UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 1-11527
HOSPITALITY PROPERTIES TRUST
Maryland 04-3262075
- ------------------------ ---------------------------------
(State of incorporation) (IRS Employer Identification No.)
400 Centre Street, Newton, Massachusetts 02158
617-964-8389
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Shares outstanding
Class at May 5, 1998
- ------------------------------------ --------------
Common shares of beneficial 42,836,639
interest $.01 par value per share
<PAGE>
HOSPITALITY PROPERTIES TRUST
FORM 10-Q
MARCH 31, 1998
CERTAIN IMPORTANT FACTORS
The Company's quarterly report on Form 10-Q contains statements which constitute
forward looking statements within the meaning of the Securities Exchange Act of
1934, as amended. Those statements appear in a number of places in this Form
10-Q and include statements regarding the intent, belief or expectations of the
Company, its Trustees or its officers with respect to the declaration or payment
of dividends, the consummation of additional acquisitions, policies and plans of
the Company regarding investments, dispositions, financings, conflicts of
interest or other matters, the Company's qualification and continued
qualification as a real estate investment trust or trends affecting the
Company's or any hotel's financial condition or results of operations. Readers
are cautioned that any such forward looking statements are not guarantees of
future performance and involve risks and uncertainties, and that actual results
may differ materially from those contained in the forward looking statement as a
result of various factors. Such factors include without limitation changes in
financing terms, the Company's ability or inability to complete acquisitions and
financing transactions, results of operations of the Company's hotels and
general changes in economic conditions not presently contemplated. The
accompanying information contained in this Form 10-Q including the information
under the heading "Management's Discussion and Analysis of Financial Condition
and Results of Operation," identifies other important factors that could cause
such differences.
THE AMENDED AND RESTATED DECLARATION OF TRUST OF THE COMPANY, DATED AUGUST 21,
1995, A COPY OF WHICH, TOGETHER WITH ALL AMENDMENTS THERETO (THE "DECLARATION"),
IS DULY FILED IN THE OFFICE OF THE DEPARTMENT OF ASSESSMENTS AND TAXATION OF THE
STATE OF MARYLAND, PROVIDES THAT THE NAME "HOSPITALITY PROPERTIES TRUST" REFERS
TO THE TRUSTEES UNDER THE DECLARATION COLLECTIVELY AS TRUSTEES, BUT NOT
INDIVIDUALLY OR PERSONALLY, AND THAT NO TRUSTEE, OFFICER, SHAREHOLDER, EMPLOYEE
OR AGENT OF THE TRUST SHALL BE HELD TO ANY PERSONAL LIABILITY, JOINTLY OR
SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM AGAINST, THE TRUST. ALL PERSONS
DEALING WITH THE TRUST, IN ANY WAY, SHALL LOOK ONLY TO THE ASSETS OF THE TRUST
FOR THE PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY OBLIGATION.
