<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS SUPPLEMENT DATED APRIL 30, 1999
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED JANUARY 15, 1998)
7,000,000 SHARES
HOSPITALITY PROPERTIES TRUST
COMMON SHARES OF BENEFICIAL INTEREST
------------------
We are offering for sale 7,000,000 common shares of beneficial interest. Our
common shares are listed on the New York Stock Exchange under the symbol "HPT."
The last reported sale price for the common shares on April 29, 1999 was $29 1/4
per share.
------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
----------- ---------
<S> <C> <C>
Public Offering Price.................................... $ $
Underwriting Discount.................................... $ $
Proceeds, before expenses, to Hospitality Properties
Trust.................................................. $ $
</TABLE>
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 up to an
additional 1,050,000 shares in order to satisfy over-allotments, if any.
The common shares will be ready for delivery in New York, New York on or
about May , 1999.
------------------------
MERRILL LYNCH & CO.
DONALDSON, LUFKIN & JENRETTE
A.G. EDWARDS & SONS, INC.
FIRST UNION CAPITAL MARKETS CORP.
LEGG MASON WOOD WALKER
INCORPORATED
PRUDENTIAL SECURITIES
SALOMON SMITH BARNEY
------------------------
The date of this prospectus supplement is May , 1999.
<PAGE>
[INSIDE FRONT COVER]
HOSPITALITY PROPERTIES TRUST
<TABLE>
<S> <C>
[Picture of Hotel] [Picture of Hotel]
St. Louis Marriott-Registered Trademark- Wyndham Garden-Registered Trademark-
St. Louis, Missouri San Diego, California
</TABLE>
[Picture of Hotel]
Wyndham-Registered Trademark-
Salt Lake City, Utah
<TABLE>
<S> <C>
[Picture of Hotel] [Picture of Hotel]
Courtyard by Marriott-Registered Trademark- Nashville Marriott-Registered Trademark-
Scottsdale, Arizona Nashville, Tennessee
</TABLE>
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
PROSPECTUS SUPPLEMENT
Summary.................................................................................................... S-4
Recent Developments........................................................................................ S-6
Financing Policies......................................................................................... S-6
Business Policies.......................................................................................... S-6
Dividends.................................................................................................. S-8
Price Range of Shares...................................................................................... S-8
Capitalization............................................................................................. S-9
Use of Proceeds............................................................................................ S-9
Historical and Adjusted Pro Forma Consolidated Financial Information....................................... S-10
The Company................................................................................................ S-12
Management................................................................................................. S-21
Federal Income Tax and ERISA Considerations................................................................ S-22
Underwriting............................................................................................... S-24
Legal Matters.............................................................................................. S-25
Experts.................................................................................................... S-26
Incorporation of Certain Information by Reference.......................................................... S-26
Where You Can Find More Information........................................................................ S-27
Forward-Looking Statements................................................................................. S-28
Index to Unaudited Adjusted Pro Forma 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" HAVE BEEN COMPLETED,
INCLUDING THE PURCHASE OF THE SIX HOTELS WHICH WE HAVE NOT YET ACQUIRED. THIS
OFFERING 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 AS WE CURRENTLY INTEND. IN PRESENTING "ADJUSTED PRO FORMA" INFORMATION,
WE HAVE MADE THE SAME ASSUMPTIONS 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'
OVER-ALLOTMENT OPTION IS NOT EXERCISED.
S-3
<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") that buys, owns and leases hotels. We currently own or have agreed to
buy a total of 204 hotels with 27,683 rooms costing $2.1 billion. Our business
strategy is to invest in high quality hotels leased to experienced hotel
operators for rents which exceed our cost of capital. The average age of our
hotels is five years. We believe that our hotels are among the newest, best
designed and best located hotels in their market segments. Our principal place
of business is 400 Centre Street, Newton, Massachusetts 02458 and our telephone
number is (617) 964-8389.
HPT Investments by Hotel Brand
[Tabular Representation of Pie Chart]
Courtyard by Marriott - Registered Trademark -
66 hotels
9,354 rooms
$654 million........................................... 31%
Residence Inn by Marriott - Registered Trademark -
34 hotels
4,315 suites
$371 million........................................... 17%
Candlewood Suites - Registered Trademark -
34 hotels
3,892 suites
$261 million........................................... 12%
Summerfield Suites - Registered Trademark -
15 hotels
1,822 suites
$240 million........................................... 11%
Wyndham - Registered Trademark -
12 hotels
2,321 rooms
$183 million........................................... 9%
Homestead Village - Registered Trademark -
18 hotels
2,399 rooms
$145 million........................................... 7%
Sumner Suites - Registered Trademark -
14 hotels
1,641 suites
$140 million........................................... 7%
TownePlace Suites by Marriott - Registered Trademark -
9 hotels
939 suites
$69 million............................................ 3%
Marriott - Registered Trademark - full-service
2 hotels
1,000 rooms
$64 million............................................ 3%
S-4
<PAGE>
DIVIDENDS
We have raised our quarterly dividends ten times since our initial public
offering in August 1995. The following chart shows our per share growth in
dividends, funds from operations, or FFO, and cash available for distribution,
or CAD. The adjusted pro forma data assumes this offering and all pending
acquisitions are completed. FFO is net income plus depreciation, amortization
and non-recurring items plus refurbishment reserve deposits not in net income.
CAD is FFO less refurbishment deposit reserves and non-cash charges. Although
some investors may focus on FFO as a measure of financial performance for a
REIT, we believe CAD is the best measure of financial performance for a hotel
REIT because CAD takes account of recurring capital expenditure needs.
HPT DIVIDENDS, CAD AND FFO PER SHARE
[TABULAR REPRESENTATION OF BAR CHART]
<TABLE>
<CAPTION>
DIVIDEND CAD FFO
<S> <C> <C> <C>
1996 $2.34 $2.62 $3.20
1997 $2.45 $2.88 $3.48
1998 $2.62 $3.08 $3.61
adjusted pro forma (1) $2.72 $3.12 $3.68
</TABLE>
- ------------------------------
(1) Represents first quarter 1999 dividend, CAD and FFO, each annualized.
THE OFFERING
<TABLE>
<S> <C>
Common shares being offered by us........................... 7,000,000 Shares
Common shares to be outstanding after the offering.......... 52,628,443 Shares
Use of proceeds............................................. To repay debt, to buy hotels and for general
business purposes.
NYSE Symbol................................................. HPT
</TABLE>
S-5
<PAGE>
RECENT DEVELOPMENTS
- 17 MARRIOTT-REGISTERED TRADEMARK- HOTELS (2,665 ROOMS) FOR $202 MILLION.
