligation of the
Underwriter to pay for and accept delivery of the Shares offered hereby is
subject to the approval of certain legal matters by counsel for the Underwriter
and to certain other conditions. The Underwriter is obligated to take and pay
for all of the Shares offered hereby if any such Shares are taken.
The Underwriter intends to deposit the Shares offered hereby with the
Trust, a registered unit investment trust under the Investment Company Act of
1940, as amended, to which the Underwriter acts as sponsor and depositor, in
exchange for units in the Trust. The Underwriter is an affiliate of the Trust.
The Shares are listed on the New York Stock Exchange under the symbol
"HPT."
The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act.
In the ordinary course of business, the Underwriter may from time to
time provide investment banking, financial advisory and commercial banking
services to the Company and its affiliates for which customary compensation will
be received.
LEGAL MATTERS
Certain legal matters with respect to the Shares offered by the Company
have been passed upon for the Company by Sullivan & Worcester LLP, Boston,
Massachusetts and will be passed upon for the Underwriter by Davis Polk &
Wardwell, New York, New York. Sullivan & Worcester LLP and Davis Polk & Wardwell
will rely, as to certain matters of Maryland law, upon the 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 a
Managing Trustee of the Company and of Health and Retirement Properties Trust
("HRP") and director and a 50% owner of REIT Management & Research, Inc.
("Advisors"), the investment advisor to the Company. Sullivan & Worcester LLP
represents HRP, Advisors 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 consolidated financial statements and related
schedule of the Company for the years ended December 31, 1997, 1996 and 1995
appearing in the Company's Current Report on Form 8-K dated February 11, 1998
and incorporated by
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reference in this Prospectus Supplement and the accompanying Prospectus and
elsewhere in the related Registration Statement, have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their reports with
respect thereto. Such reports are incorporated herein and in the Registration
Statement by reference in reliance upon the authority of said firm as experts in
giving said reports.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
In addition to the documents incorporated by reference or deemed
incorporated by reference in the accompanying Prospectus, which Prospectus is
supplemented by this Prospectus Supplement, the Company's Current Report on Form
8-K dated February 11, 1998 and February 12, 1998, which have been filed with
the Commission pursuant to the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), are hereby incorporated in this Prospectus Supplement and
specifically made a part hereof by reference. All documents filed by the Company
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to
the date of this Prospectus Supplement and prior to the termination of the
offering of the Shares shall be deemed to be incorporated by reference into this
Prospectus and to be a part hereof from the respective dates of filing of such
documents. Any statement contained herein or in a document incorporated or
deemed to be incorporated herein by reference shall be deemed to be modified or
superseded for purposes of this Prospectus Supplement to the extent that a
statement contained herein, or in any subsequently filed document that also is
or is deemed to be incorporated herein by reference, modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus
Supplement.
The Company hereby undertakes to provide without charge to each person
to whom this Prospectus Supplement is delivered, upon the written or oral
request of such person, a copy of any and all of the information that has been
incorporated by reference in this Prospectus Supplement (excluding exhibits
unless such exhibits are specifically incorporated by reference into the
information that this Prospectus Supplement incorporates). Requests for such
copies should be made to the Company at its principal executive offices, 400
Centre Street, Newton, Massachusetts 02158, Attention: Investor Relations,
telephone (617) 964-8389.
FORWARD-LOOKING STATEMENTS
THIS PROSPECTUS SUPPLEMENT CONTAINS FORWARD-LOOKING STATEMENTS. SUCH
STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES WHICH COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE ANTICIPATED OR PROJECTED.
PROSPECTIVE PURCHASERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE
FORWARD-LOOKING STATEMENTS WHICH SPEAK ONLY AS OF THE DATE HEREOF. THE COMPANY
UNDERTAKES NO OBLIGATION TO PUBLISH REVISED FORWARD-LOOKING STATEMENTS TO
REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE HEREOF.
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THE DECLARATION OF TRUST OF THE COMPANY, AMENDED AND RESTATED ON AUGUST
21, 1995, A COPY OF WHICH, TOGETHER WITH ALL AMENDMENTS THERETO (THE
"DECLARATION"), IS DULY FILED IN THE OFFICE OF THE DEPARTMENT OF ASSESSMENTS AND
TAXATION OF THE STATE OF MARYLAND, PROVIDES THAT THE NAME "HOSPITALITY
PROPERTIES TRUST" REFERS TO THE TRUSTEES UNDER THE DECLARATION COLLECTIVELY AS
TRUSTEES, BUT NOT INDIVIDUALLY OR PERSONALLY, AND THAT NO TRUSTEE, OFFICER,
SHAREHOLDER, EMPLOYEE OR AGENT OF THE COMPANY SHALL BE HELD TO ANY PERSONAL
LIABILITY, JOINTLY OR SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM AGAINST, THE
COMPANY. ALL PERSONS DEALING WITH THE COMPANY, IN ANY WAY, SHALL LOOK ONLY TO
THE ASSETS OF THE COMPANY FOR THE PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY
OBLIGATION.
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No dealer, salesman or other person has been authorized to give any
information or to make any representation not contained or incorporated by
reference in this Prospectus Supplement and Prospectus. If given or made, such
information or representation must not be relied upon as having been authorized
by the Company or the Underwriter. This Prospectus Supplement and the Prospectus
do not constitute an offer to sell, or solicitation of an offer to buy, Shares
in any jurisdiction to any person to whom it is unlawful to make such offer or
solicitation in such jurisdiction. Neither the delivery of this Prospectus
Supplement or the Prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Company since the date hereof.
TABLE OF CONTENTS
Page
Prospectus Supplement
The Company..................................................S-1
Recent Developments..........................................S-1
Use of Proceeds..............................................S-3
Federal Income Tax Consequences..............................S-3
Underwriting.................................................S-4
Legal Matters................................................S-4
Experts......................................................S-4
Incorporation of Certain Information by Reference............S-5
Forward-Looking Statements...................................S-5
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.........................................12
Description of Preferred Shares...............................13
Description of Depository Shares..............................18
Description of Warrants.......................................22
Limitation of Liability; Shareholder Liability................22
Redemption; Trustees; Business Combinations
and Control Share Acquisitions..............................23
Plan of Distribution..........................................28
Legal Matters.................................................29
Experts.......................................................29
429,712 Shares
HOSPITALITY PROPERTIES
TRUST
Common Shares of
Beneficial Interest
___________________________
PROSPECTUS SUPPLEMENT
___________________________
Prudential Securities Incorporated
February 12, 1998