<TABLE>
<CAPTION>
INDEX
<S> <C> <C>
PART I Financial Information (Unaudited) Page
Condensed Consolidated Balance Sheets - March 31, 1998 and
December 31, 1997.................................................... 3
Consolidated Statements of Income - Three Months Ended March 31, 1998 and 1997
4
Condensed Consolidated Statements of Cash Flows - Three Months Ended March
31, 1998 and 1997.................................................... 5
Notes to Condensed Consolidated Financial Statements...................... 6
Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................. 9
PART II Other Information
Changes in Securities..................................................... 13
Exhibits and Reports on Form 8-K.......................................... 13
Signature................................................................. 14
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
HOSPITALITY PROPERTIES TRUST
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
March 31, December 31,
1998 1997
---------- -------------
(unaudited)
ASSETS
<S> <C> <C>
Real estate properties.......................................... $ 1,579,328 $ 1,266,035
Accumulated depreciation........................................ (69,531) (58,167)
-------------- -------------
1,509,797 1,207,868
Cash and cash equivalents....................................... 15,915 81,728
Restricted cash (FF&E Reserve).................................. 14,209 11,165
Other assets, net............................................... 7,738 12,495
============== =============
$ 1,547,659 $ 1,313,256
============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Senior notes, net of discount................................... $ 149,732 $ --
Revolving debt.................................................. 125,000 --
Mortgage debt................................................... -- 125,000
Security and other deposits..................................... 168,308 146,662
Other liabilities............................................... 11,979 33,701
Shareholders' equity:
Common shares of beneficial interest, $.01 par value,
100,000,000 shares authorized, 41,040,797 and 38,878,295
issued and outstanding, respectively...................... 411 389
Additional paid-in capital.................................. 1,104,560 1,033,073
Cumulative net income....................................... 135,404 122,166
Dividends................................................... (147,735) (147,735)
-------------- -------------
Total shareholders' equity................................ 1,092,640 1,007,893
-------------- -------------
$ 1,547,659 $ 1,313,256
============== =============
</TABLE>
See accompanying notes
3
<PAGE>
<TABLE>
<CAPTION>
HOSPITALITY PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(unaudited)
For the Three For the Three
Months Ended Months Ended
March 31, March 31,
1998 1997
---------------- ------------------
Revenues:
<S> <C> <C>
Rental income.............................................. $ 32,474 $ 21,894
FF&E reserve income........................................ 3,818 3,479
Interest income............................................ 1,078 104
-------- --------
Total revenues......................................... 37,370 25,477
-------- --------
Expenses:
Interest (including amortization of deferred finance costs of
$1,585 and $309, respectively - see Note 4)............ 4,239 2,296
Depreciation and amortization of real estate assets........ 11,364 6,773
General and administrative................................. 2,213 1,498
-------- --------
Total expenses......................................... 17,816 10,567
-------- --------
Income before extraordinary item.............................. 19,554 14,910
Extraordinary loss from extinguishment of debt (Note 4)....... (6,316) --
-------- --------
Net income.................................................... $ 13,238 $ 14,910
======== ========
Weighted average shares outstanding........................... 39,779 26,862
======== ========
Basic earnings (loss) per common share:
Income before extraordinary item.............................. $0.49 $0.56
Extraordinary item............................................ (0.16) --
-------- --------
Net income.................................................... $0.33 $0.56
======== ========
</TABLE>
See accompanying notes
4
<PAGE>
<TABLE>
<CAPTION>
HOSPITALITY PROPERTIES TRUST
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
For the Three For the Three
Months Ended Months Ended
March 31, March 31,
1998 1997
------------------ ------------------
Cash flows from operating activities:
<S> <C> <C>
Net income............................................................ $ 13,238 $ 14,910
Extraordinary loss from extinguishment of debt........................ 6,316 --
Adjustments to reconcile to cash provided by operating activities:
Depreciation and amortization of real estate assets............... 11,364 6,773
Amortization of deferred finance costs as interest................ 1,585 309
FF&E reserve income............................................... (3,818) (3,479)
Net change in assets and liabilities.............................. 4,903 2,513
------------ -----------
Cash provided by operating activities......................... 33,588 21,026
------------ -----------
Cash flows from investing activities:
Real estate acquisitions and deposits................................. (312,519) (44,490)
Increase in security and other deposits............................... 21,646 10,000
------------ -----------
Cash used in investing activities................................. (290,873) (34,490)
------------ -----------
Cash flows from financing activities:
Proceeds from issuance of Common Shares, net........................... 70,958 --
Repayment of mortgage debt............................................. (125,000) --
Proceeds from borrowings, net of discount.............................. 274,730 --
Debt issuance costs.................................................... (4,723) --
Dividends.............................................................. (24,493) (15,846)
------------ -----------
Cash provided by (used in) financing activities.................... 191,472 (15,846)
------------ -----------
Decrease in cash and equivalents.......................................... (65,813) (29,310)
Cash and cash equivalents at beginning of period.......................... 81,728 38,073
------------ -----------
Cash and cash equivalents at end of period................................ $ 15,915 $ 8,763
============ ===========
Supplemental cash flow information:
Cash paid for interest............................................. $ 2,050 $ 674
Non-cash investing activities
Property managers' deposits in FF&E reserve........................ 2,939 3,151
Purchases of fixed assets with FF&E reserve........................ (774) (2,579)
</TABLE>
See accompanying notes
5
<PAGE>
HOSPITALITY PROPERTIES TRUST
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share and per share data)
Note 1. Basis of Presentation
The accompanying condensed consolidated financial statements of Hospitality
Properties Trust and its subsidiaries (the "Company") have been prepared without
audit. Certain information and footnote disclosures required by generally
accepted accounting principles for complete financial statements have been
condensed or omitted. The Company believes the disclosures made are adequate to
make the information presented not misleading. However, the accompanying
financial statements should be read in conjunction with the financial statements
and notes thereto contained in the Company's Annual Report on Form 10-K for the
year ended December 31, 1997. In the opinion of management, all adjustments
(which include only normal recurring adjustments) considered necessary for a
fair presentation have been included. All intercompany transactions and balances
between Hospitality Properties Trust and its subsidiaries have been eliminated.