In December 1998 we agreed to buy two full service
Marriott-Registered Trademark- hotels, three Courtyard by
Marriott-Registered Trademark-, three Residence Inn by
Marriott-Registered Trademark- and nine TownePlace Suites by
Marriott-Registered Trademark- hotels. Through April 29, 1999, we bought
11 of these properties. When all 17 of these hotels are acquired they will
be leased on a combined basis to a subsidiary of Marriott International,
Inc. (NYSE: MAR) ("Marriott"). This lease has an initial term ending in
2013 and will require minimum rent of $21.3 million per year, plus
percentage rent based upon increases in total revenues at these hotels.
- 18 HOMESTEAD VILLAGE-REGISTERED TRADEMARK- HOTELS (2,399 ROOMS) FOR $145
MILLION. On February 24, 1999 we acquired and leased these hotels on a
combined basis to a subsidiary of Homestead Village Incorporated (NYSE:
HSD) ("Homestead"). This lease has an initial term ending in 2015 and
requires minimum rent of $16.0 million per year, plus percentage rent
based upon increases in total revenues at these hotels.
- $75 MILLION OF PREFERRED SHARES. On April 12, 1999 we sold 3,000,000
Series A Preferred Shares for $25 each. These preferred shares require
annual dividends of $2.375 per share (i.e., 9.5% of the issue price), and
although they have no maturity, we may redeem them at $25 per share after
April 11, 2004. We used the net proceeds of the preferred share offering
to reduce borrowings under our $300 million unsecured, revolving credit
facility.
FINANCING POLICIES
Since our initial public offering in 1995, we have been conservatively
capitalized. 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-). All of our debt is
unsecured. We believe that our conservative financing policy and investment
grade ratings have enabled us to access the capital markets on favorable terms
and will continue to facilitate our growth. At April 29, 1999, our total debt of
$514 million constituted 29% of our total book value capitalization.
BUSINESS POLICIES
Our ability to pay dividends to shareholders depends upon our receipt of
rents. We believe that our lease structure is among the most secure of all
public hotel REITs. Our leases are designed to increase our rents during
cyclical upturns and secure our minimum rents during cyclical downturns.
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. Our most recent lease requires
minimum annual rent equal to 11% of our investment.
- 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 is 14 years.
S-6
<PAGE>
- POOLED LEASES. Each of our hotels is part of a combination of hotels. The
lease obligations for hotels in each combination are subject to cross
default with obligations for all hotels in the same combination. The
smallest combination includes nine hotels with 1,336 rooms in which we
have invested $129 million; the largest combination includes 53 hotels
with 7,610 rooms in which we have invested $505 million.
- STRONG LOCATIONS. Many of our hotels are located in the vicinity of major
demand generators such as large suburban office parks, airports and
medical or educational facilities.
- GEOGRAPHIC DIVERSIFICATION. Each combination of our hotels leased to a
single tenant is geographically diversified.
- ALL OR NONE RENEWALS. All tenant renewal options for each combination of
our 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 reserves to fund periodic renovations (the "FF&E
Reserve"). For the twelve months ended March 31, 1999, the FF&E Reserve
averaged $1,601 per room per year for pooled leases of hotels which were
all open for at least one year prior to that period.
- SUBORDINATED MANAGEMENT FEES. Our rent must be paid before the hotel
management fee can be paid.
- GUARANTEES FOR NEW HOTELS. When we purchase and lease recently built
hotels, we require that payment of rent be guaranteed by the public
company parent of our tenant until the operations of the hotels achieve
negotiated rent coverage levels. Except for guarantors whose obligations
are investment grade rated, or whose net worth is substantially in excess
of the guaranteed annual minimum rent, these guarantees are secured by
deposits.
- 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 twelve months ended March 31,
1999, for 112 of our hotels which had been open for that entire period,
constituting five lease pools, cash flow available for rent, after paying
all non-subordinated expenses and after required FF&E Reserves, was 1.6
times the total rent due to us. For all 197 of the hotels we owned,
including 70 hotels which had been open for less than one full year as of
the beginning of the last twelve months ended March 31, 1999, cash flow
available for rent, after paying all non-subordinated expenses and after
required FF&E Reserves, was 1.4 times the total rent due to us. We believe
that these are the highest rent coverage ratios among all public hotel
REITs.
S-7
<PAGE>
DIVIDENDS
We pay regular quarterly dividends on our common shares. The current
quarterly dividend rate is $0.68 per share. The following chart shows the
history of our dividend rate since we became a public company on August 22,
1995. Our dividend has been increased 10 times since our IPO, including once for
each of the last eight consecutive quarters. The dividends shown are generally
paid in the quarter following the quarter to which they relate.
HPT DIVIDENDS PER SHARE
<TABLE>
<CAPTION>
1995 1996 1997 1998 1999
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
First Quarter................. $0.58 $0.59 $0.64 $0.68
Second Quarter................ 0.58 0.61 0.65
Third Quarter................. $0.24(1) 0.59 0.62 0.66
Fourth Quarter................ 0.55 0.59 0.63 0.67
----- ----- ----- -----
Total..................... $0.79 $2.34 $2.45 $2.62
</TABLE>
- ------------------------------
(1) For the period from the date of our initial public offering on August 22,
1995 through September 30, 1995.
PRICE RANGE OF SHARES
HPT's common shares are listed on the NYSE under the symbol "HPT." The
following table sets forth the range of high and low closing sales prices per
common share on the NYSE on a quarterly basis from August 22, 1995, our initial
public offering date, through April 29, 1999.
PRICE RANGE OF COMMON SHARES
<TABLE>
<CAPTION>
1995
--------------------
<S> <C> <C> <C><C>
HIGH LOW
---------- --------
3rd quarter (from IPO)...................................... $27 $24 1/2
4th quarter................................................. 26 3/4 24 3/8
<CAPTION>
1996
--------------------
HIGH LOW
---------- --------
<S> <C> <C> <C><C>
1st quarter................................................. $27 7/8 $25 1/2
2nd quarter................................................. 27 24 5/8
3rd quarter................................................. 26 7/8 25
4th quarter................................................. 29 1/2 25
</TABLE>
<TABLE>
<CAPTION>
1997
--------------------
HIGH LOW
---------- --------
<S> <C> <C> <C><C>
1st quarter................................................. $33 $28 3/8
2nd quarter................................................. 32 1/8 29 3/8
3rd quarter................................................. 35 15/16 30 7/16
4th quarter................................................. 38 5/16 33 1/16
<CAPTION>
1998
--------------------
HIGH LOW
---------- --------
<S> <C> <C> <C><C>
1st quarter................................................. $36 3/4 $32 1/16
2nd quarter................................................. 35 5/8 29 7/8
3rd quarter................................................. 34 9/16 24 13/16
4th quarter................................................. 29 5/16 23 15/16
</TABLE>
<TABLE>
<CAPTION>
1999
--------------------
HIGH LOW
---------- --------
<S> <C> <C> <C><C>
1st quarter................................................. $27 9/16 $25 1/2
2nd quarter (to April 29)................................... 29 5/8 26 9/16
</TABLE>
S-8
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 1999,
adjusted assuming completion of this offering, and adjusted pro forma assuming
completion of this offering, our issuance on April 12, 1999 of 3,000,000
preferred shares and our purchase of the six Marriott hotels described in
"Recent Developments."