Operating results for interim periods are not necessarily indicative of the
results that may be expected for the full year.
Note 2. Shareholders' Equity
During the three months ended March 31, 1998, the Company issued an aggregate of
2,146,571 Common Shares of beneficial interest, par value $.01 per share
("Shares") to three unit investment trusts ("UIT"), raising net proceeds of
$70,958. The net proceeds from the UITs were used to acquire hotels and for
general business purposes.
In January 1998, the Company paid a $0.63 per share dividend to shareholders for
the quarter ended December 31, 1997. On April 9, 1998, the Trustees declared a
dividend of $0.64 per share to be paid to shareholders of record as of April 21,
1998, which will be distributed on or about May 21, 1998.
Subsequent to March 31, 1998, the Company issued an aggregate of 1,795,842
Shares to two UITs raising net proceeds of $57,004. The net proceeds received
were used to repay amounts outstanding under the Company's bank credit facility.
The Company does not present diluted earnings per share because it has no
dilutive instruments.
Note 3. Real Estate Properties
During the three months ended March 31, 1998, subsidiaries of the Company
purchased fifteen Summerfield Suites(R) hotels, nine Candlewood(R) hotels, and
one Courtyard by Marriott(R) hotel for approximately $312,519, paid for by draws
under the Company's bank credit facility, proceeds from the issuance of Shares
to UITs, and cash on hand.
Subsequent to March 31, 1998, subsidiaries of the Company purchased one
Candlewood(R) hotel, one Courtyard by Marriott(R) hotel, and one Residence Inn
by Marriott(R) hotel for approximately $49,253, paid for by draws under the
Company's bank credit facility, proceeds from the issuance of Shares to UITs,
and cash on hand.