<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
-------------------------------------------
ADJUSTED
ACTUAL ADJUSTED PRO FORMA
------------- ------------- -------------
(IN THOUSANDS EXCEPT SHARE DATA)
<S> <C> <C> <C>
Debt:
Credit facility................................................... $172,000 $-- $--
Senior notes, net of discount..................................... 414,759 414,759 414,759
------------- ------------- -------------
Total debt(1)................................................. 586,759 414,759 414,759
Shareholders' equity:
Preferred shares, without par value 100,000,000 authorized, none
issued and adjusted and 3,000,000 adjusted pro forma............ -- -- 72,438
Common shares, par value $0.01 per share 100,000,000 authorized,
45,628,443 issued, 52,628,443 adjusted and adjusted pro forma... 456 526 526
Additional paid-in capital........................................ 1,231,688 1,425,119 1,425,119
Cumulative net income............................................. 226,403 226,403 226,403
Dividends (paid or declared)...................................... (260,955) (260,955) (260,955)
------------- ------------- -------------
Total shareholders' equity.................................... 1,197,592 1,391,093 1,463,531
------------- ------------- -------------
Total capitalization................................................ $ 1,784,351 $ 1,805,852 $ 1,878,290
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
- ------------------------
(1) Excludes our obligation to refund cash security deposits upon lease
expirations and to refund cash guarantee deposits when the operating
performance of the related hotels reaches negotiated rent coverage levels.
USE OF PROCEEDS
We estimate that the proceeds of this offering of common shares after the
underwriting discount and other estimated expenses will be approximately $193.5
million ($222.6 million if the underwriters' over-allotment is exercised in
full). We expect to use the net proceeds of this offering to repay all or a
portion of amounts outstanding under our unsecured revolving credit facility, to
buy hotels and for general business purposes. Our credit facility bears interest
at LIBOR plus a spread and matures on March 19, 2002. At April 29, 1999, the
effective interest rate on our credit facility was 6.1% 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>
HISTORICAL AND ADJUSTED PRO FORMA CONSOLIDATED
FINANCIAL INFORMATION
The following table contains information derived from our audited and
unaudited financial statements and the unaudited adjusted pro forma consolidated
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 to fully understand this information.
<TABLE>
<CAPTION>
ADJUSTED ADJUSTED
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
-------------------------------- ------------ ---------- ----------
YEAR ENDED DECEMBER 31, YEAR ENDED
-------------------------------- DECEMBER 31, QUARTER ENDED
1996 1997 1998 1998 MARCH 31, 1999
-------- ---------- ---------- ------------ ----------------------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Rental income......................... $69,514 $98,561 $157,223 $216,544 $49,042 $54,207
Total revenues........................ 82,629 114,132 174,961 235,386 53,273 59,041
Net income(1)......................... 51,664 59,153 87,982 113,796 22,896 28,022
Net income available for common
shareholders(1)..................... 51,664 59,153 87,982 106,671 22,896 26,241
BALANCE SHEET DATA (AT END OF PERIOD):
Real estate properties, at cost....... $842,687 $1,266,035 $1,887,735 $2,113,258 $2,188,582
Real estate properties, net........... 816,469 1,207,868 1,774,811 1,983,063 2,058,387
Total assets.......................... 871,603 1,313,256 1,837,638 2,028,674 2,130,460
Total borrowings...................... 125,000 125,000 414,753 586,759 414,759
Total shareholders' equity............ 645,208 1,007,893 1,173,857 1,197,592 1,463,531
OTHER DATA:
FFO (2)............................... $74,037 $95,736 $152,762 $190,702 $43,238 $48,388
CAD (3)............................... 60,791 79,302 130,322 166,120 36,909 41,244
Cash provided by operating
activities.......................... 61,743 81,225 134,400 38,400
Cash used in investing activities..... 448,678 347,291 557,867 197,923
Cash provided by financing
activities.......................... 422,873 309,721 366,349 141,451
PER COMMON SHARE DATA: (4)
Net income (1)........................ $2.23 $2.15 $2.08 $2.16 $0.50 $0.53
Net income available for common
shareholders (1).................... $2.23 $2.15 $2.08 $2.03 $0.50 $0.50
FFO (2)............................... $3.20 $3.48 $3.61 $3.62 $0.95 $0.92
CAD (3)............................... $2.62 $2.88 $3.08 $3.16 $0.81 $0.78
Dividends............................. $2.34 $2.45 $2.62 $2.62 $0.68 $0.68
</TABLE>
S-10
<PAGE>
- --------------------------
(1) Excludes for 1998 an extraordinary loss from the early extinguishment of
debt of $6,641 ($0.16 per share historical and $0.13 per share adjusted pro
forma).
(2) FFO is net income plus depreciation, amortization, non-recurring items and
refurbishment reserve deposits not in net income. Some of our leases provide
that we own the refurbishment reserves, while other leases provide that the
reserves are owned by the tenant and we have a security and remainder
interest in the reserve account. When we own the reserve, generally accepted
accounting principles ("GAAP") require that payments into the reserve be
reported as additional rent. When we have a security and remainder interest
in the reserve account, deposits are not included in revenue. Management
considers FFO to be a measure of the financial performance of an equity REIT
that provides a relevant basis for comparison among REITs and FFO is
presented to assist investors in analyzing our performance. FFO does not
represent cash flows from operating activities (as determined in accordance
with GAAP) and should not be considered an alternative to net income as an
indicator of our financial performance or to cash flows from operating
activities as a measure of liquidity.
(3) CAD is net income plus depreciation, amortization and other non-cash
charges, less refurbishment reserve deposits. Although some investors may
focus on FFO as a measure of financial performace for a REIT, we believe CAD
is a better measure of financial performance than FFO for a hotel REIT
because CAD takes account of recurring capital expenditure needs.
(4) Historical per share computations are based on our historical weighted
average common shares outstanding. We have no dilutive securities. Adjusted
pro forma amounts have been computed based on our weighted average common
shares adjusted to reflect this offering and common shares issued in 1998 as
outstanding for the entire period presented.
S-11
<PAGE>
THE COMPANY
HPT is a REIT that buys, owns and leases hotels. Our principal growth
objective is to increase CAD per share from dependable and diverse 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 experienced
hotel operating companies which are not affiliated with us; use moderate debt
leverage to fund additional investments; design leases which require minimum
rents at 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 FFO or CAD. Our leases are
designed so that net operating revenues from our hotels may exceed our rents by
considerable coverage margins.
S-12
<PAGE>
HOTELS
Upon completion of the acquisitions described in "Recent Developments," we
will have investments totaling $2.1 billion in 204 hotels, with 27,683 rooms,
located in 35 states.
LOCATION OF HPT HOTELS
[MAP OF THE UNITED STATED SHOWING LOCATION OF HPT HOTELS]
<TABLE>
<CAPTION>
INVESTMENT
NO. OF NO. OF (IN
STATE HOTELS ROOMS 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.................. 13 1,705 135,722
Georgia.................. 17 2,151 154,695
Illinois................. 7 1,021 84,877
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................. 6 788 65,328
Massachusetts............ 9 1,206 81,100
Michigan................. 6 741 49,090
Minnesota................ 3 492 28,386
Missouri................. 4 1,005 53,000
<CAPTION>
INVESTMENT
NO. OF NO. OF (IN
STATE HOTELS ROOMS THOUSANDS)
- ------------------------- ----------- --------- -------------
<S> <C> <C> <C>
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........... 10 1,270 83,551
Ohio..................... 3 308 24,714
Oklahoma................. 1 122 10,414
Pennsylvania............. 9 1,154 96,033
Rhode Island............. 1 148 10,200
South Carolina........... 2 232 16,005
Tennessee................ 6 1,021 83,549
Texas.................... 18 2,389 186,236
Utah..................... 3 601 61,709
Virginia................. 20 2,486 194,639
Washington............... 3 522 43,529
Wisconsin................ 1 147 8,500
--- --------- -------------
Total (35 states)........ 204 27,683 $2,125,902
--- --------- -------------
--- --------- -------------
</TABLE>
The purchase of the remaining six hotels that we have agreed to buy is
subject to the satisfaction of a number of conditions, including completion of
construction by Marriott. If these conditions are not satisfied, we may not
acquire one or more of these hotels.
The average age of our hotels is five years. We believe that our portfolio
of hotels is among the newest of all publicly owned hotel REITs.
S-13
<PAGE>
LEASES
Our 204 hotels are grouped into eleven combinations and leased to separate
affiliates of publicly owned hotel companies including Marriott, Host Marriott
Corporation ("Host"), Crestline Capital Corporation ("Crestline"), Patriot
American Hospitality Corp. and Wyndham International, Inc. (collectively
"Wyndham"), Homestead, Candlewood Hotel Company ("Candlewood") and ShoLodge,
Inc. ("ShoLodge"). The chart below and on the next page summarizes important
features of our leases.
<TABLE>
<CAPTION>
MARRIOTT
-REGISTERED
TRADEMARK-
FULL-SERVICE
(2 HOTELS),
COURTYARD BY
MARRIOTT
-REGISTERED
TRADEMARK-
(3 HOTELS), RESIDENCE
RESIDENCE INN INN BY
BY MARRIOTT MARRIOTT
-REGISTERED -REGISTERED
TRADEMARK- TRADEMARK-
(3 HOTELS), (10 HOTELS)
TOWNEPLACE RESIDENCE AND
COURTYARD BY SUMMERFIELD SUITES BY INN BY COURTYARD BY
MARRIOTT SUITES MARRIOTT WYNDHAM MARRIOTT MARRIOTT
-REGISTERED -REGISTERED -REGISTERED -REGISTERED -REGISTERED -REGISTERED
TRADEMARK- TRADEMARK- TRADEMARK- TRADEMARK- TRADEMARK- TRADEMARK-
TYPE OF HOTELS (53 HOTELS) (15 HOTELS) (9 HOTELS) (12 HOTELS) (18 HOTELS) (4 HOTELS)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NUMBER OF STATES 24 8 8 8 14 7
- ---------------------------------------------------------------------------------------------------------------------------------
DOLLARS INVESTED $505.4 million $240.0 million $202.0 million $182.6 million $172.2 million $148.8 million
- ---------------------------------------------------------------------------------------------------------------------------------
TENANT subsidiary of subsidiary of subsidiary of subsidiary of subsidiary of subsidiary of
Host; subleased Wyndham Marriott Wyndham Host; subleased Marriott
to Crestline to Crestline
- ---------------------------------------------------------------------------------------------------------------------------------
MANAGER subsidiary of subsidiary of subsidiary of subsidiary of subsidiary of subsidiary of
Marriott Wyndham Marriott Wyndham Marriott Marriott
- ---------------------------------------------------------------------------------------------------------------------------------
MINIMUM RENT PER $50.5 million $25.0 million $21.3 million $18.3 million $17.2 million $14.9 million
YEAR
- ---------------------------------------------------------------------------------------------------------------------------------
INITIAL LEASE TERM 2012 2015 2013 2012 2010 2014
EXPIRATION
- ---------------------------------------------------------------------------------------------------------------------------------
RENEWAL OPTIONS all or none all or none all or none all or none all or none all or none
3 for 12 years 4 for 12 years 2 for 10 years 4 for 12 years 1 for 10 years 1 for 12 years
2 for 15 years 1 for 10 years
- ---------------------------------------------------------------------------------------------------------------------------------
SECURITY DEPOSIT $50.5 million $15.0 million $21.3 million $18.3 million $17.2 million $14.9 million
- ---------------------------------------------------------------------------------------------------------------------------------
FF&E RESERVES FOR $1,483/room $1,911/suite n/a (new $1,713/room $1,633/suite $1,345/suite
THE TWELVE MONTHS construction)
ENDED MARCH 31,
1999
- ---------------------------------------------------------------------------------------------------------------------------------
CROSS DEFAULTS yes yes yes yes yes yes
WITHIN EACH GROUP
- ---------------------------------------------------------------------------------------------------------------------------------
MANAGEMENT FEES subordinated subordinated subordinated subordinated subordinated subordinated
- ---------------------------------------------------------------------------------------------------------------------------------
RENT COVERAGE: 1.84x 1.31x n/a (new 1.56x 1.75x 1.31x
TWELVE MONTHS construction)
ENDED MARCH 31,
1999 (HOTEL
OPERATING RESULTS
AFTER FF&E
RESERVES AND ALL
NON-SUBORDINATED
CHARGES)
- ---------------------------------------------------------------------------------------------------------------------------------
OTHER SECURITY -- -- Marriott has Wyndham has -- Marriott has
provided a limited provided, for the provided a
guarantee until Salt Lake City limited
cash flow reaches hotel, a secured guarantee until
a negotiated rent limited guarantee cash flow
coverage ratio until cash flow reaches a
reaches a negotiated rent
negotiated rent coverage ratio
coverage ratio
</TABLE>
S-14
<PAGE>
<TABLE>
<CAPTION>
COURTYARD BY
MARRIOTT
-REGISTERED
TRADEMARK-
(6 HOTELS)AND
CANDLEWOOD RESIDENCE
HOMESTEAD SUITES SUMNER INN BY CANDLEWOOD
VILLAGE- -REGISTERED SUITES MARRIOTT SUITES
REGISTERED TRADEMARK- -REGISTERED -REGISTERED -REGISTERED
TRADEMARK- SUITES(17 TRADEMARK- TRADEMARK- TRADEMARK-