6
<PAGE>
HOSPITALITY PROPERTIES TRUST
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share and per share data)
At March 31, 1998, 53 Courtyard by Marriott(R) properties of the Company and its
subsidiary were leased to a special purpose subsidiary of Host Marriott
Corporation and managed by a subsidiary of Marriott International, Inc. The
results of operations for the twelve weeks ended March 27, 1998 and March 28,
1997 and summarized balance sheet data of the Host Marriott subsidiary to which
the Company's Courtyard by Marriott(R) hotels are leased are as follows:
<TABLE>
<CAPTION>
Twelve weeks ended Twelve weeks ended
March 27, 1998 March 28, 1997
(unaudited) (unaudited)
--------------- ---------------
<S> <C> <C>
Revenues ......................................... $ 26,415 $ 24,132
------------- -------------
Investment expenses
Base and percentage rent..................... 12,176 12,106
FF&E contribution............................ 2,551 2,389
Management fees.............................. 6,264 5,149
Real estate tax.............................. 1,860 1,642
Other........................................ 639 279
------------- -------------
Total investment expenses................ 23,490 21,565
------------- -------------
Income before taxes............................... 2,925 2,567
Provision for income taxes........................ (1,170) (1,026)
------------- -------------
Net income............................... $ 1,755 $ 1,541
============= =============
<CAPTION>
March 27, 1998 January 2, 1998
(unaudited)
--------------- ---------------
<S> <C> <C>
Assets................................... $ 60,655 $ 58,873
Liabilities.............................. 42,579 42,558
Equity................................... 18,076 16,315
</TABLE>
Revenues in the statements of income above represent house profit. House profit
represents total hotel sales less property level expenses excluding depreciation
and amortization, system fees, real and personal property taxes, ground rent,
insurance and management fees. The system fees (included in other investment
expenses) and management fees presented above, and the expenses detailed below
represent all the costs incurred directly, allocated or charged to the
properties by their management. The comparable details of total hotel sales and
reconciliations to revenue for the twelve weeks ended March 27, 1998 and March
28, 1997 are as follows:
<TABLE>
<CAPTION>
Twelve weeks ended Twelve weeks ended
March 27, 1998 March 28, 1997
(unaudited) (unaudited)
------------------ ------------------
Total hotel sales
<S> <C> <C>
Rooms.................................... $ 45,772 $ 42,456
Food and beverage........................ 3,464 3,511
Other.................................... 1,789 1,815
------------- -------------
Total hotel sales........................ 51,025 47,782
------------- -------------
Departmental Expenses
Rooms.................................... 9,562 8,623
Food and beverage........................ 2,958 2,827
Other operating departments.............. 467 534
General and administrative............... 5,340 5,188
Utilities................................ 1,991 2,141
Repairs, maintenance and accidents....... 1,956 2,042
Marketing and sales...................... 453 594
Chain services........................... 1,883 1,701
------------- -------------
Total departmental expenses.............. 24,610 23,650
============= =============
Revenues $ 26,415 $ 24,132
============= =============
</TABLE>
7
<PAGE>
HOSPITALITY PROPERTIES TRUST
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share and per share data)
Note 4. Indebtedness
During February 1998, the Company issued $150,000 of 7% senior unsecured notes
due 2008. Net proceeds to the Company of approximately $148,000 were used to
repay in full $125,000 of long term mortgage debt and for general business
purposes. As a result of this transaction, the Company recognized an
extraordinary loss of $6,316 ($.16 per share) from the write-off of deferred
financing costs. Also, a $1,402 write-off is included in interest expense for
the three months ended March 31, 1998 and represents the difference between the
carrying amount of an interest rate cap agreement and its market value at the
time of the related debt payment.
In March 1998, the Company entered into a new unsecured revolving credit
facility ("the Credit Facility") of $250,000. The Credit Facility matures in
2002 and bears interest at LIBOR plus a spread based on the Company's senior
debt ratings. The Credit Facility contains financial covenants requiring the
Company, among other things, to maintain a debt to asset ratio (as defined) of
no more than 50% and meet certain debt service coverage ratios (as defined). As
of March 31, 1998, the Company had $125,000 outstanding under this Credit
Facility.
Subsequent to March 31, 1998, the Company borrowed $21,000 under the Credit
Facility for the purchase of hotels.
Note 5. New Accounting Pronouncements
In 1997, the Financial Accounting Standards Board issued Financial Accounting
Standards Board Statement No. 130 "Reporting Comprehensive Income" ("FAS 130")
and Statement No. 131 "Disclosure about Segments of an Enterprise and Related
Information" ("FAS 131"). FAS 130 was required to be adopted for the Company's
1998 interim financial statements. FAS 131 must be adopted for the 1998 annual
financial statements. The adoption of FAS 130 had no impact on the Company's
financial condition or operating results because the Company has no items of
comprehensive income. FAS 131 is expected to have no impact on the Company's
financial condition or results of operations.