TYPE OF HOTELS (18 HOTELS) HOTELS) (14 HOTELS) (3 HOTELS) (17 HOTELS)
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------
NUMBER OF STATES 5 13 8 8 13
- ---------------------------------------------------------------------------------------------------------
DOLLARS INVESTED $145.0 million $142.4 million $140.0 million $129.3 million $118.5 million
- ---------------------------------------------------------------------------------------------------------
TENANT subsidiary of subsidiary of subsidiary of subsidiary of subsidiary of
Homestead Candlewood ShoLodge Marriott Candlewood
- ---------------------------------------------------------------------------------------------------------
MANAGER subsidiary of subsidiary of subsidiary of subsidiary of subsidiary of
Homestead Candlewood ShoLodge Marriott Candlewood
- ---------------------------------------------------------------------------------------------------------
MINIMUM RENT $16.0 million $14.2 million $14.0 million $12.9 million $12.1 million
PER YEAR
- ---------------------------------------------------------------------------------------------------------
INITIAL LEASE TERM 2015 2011 2008 2012 2011
EXPIRATION
- ---------------------------------------------------------------------------------------------------------
RENEWAL OPTIONS all or none all or none all or none all or none all or none
2 for 15 years 3 for 15 years 5 for 10 years 2 for 10 years 3 for 15 years
- ---------------------------------------------------------------------------------------------------------
SECURITY DEPOSIT $16.0 million $14.2 million $14.0 million $12.9 million $12.1 million
- ---------------------------------------------------------------------------------------------------------
FF&E RESERVES n/a (new n/a (new n/a (new n/a (new n/a (new
FOR THE TWELVE construction) construction) construction) construction) construction)
MONTHS ENDED
MARCH 31, 1999
- ---------------------------------------------------------------------------------------------------------
CROSS DEFAULTS yes yes yes yes yes
WITHIN EACH GROUP
- ---------------------------------------------------------------------------------------------------------
MANAGEMENT FEES subordinated subordinated subordinated subordinated subordinated
- ---------------------------------------------------------------------------------------------------------
RENT COVERAGE: n/a (new n/a (new n/a (new n/a (new n/a (new
TWELVE MONTHS construction) construction) construction) construction) construction)
ENDED MARCH 31,
1999 HOTEL
OPERATING RESULTS
AFTER FF&E
RESERVES AND ALL
NON-SUBORDINATED
CHARGES)
- ---------------------------------------------------------------------------------------------------------
OTHER SECURITY Homestead has Candlewood has ShoLodge has Marriott has Candlewood has
provided a full provided a provided a provided a provided a
recourse secured limited secured limited limited secured limited
guarantee until guarantee until guarantee until guarantee until guarantee until
cash flow cash flow cash flow cash flow cash flow
coverage reaches a reaches a reaches a reaches a
reaches a negotiated rent negotiated rent negotiated rent negotiated rent
negotiated rent coverage ratio coverage ratio coverage ratio coverage ratio
coverage ratio
</TABLE>
S-15
<PAGE>
HOTEL BRANDS
HPT COURTYARD BY MARRIOTT-REGISTERED TRADEMARK- HOTELS
COURTYARD BY MARRIOTT-REGISTERED TRADEMARK- hotels are designed to attract
both business and leisure travelers. A typical Courtyard by
Marriott-Registered Trademark- 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-Registered Trademark- hotels are
situated on well landscaped grounds and 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-Registered Trademark- hotels. In addition,
many of the same amenities as would be available in full service
Marriott-Registered Trademark- hotels are available in Courtyard by
Marriott-Registered Trademark- 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 March 1999, 415 Courtyard by Marriott-Registered Trademark-
hotels were open and operating nationally. We believe that the Courtyard by
Marriott-Registered Trademark- brand is the leading brand in the mid-priced
segment of the United States hotel industry.
We have invested or agreed to invest a total of $654 million in 66 Courtyard
by Marriott-Registered Trademark- hotels which have 9,354 rooms. For the twelve
months ended March 26, 1999, the average daily rate ("ADR"), occupancy and
revenue per available room ("REVPAR") for our 55 Courtyard by
Marriott-Registered Trademark- hotels which were open for a full year as of
April 1, 1998 were as follows:
<TABLE>
<S> <C>
ADR............................................. $ 90.39
Occupancy....................................... 80.6%
REVPAR.......................................... $ 72.85
</TABLE>
HPT RESIDENCE INN BY MARRIOTT-REGISTERED TRADEMARK- HOTELS
RESIDENCE INN BY MARRIOTT-REGISTERED TRADEMARK- hotels are designed to
attract business, governmental and family travelers who stay more than five
consecutive nights. Residence Inn by Marriott-Registered Trademark- hotels
generally have between 80 and 130 studio, one bedroom and two bedroom suites.
Most Residence Inn by Marriott-Registered Trademark- hotels are designed as
residential style buildings with landscaped walkways, courtyards and
recreational areas. Residence Inn by Marriott-Registered Trademark- hotels do
not have restaurants. All offer complimentary continental breakfast and a
complimentary evening hospitality hour. In addition, each suite contains a fully
equipped kitchen and many have fireplaces. Most Residence Inn by
Marriott-Registered Trademark- hotels also have swimming pools, exercise rooms,
sports courts and guest laundries. According to Marriott, as of March 1999, 294
Residence Inn by Marriott-Registered Trademark- hotels were open and operating
nationally. We believe that the Residence Inn by Marriott-Registered Trademark-
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 $371 million in 34 Residence
Inn by Marriott-Registered Trademark- hotels which have 4,315 suites. For the
twelve months ended March 26, 1999, the
S-16
<PAGE>
ADR, occupancy and REVPAR for our 25 Residence Inn by
Marriott-Registered Trademark- hotels which were open for a full year as of
April 1, 1998 were as follows:
<TABLE>
<S> <C>
ADR............................................. $ 97.76
Occupancy....................................... 82.8%
REVPAR.......................................... $ 80.95
</TABLE>
HPT WYNDHAM-REGISTERED TRADEMARK- HOTELS
WYNDHAM-REGISTERED TRADEMARK- HOTELS. Eleven of our
Wyndham-Registered Trademark- hotels are Wyndham Garden-Registered Trademark-
hotels. Wyndham Garden-Registered Trademark- 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 large desks, room service and
access to 24-hour telecopy and mail/package service. The meeting facilities at
Wyndham Garden-Registered Trademark- hotels generally can accommodate groups of
between 10 and 200 people in a flexible meeting room design with audiovisual
equipment. Wyndham Garden-Registered Trademark- hotels also feature lobby
lounges, most of which have a fireplace, libraries typically overlooking a
landscaped garden and swimming pools. In addition, many Wyndham
Garden-Registered Trademark- hotels contain whirlpool and exercise facilities.