8
<PAGE>
HOSPITALITY PROPERTIES TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations (dollar amounts in thousands except share and per share
amounts)
Quarter Ended March 31, 1998 versus 1997
Total revenues for the quarter ended March 31, 1998 increased to $37,370 from
$25,477 for the quarter ended March 31, 1997. Base and percentage rent increased
from $21,894 to $32,474 during the comparable period. The increase primarily is
a result of the Company's investment in and leasing of sixty-one hotels acquired
in 1997 and 1998. Interest income increased from $104 for the quarter ended
March 31, 1997 to $1,078 for the quarter ended March 31, 1998, as a result of
additional cash on hand.
Total expenses for the quarter ended March 31, 1998 increased to $17,816 from
$10,567 for the quarter ended March 31, 1997. The increase is the result of
increases in depreciation and amortization, interest, and general and
administrative expenses of $4,591, $1,943 and $715, respectively. Depreciation
and amortization and general and administrative expenses increased primarily as
a result of new investments since March 31, 1997.
Net income for the quarter ended March 31, 1998 decreased to $13,238 ($0.33 per
share) from $14,910 ($0.56 per share) for the quarter ended March 31, 1997. The
decrease is primarily a result of the extraordinary ($.16 per share) loss
recognized from the extinguishment of debt and other charges described in Note 4
to the financial statements, offset by an increase revenue from new investments.
Funds from operations (defined as net income before extraordinary and
non-recurring items plus depreciation and amortization of real estate assets
plus those deposits made into FF&E Reserve escrows which are not included in
revenue) and cash available for distribution (defined as funds from operations
less FF&E Reserve plus amortization of deferred financing costs and other
non-cash charges) related to the quarter ended March 31, 1998 were $33,717
($0.85 per share) and $28,957 ($0.73 per share), respectively, compared to funds
from operations and cash available for distribution of $22,680 ($0.84 per share)
and $18,684 ($0.70 per share), respectively, for the quarter ended March 31,
1997.
Liquidity and Capital Resources (dollar amounts in thousands except per share
amounts)
Total assets of the Company increased to $1,547,659 at March 31, 1998 from
$1,313,256 for the year ended December 31, 1997. The increase is primarily due
to new real estate acquisitions.
During the three months ended March 31, 1998, subsidiaries of the Company
acquired nine Candlewood(R) hotels, fifteen Summerfield Suites(R) hotels, and
one Courtyard by Marriott(R) hotel for approximately $312,519 paid for by draws
under the Company's bank Credit Facility, proceeds from the issuance of Common
Shares of Beneficial Interest ("Shares") to unit investment trusts ("UITs") and
cash on hand.
Subsequent to March 31, 1998, subsidiaries of the Company acquired one
Candlewood(R) hotel, one Courtyard by Marriott(R) hotel and one Residence Inn by
Marriott(R) hotel for approximately $49,253. Net cash used to make these
acquisitions of $44,000 plus closing costs was funded primarily with draws under
the Credit Facility, proceeds from the issuance of Shares to UITs, and cash on
hand. The Company has agreed to acquire an additional three hotels from Marriott
for an additional total investment of approximately $39,460. The acquisition of
these three hotels is expected to occur during the remainder of 1998.
At March 31, 1998, the Company had $15,915 of cash and cash equivalents. As of
March 31, 1998 the Company had $125,000 outstanding and the ability to draw up
to an additional $125,000 on the Credit Facility.
In February 1998, the Company issued $150,000 of 7% senior unsecured notes due
2008. Net proceeds to the Company of approximately $148,000 were used to repay
in full $125,000 of long term mortgage debt and for general business purposes.
9
<PAGE>
HOSPITALITY PROPERTIES TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
In March 1998, the Company entered into a new unsecured revolving Credit
Facility of $250,000. The Credit Facility matures in 2002 and bears interest at
LIBOR plus a spread based on the Company's senior debt ratings.
In February 1998, the Company issued an aggregate 2,146,571 Shares to three
UITs. The aggregate net proceeds of $70,958 were used for the purchase of hotels
and for general business purposes.