Each Wyndham Garden-Registered Trademark- hotel contains a cafe restaurant which
serves a full breakfast, lunch and dinner menu. We believe that the Wyndham
Garden-Registered Trademark- brand is one of the leading brands in the full
service segment of the United States hotel industry. The one additional
Wyndham-Registered Trademark- hotel we own is a full service hotel located in
downtown Salt Lake City adjacent to the Salt Lake City Delta Center. This hotel
includes 381 rooms, 14,469 square feet of meeting space and two restaurants and
lounges. We believe this hotel is a leading convention hotel in Salt Lake City.
The 12 Wyndham-Registered Trademark- and Wyndham
Garden-Registered Trademark- hotels owned by us represent a total investment of
$183 million and contain 2,321 rooms. All 12 of our
Wyndham-Registered Trademark- hotels are leased on a combined basis to a
subsidiary of Wyndham. For the twelve months ended March 31, 1999 these hotels
had ADR, occupancy and REVPAR as follows:
<TABLE>
<S> <C>
ADR............................................. $ 96.97
Occupancy....................................... 71.8%
REVPAR.......................................... $ 69.62
</TABLE>
HPT SUMMERFIELD SUITES-REGISTERED TRADEMARK- HOTELS
SUMMERFIELD SUITES-REGISTERED TRADEMARK- hotels are upscale, all suite
extended stay hotels which offer guests separate living and sleeping areas, full
kitchens, large work areas, complimentary breakfasts and evening social hours.
Private voice mail, video players, on site convenience stores and "room service"
contracted from area restaurants also are generally available. In addition,
Summerfield Suites-Registered Trademark- offers "signature" two bedroom, two
bathroom suites designed for equal-status business travelers in training classes
or attending meetings and for families on weekends.
S-17
<PAGE>
The 15 Summerfield Suites-Registered Trademark- hotels which we own
represent a total investment of $240 million and contain 1,822 suites (2,766
rooms). For the twelve months ended March 31, 1999 these hotels had ADR,
occupancy and REVPAR as follows:
<TABLE>
<S> <C>
ADR............................................ $ 120.26
Occupancy...................................... 80.3%
REVPAR......................................... $ 96.57
</TABLE>
HPT SUMNER SUITES-REGISTERED TRADEMARK- HOTELS
SUMNER SUITES-REGISTERED TRADEMARK- hotels are all suite hotels designed to
attract value-oriented business travelers. Sumner Suites-Registered Trademark-
hotels compete in the all suite segment of the lodging industry against such
brands as Embassy Suites-Registered Trademark-, Hampton Inns and
Suites-Registered Trademark- and AmeriSuites-Registered Trademark-. Each Sumner
Suites-Registered Trademark- 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-Registered Trademark- hotel has an attractive lobby lounge
where free continental breakfasts are provided in the mornings and cocktails are
generally available in the evening. In addition, all Sumner
Suites-Registered Trademark- hotels have meeting rooms that can accommodate up
to 150 people, fitness facilities and pools. Sumner Suites-Registered Trademark-
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-Registered Trademark-
hotels which include 1,641 guest suites. All of our Sumner
Suites-Registered Trademark- hotels are leased on a combined basis to one
subsidiary of ShoLodge, a publicly owned company quoted on the Nasdaq National
Market. Twelve of these hotels were built and opened between April 1996 and
August 1997, one of these hotels opened in late 1995 and one re-flagged hotel
underwent extensive renovations in 1998. For the twelve months ended March 21,
1999 the ADR, occupancy and REVPAR for all 14 of our Sumner
Suites-Registered Trademark- hotels were as follows:
<TABLE>
<S> <C>
ADR............................................. $ 78.16
Occupancy....................................... 59.1%
REVPAR.......................................... $ 46.19
</TABLE>
HPT CANDLEWOOD SUITES-REGISTERED TRADEMARK- HOTELS
CANDLEWOOD SUITES-REGISTERED TRADEMARK- hotels are extended stay hotels
which offer studio and one bedroom suites designed for business travelers
expecting to stay five or more days. Candlewood Suites-Registered Trademark-
hotels compete in the mid-priced extended stay segment of the lodging industry
against such other brands as Sierra Suites-Registered Trademark-, TownePlace
Suites by Marriott-Registered Trademark- and MainStay
Suites-Registered Trademark-. Each Candlewood Suites-Registered Trademark- 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 a large desk and executive chair, two phone
lines, voice mail and a speaker phone. Each Candlewood
Suites-Registered Trademark- suite contains a king size bed. Other amenities
offered at each Candlewood Suites-Registered Trademark- hotel include a fitness
center, free guest laundry facilities, and a Candlewood
Cupboard-Registered Trademark- area where guests can purchase light meals,
snacks and other
S-18
<PAGE>
refreshments. We believe that Candlewood Suites-Registered Trademark- will
become one of the leading brands in the mid-priced, extended stay segment of the
United States hotel industry.
We have invested $261 million to acquire 34 Candlewood
Suites-Registered Trademark- hotels which include 3,892 suites. One of these
hotels was opened in May 1996, 14 were opened in 1997, 18 were opened during
1998 and one was opened during 1999. We believe that the current performance of
our Candlewood Suites-Registered Trademark- hotels is not indicative of their
operating potential because of their recent development. However, for the 18
HPT-owned Candlewood Suites-Registered Trademark- hotels which were open prior
to April 1, 1998 (including fifteen opened less than one year prior to that
period), ADR, occupancy and REVPAR for the twelve months ended March 31, 1999
were as follows:
<TABLE>
<S> <C>
ADR............................................. $ 56.07
Occupancy....................................... 75.8%
REVPAR.......................................... $ 42.50
</TABLE>
HPT HOMESTEAD VILLAGE-REGISTERED TRADEMARK- HOTELS
HOMESTEAD VILLAGE-REGISTERED TRADEMARK- hotels are extended stay hotels
designed for value-oriented business travelers. Each Homestead
Village-Registered Trademark- room features a kitchen with a full-size
refrigerator, stovetop, microwave, coffee maker plus utensils and dishes. A work
area is provided with a well-lighted desktop and a computer data port.
Complimentary local phone calls, fax service, copy service and personalized
voice-mail are also available to guests. On-site laundry and other personal care
services are available. Housekeeping services are provided on a twice-weekly
basis. According to Homestead, there were 125 Homestead
Village-Registered Trademark- hotels open as of December 31, 1998. We have
purchased 18 Homestead Village-Registered Trademark- hotels with a total of
2,399 rooms for $145 million. Four of these hotels were opened during 1998, 13
were opened during 1997 and one was opened in 1996. HPT believes that the
current performance of the Homestead Village-Registered Trademark- hotels is not
indicative of their operating potential because of their recent development.
However, for the 14 HPT-owned Homestead Village-Registered Trademark- hotels
which were open as of April 1, 1998 (including 12 open for less than one year
prior to that period) the the twelve months ended March 27, 1999 ADR, occupancy
and REVPAR were as follows:
<TABLE>
<S> <C>
ADR............................................. $ 47.35
Occupancy....................................... 73.6%
REVPAR.......................................... $ 34.85
</TABLE>
HPT MARRIOTT HOTELS RESORTS AND SUITES-REGISTERED TRADEMARK- HOTELS
THE MARRIOTT ST. LOUIS AIRPORT hotel is a 601 room hotel located in Missouri
on approximately 12 acres of land at the I-70 exit for Lambert International
Airport, across the street from the airport entrance. The hotel has two nine
floor towers and three low rise buildings which create a courtyard for the
hotel's pool and gardens. The property includes 20 meeting rooms totaling
approximately 18,000 square feet of space, three restaurants and a concierge
floor. Included in the 601 rooms are 77 Rooms That Work-Registered Trademark-,
rooms specifically designed by Marriott for the business traveler. The property
has been operated as a Marriott hotel since it opened.
THE MARRIOTT NASHVILLE AIRPORT hotel is a 399 room, 17 floor hotel located
in Tennessee on 17 acres of land in High Ridge Business Park across I-40 from
the Nashville Airport and a
S-19
<PAGE>
short drive from downtown Nashville. The property includes 14 meeting rooms
totaling approximately 17,000 square feet of space, a restaurant and a concierge
floor. Included in the 399 rooms are 85 Rooms That Work-Registered Trademark-.
The property has been operated as a Marriott hotel since it opened.
HPT TOWNEPLACE SUITES BY MARRIOTT-REGISTERED TRADEMARK-
TOWNEPLACE SUITES BY MARRIOTT-REGISTERED TRADEMARK- are extended-stay hotels
offering studio and two-bedroom suites for business and family travelers.
TownePlace Suites by Marriott-Registered Trademark- compete in the mid-priced
extended-stay segment of the lodging industry. Each suite offers a fully
equipped kitchen and separate living and work areas. Other amenities usually
include voice mail, data lines, on-site business services, laundry and a fitness
center. According to Marriott, there were 23 TownePlace Suites by
Marriott-Registered Trademark- open as of February 1999 and an additional 40
under construction. We have purchased or agreed to acquire nine TownePlace
Suites by Marriott-Registered Trademark- which include 939 suites for $69
million. One of these hotels was opened in 1997, five were opened in 1998, and
three were completed or scheduled to be completed and opened in 1999.
S-20
<PAGE>
MANAGEMENT
Our Trustees and executive officers 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 has been a Managing Trustee of HPT since our initial public
offering in 1995. Mr. Portnoy also serves as a Managing Trustee of HRPT
Properties Trust, a NYSE listed REIT. Mr. Portnoy was a partner in the law firm
of Sullivan & Worcester LLP from 1978 through March 1997 and chairman of that
firm from 1994 through March 1997.
GERARD M. MARTIN has been a Managing Trustee since our initial public
offering in 1995. Mr. Martin also serves as a Managing Trustee of HRPT
Properties Trust.
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 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 as Vice Chairman (1992 to 1993) and as 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.
Mr. Sheehan has been a Trustee of HPT since its initial public offering in 1995.
ARTHUR G. KOUMANTZELIS has been 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
S-21
<PAGE>
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. Mr. Koumantzelis has been a
Trustee of HPT since its initial public offering in 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 investment and policy decisions affecting HPT.
REIT Management & Research, Inc. ("RMR") provides management services and
investment advice to HPT pursuant to an investment advisory agreement (the
"Advisory Agreement"). RMR also acts as an investment advisor to HRPT Properties
Trust and has other business interests. Messrs. Portnoy and Martin own RMR.
Messrs. Portnoy and Martin and Mr. David J. Hegarty are the directors of RMR.
The officers of RMR 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 RMR 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 RMR.
Employees of RMR provide services which might otherwise be provided by
employees. Similarly, RMR provides our office space. 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.
FEDERAL INCOME TAX AND ERISA CONSIDERATIONS
The following summary of federal income tax considerations and Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), considerations
relating to the acquisition, ownership and disposition of our common shares
supplements and updates the more detailed description of these matters in our
Annual Report on Form 10-K for the year ended December 31, 1998, which we
incorporate in this Prospectus Supplement by reference. Sullivan & Worcester
LLP, Boston, Massachusetts, has rendered a legal opinion that the discussions in
this section and in the sections of our 1998 Annual Report captioned "Federal
Income Tax Considerations" and "ERISA Plans, Keogh Plans and Individual
Retirement Accounts" are accurate in all material respects and, taken together,
fairly summarize the federal income tax and ERISA issues discussed in those
sections, and the opinions of counsel
S-22
<PAGE>
referred to in those sections represent Sullivan & Worcester LLP's opinions on
those subjects. Specifically, subject to qualifications and assumptions
contained in its opinion and in our 1998 Annual Report, Sullivan & Worcester LLP
has given opinions to the effect (1) that we have been organized and have
qualified as a REIT under the Internal Revenue Code of 1986, as amended (the
"Tax Code") for our 1995 through 1998 taxable years, and that our current
investments and plan of operation will enable us to continue to meet the
requirements for qualification and taxation as a REIT under the Tax Code, and
(2) that under the "plan assets" regulations promulgated by the Department of
Labor under ERISA, our common shares are publicly offered securities and our
assets will not be deemed to be "plan assets" under ERISA.
Subject to the detailed discussion contained in our 1998 Annual Report, we
believe that we have qualified, and we intend to remain qualified, as a REIT
under the Tax Code. As a REIT, we generally will not be subject to federal
income tax on our net income distributed as dividends to our shareholders.