Subsequent to March 31, 1998, the Company issued an aggregate of 1,795,842 of
Shares to two UITs. The aggregate net proceeds were $57,004 and were used to
repay amounts outstanding on the Credit Facility.
Funding for current expenses and dividends is provided for by operations and the
Company's operations are primarily comprised of leasing activity related to
owned properties.
Property Overview
The Company acquires, owns and leases hotel properties to unaffiliated hotel
operators. The Company owned 60 Courtyard by Marriott(R) hotels, 11 Wyndham
Garden(R) hotels, one Wyndham(R) hotel, 29 Residence Inn by Marriott(R) hotels,
14 Sumner Suites(R) hotels, 14 Candlewood hotels and 15 Summerfield Suites(R)
hotels as of March 31, 1998.
Fifty-three of the Company's Courtyard by Marriott(R) hotels are all leased to a
subsidiary of Host Marriott Corporation ("Host Marriott") and managed by a
subsidiary of Marriott International, Inc. ("Marriott International"). Annual
base rent on these 53 properties totals $50,635 and percentage rent equals 5% of
increases in total hotel sales over base year levels. The 53 hotels have a total
of 7,610 guest rooms and are located in 23 states. During the first three months
of 1998 these hotels had average occupancy, average daily rate ("ADR") and room
revenue per available room ("RevPAR") of 78.01%, $91.83 and $71.58,
respectively, in the 1998 period versus 79.5%, $83.55 and $66.42, respectively,
for the comparable 1997 period.
Eighteen of the Company's Residence Inn by Marriott(R) properties are all leased
to a subsidiary of Host Marriott and managed by a subsidiary of Marriott
International. Annual base rent on these 18 properties totals $17,267 and
percentage rent equals 7.5% of increases in total hotel sales over 1996 levels.
The 18 properties have a total of 2,178 guest suites and are located in 14
states. During the first three months of 1998 these properties had average
occupancy, ADR and RevPAR of 82.7%, $103.32 and $88.42, respectively in the 1998
period versus 80.1%, $97.58 and $78.91, respectively, for the comparable 1997
period.
The Company's 11 Wyndham Garden(R) hotels are all leased to a subsidiary of
Patriot American Hospitality ("Patriot") and operated by subsidiaries of Wyndham
Hotel Corporation ("Wyndham"). Annual base rent on these 11 properties totals
$13,600 and percentage rent equals 8% of increases in total hotel sales over
1996 levels. The 11 properties have a total of 1,940 guest rooms and are located
in seven states. During the first three months of 1998 these hotels had average
occupancy, ADR and RevPAR of 76.6%, $103.23 and $79.49, respectively, in the
1998 period versus 76.4%, $95.22 and $72.80, respectively, for the comparable
1997 period.
The Company's one Wyndham(R) hotel is a 381-room full service hotel (the "Salt
Lake Hotel") in Salt Lake City, Utah. The hotel is leased to a subsidiary of
Patriot and is operated by a subsidiary of Wyndham as a Wyndham(R) hotel. Annual
base rent on this hotel is $4,725 and percentage rent equals 5% of increases in
total hotel sales over 1997 levels and thereafter annually at 8% of increases in
total hotel sales over 1998 levels. In January 1998, the Company funded $3,200
for renovations to this hotel. During the first three months of 1998 the
property had average occupancy, ADR and RevPAR of 74.7%, $106.51 and $79.59,
respectively, in the 1998 period versus 78.4%, $99.95 and $78.32, respectively,
for the comparable 1997 period. The lease is guaranteed by both parents of the
tenant and the manager until operations at the Salt Lake Hotel cover the base
rent according to a formula, and this guaranty is secured by a cash deposit.
10
<PAGE>
HOSPITALITY PROPERTIES TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
In 1997, the Company acquired 10 Residence Inn by Marriott(R) hotels (1,276
suites) and four Courtyard by Marriott(R) hotels (543 rooms) for $148,800 from
Marriott. These hotels are leased to a subsidiary of Marriott International for
annual base rent of $14,881. The Company will begin receiving percentage rents
and renovation escrows after operations of these hotels are stabilized. Marriott
has guaranteed the lease payments until operations of these hotels are
stabilized and cover the base rent according to a formula. For the twelve weeks
ended March 27, 1998, these hotels had average occupancy, ADR, and RevPAR of
77.3%, $82.15, and $63.47, respectively. Because these properties have an
operating history of less than one year on average a display of average
occupancy, ADR and RevPAR for the prior year comparative period for these
properties is not meaningful.
In 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 $129,400. These hotels are leased to a subsidiary of Marriott
International for annual base rent of $12,940. The Company will begin receiving
percentage rents and renovation escrows after operations of these hotels are
stabilized. Marriott has guaranteed the lease payments until operations of these
hotels are stabilized and cover the base rent according to a formula. As of
April 30, 1998 six of these hotels have been acquired; the remaining three are
expected to be acquired periodically during 1998. For the three properties
opened for the twelve weeks ended March 27, 1998 these hotels had average
occupancy, ADR and RevPAR of 67.5%, $109.99, and $74.25, respectively. Because
these properties have an operating history of less than six months on average,
there is no comparative operating results.
In 1997, the Company acquired 14 Sumner Suites(R) hotels (1,641 rooms) for
$140,000 from ShoLodge, Inc. ("ShoLodge"). These hotels are leased to a
subsidiary of ShoLodge for annual base rent of $14,000. The Company will begin
receiving percentage rent, in 1999, equal to 8% of increases in total sales over
1998 levels. For the twelve weeks ended March 22, 1998, these hotels had average
occupancy, ADR, and RevPAR of 61.4%, $78.95 and $48.45, respectively, in the
1998 period versus 57.5%, $71.97, and $41.35, respectively, for the comparable
1997 period. ShoLodge has guaranteed the lease payments until operations of
these hotels are stabilized and cover the base rent according to a formula, and
this guaranty is secured by a cash deposit.
In 1997 and 1998, the Company acquired 15 Candlewood(R) hotels (1,592 rooms) for
$100,000 from Candlewood Hotel Company, Inc. ("Candlewood"). These hotels are
leased to subsidiaries of Candlewood for annual base rent of $10,000. The
Company will begin receiving percentage rent equal to 10% of total hotel sales
over total sales generated in the hotels' second year of operation. For the
month of March 1998 the fourteen hotels acquired had average occupancy, ADR, and
RevPAR of 73.8%, $57.31 and $42.29, respectively, for the 1998 period. Because
these properties have an operating history of less than one year on average a
display of average occupancy, ADR, and RevPAR for the comparative period for
these properties is not meaningful. Candlewood has guaranteed the lease payments
until operations of these hotels are stabilized and cover the base rent
according to a formula, and this guaranty is secured by a cash deposit.
In March 1998, the Company acquired 15 Summerfield Suites(R) hotels (1,822
suites, 2,766 rooms) for $250,000 from Summerfield Hotel Corporation, Inc.
("Summerfield"). These hotels are leased to subsidiaries of Summerfield for
annual base rent of $25,000. The Company will begin receiving percentage rent,
in 1999, equal to 7.5% of increases in total hotel sales over 1998 levels.
During the first three months of 1998 these hotels had average occupancy, ADR,
and RevPAR of 79.5%, $123.54 and $98.19, respectively, in the 1998 period versus
80.9%, $115.40 and $93.40, respectively, for the comparable 1997 period.
All of the Company's leases require a percentage (usually 5%) of total hotel
sales to be escrowed by the tenant or operator as a reserve for renovations and
refurbishment ("FF&E Reserve"). Funds escrowed in the FF&E reserve accounts are
used for capitalized improvements and replacements to, and refurbishment of, the
hotels. The Company believes that these funds will be adequate to maintain the
competitiveness of its hotels.
To maintain its status as a real estate investment trust ("REIT") under the
Internal Revenue Code of 1986, as amended, the Company must meet certain
requirements including the distribution of at least 95% of its taxable income to
its shareholders. As a REIT, the Company expects not to be subject to federal
income taxes.
11
<PAGE>
HOSPITALITY PROPERTIES TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Dividends are based principally on cash available for distribution which is net
income plus depreciation and amortization of real estate assets and certain
non-cash charges less FF&E reserve income. Cash available for distribution may
not equal cash provided by operating activities because the cash flow of the
Company is affected by other factors not included in the cash available for
distribution calculation.
Dividends declared in 1997 of $0.63 per share were distributed in 1998.
Dividends declared with respect to first quarter 1998 results of $0.64 per share
will be paid to shareholders on or about May 21, 1998. Dividends in a year in
excess of REIT taxable income for that year constitute return of capital.
Seasonality
Most of the Company's hotels experience seasonal variation in operating results
typical of the hotel industry with higher revenues in the second and third
quarters of calendar years compared with the first and fourth quarters. This
seasonality is not presently expected to cause fluctuations in the Company's
rental income because the Company believes that the revenues generated by its
hotels will be sufficient to pay rents on a regular basis notwithstanding
seasonal fluctuations.
Year 2000
The Company is taking steps to minimize any adverse effect on the Company's
business operations from year 2000 issues. While the Company believes its
planning efforts are adequate to address its year 2000 concerns, there can be no
guarantee that the systems of other companies on which the Company's relies for
certain data will be year 2000 compliant on a timely basis and will not have a
material effect on the Company. The Costs related to the year 2000 issues are
not expected to be material to the Company's results of operations or financial
position.
12
<PAGE>
HOSPITALITY PROPERTIES TRUST
PART II Other Information
Item 2. Changes in Securities
In February 1998 the Company issued 15,931 Common Shares to
Advisors as an incentive fee of $550,603 for services rendered
during 1997 based upon a per Common Share price of $34.5625.
These restricted securities were issued pursuant to the
exemption from registration provided under Section 4(2) of the
Securities Act of 1933, as amended.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
1. Current Report on Form 8-K dated February 11, 1998 relating to (a)
sale of common shares of beneficial interest in a public offering,
(b) advisory agreement, (c) management's discussion and analysis
of results of operations and financial condition, (d) the Annual
Financial Statements of the Company as of the year ended December
31, 1997 (Items 5 and 7).
2. Current Report on Form 8-K dated February 12, 1998 relating to (a)
Form of Underwriting Agreement between the Company and Prudential
Securities Incorporated, (b) Opinion of Sullivan & Worcester LLP
re: tax matters, (c) Consent of Sullivan & Worcester LLP (Item 7).
3. Current Report on Form 8-K dated February 13, 1998 relating to pro
forma financial statements of the Company as of the year ended
December 31, 1997 (Item 7).
4. Current Report on Form 8-K dated February 18, 1998 relating to (a)
Form of Underwriting Agreement between the Company and A.G.
Edwards and Sons, Inc., (b) Opinion of Sullivan & Worcester LLP
re: tax matters, (c) Consent of Sullivan & Worcester LLP (Item 7).
5. Current Report on Form 8-K dated February 20, 1998 relating to (a)
Underwriting Agreement between the Company and Donaldson, Lufkin
and Jenrette Securities Corporation, (b) form of Supplemental
Indenture between the Company and State Street Bank and Trust
Company, (c) Pro forma of Ratio of Earnings to Fixed Charges and
Other Data (Item 7).
6. Current Report on Form 8-K dated February 24, 1998 relating to
Form of Underwriting Agreement between the Company and Legg Mason
Wood Walker, Incorporated (Item 7).
13
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HOSPITALITY PROPERTIES TRUST
/s/Thomas M. O'Brien
Thomas M. O'Brien
Treasurer and Chief Financial Officer
(authorized officer and principal
financial officer)
Dated: May 15, 1998
14
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