Distributions to you generally will be includable in your income as dividends to
the extent these distributions do not exceed allocable current or accumulated
earnings and profits; distributions in excess of allocable current or
accumulated earnings and profits generally will be treated for tax purposes as a
return of capital to the extent of your basis in our common shares, and will
reduce your basis. Subject to the detailed discussion contained in our 1998
Annual Report, we intend to conduct our affairs so that our assets will not be
deemed to be "plan assets" of any individual retirement account, employee
benefit plan subject to Title 1 of ERISA, or other plan subject to Section 4975
of the Tax Code which acquires our common shares.
We advise you to consult your own advisors regarding the specific federal,
state, local, foreign and other tax and ERISA consequences to you of the
acquisition, ownership and disposition of the common shares offered in this
offering.
S-23
<PAGE>
UNDERWRITING
GENERAL. Subject to the terms and conditions contained in the underwriting
agreement, we have agreed to sell to each of the underwriters named below (the
"Underwriters"), and each of the Underwriters has severally agreed to purchase
from us, the respective number of common shares set forth after its name below.
The obligations of the Underwriters are subject to certain conditions as set
forth in the underwriting agreement. The Underwriters must purchase all of the
shares if they purchase any.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated..................................................................
Donaldson, Lufkin & Jenrette Securities Corporation......................................
A.G. Edwards & Sons, Inc.................................................................
First Union Capital Markets Corp.........................................................
Legg Mason Wood Walker, Incorporated.....................................................
Prudential Securities Incorporated.......................................................
Salomon Smith Barney Inc.................................................................
----------
Total......................................................................... 7,000,000
----------
----------
</TABLE>
COMMISSIONS AND DISCOUNTS. The Underwriters have advised us that they
propose initially to offer the common shares 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 $ per common
share. The Underwriters may allow, and such dealers may reallow, a discount not
in excess of $ per share to certain other dealers. After the public offering,
the public offering price and concession may be changed.
OVER-ALLOTMENT OPTION. We have granted an option to the Underwriters,
exercisable during the 30-day period after the date of this Prospectus
Supplement, to purchase up to an aggregate of 1,050,000 additional common shares
at the price to the public set forth on the cover page of this Prospectus
Supplement, less the underwriting discount. The Underwriters may exercise this
option only to cover over-allotments, if any. If the Underwriters exercise this
option, each of the Underwriters will have a firm commitment, subject to certain
conditions, to purchase approximately the same percentage of the additional
common shares which the number of common shares to be purchased by it shown in
the foregoing table bears to the 7,000,000 common shares offered by this
Prospectus Supplement.
PROCEEDS AND EXPENSES. The following table shows the per share and total
public offering price, underwriting discount and proceeds, before expenses, to
HPT. The amounts are shown assuming both no exercise and full exercise of the
Underwriters' option to purchase 1,050,000 additional common shares.
<TABLE>
<CAPTION>
PER SHARE WITHOUT OPTION WITH OPTION
----------- --------------- -------------
<S> <C> <C> <C>
Public Offering Price....................................... $ $ $
Underwriting Discount....................................... $ $ $
Proceeds, before expenses, to HPT........................... $ $ $
</TABLE>
S-24
<PAGE>
We estimate that we will spend approximately $500,000 for printing, legal,
accounting, transfer agent, NYSE listing and other expenses related to this
offering.
PRICE STABILIZATION AND SHORT POSITIONS. Until the distribution of the
common shares is completed, rules of the SEC may limit the ability of the
Underwriters to bid for and purchase common shares. As an exception to these
rules, the Underwriters are permitted to engage in certain transactions that
stabilize the price of the common shares. Such transactions consist of bids or
purchases for the purpose of pegging, fixing or maintaining the price of the
common shares.
If the Underwriters create a short position in the common shares in
connection with this offering, i.e., they sell more common shares than are set
forth on the cover page of this Prospectus Supplement, the Underwriters may
reduce that short position by purchasing common shares in the open market. The
Underwriters may also elect to reduce any short position through the exercise of
all or part of the over-allotment option described above.
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 these 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 common shares. In addition, neither we nor
any of the Underwriters make any representation that the Underwriters will
engage in these transactions or that these transactions, once commenced, will
not be discontinued without notice.
OTHER. 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.
We have agreed that for a period of 30 days from the date of this Prospectus
Supplement we will not, without the prior and written consent of Merrill Lynch,
Pierce, Fenner & Smith Incorporated, offer, sell or otherwise dispose of any
common shares or any other security convertible into or exercisable for common
shares (except for the common shares offered in this offering and common shares
issued pursuant to our Incentive Share Award Plan).
In the ordinary course of their businesses, the Underwriters and their
affiliates have engaged in, and may in the future engage in, commercial banking
and investment banking transactions with us.
LEGAL MATTERS
Sullivan & Worcester LLP, Boston, Massachusetts, our lawyers, have issued an
opinion about the legality of the shares being offered hereby. 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 RMR, our investment advisor. Sullivan & Worcester LLP
represents HRPT Properties Trust, RMR and certain of their affiliates on various
matters.
S-25
<PAGE>
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, 1998, 1997 and 1996, appearing
in HPT's Annual Report on Form 10-K for the year ended December 31, 1998, and
(ii) financial statements of HMH HPT Courtyard LLC for the fiscal years ended
December 31, 1998, January 2, 1998 and January 3, 1997, appearing in HPT's
Annual Report on Form 10-K for the year ended December 31, 1998, and
incorporated by 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. These 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
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 other 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"):
- Annual Report on Form 10-K for the year ended December 31, 1998; and
- Current Reports on Form 8-K dated February 11, 1999, March 23, 1999, April
7, 1999 and April 30, 1999.
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
we conclude this offering:
- Reports filed under Sections 13(a) and (c) of the Exchange Act;
- Definitive proxy or information statements filed under Section 14 of the
Exchange Act in connection with any subsequent stockholders' meeting; and
- Any reports filed under Section 15(d) of the Exchange Act.
You may request a copy of any of the SEC 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
S-26
<PAGE>
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-27
<PAGE>
FORWARD-LOOKING STATEMENTS
THIS PROSPECTUS SUPPLEMENT CONTAINS FORWARD-LOOKING STATEMENTS. WE HAVE
BASED THESE STATEMENTS ON OUR CURRENT EXPECTATIONS ABOUT FUTURE EVENTS AND ON
ASSUMPTIONS WE HAVE MADE. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO RISKS
AND UNCERTAINTIES WHICH COULD CAUSE ACTUAL RESULTS OR EVENTS TO DIFFER
MATERIALLY FROM THOSE WE NOW ANTICIPATE. 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 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-28
<PAGE>
INDEX TO UNAUDITED ADJUSTED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Introduction to Unaudited Adjusted Pro Forma Consolidated Financial Statements........ F-2
Unaudited Adjusted Pro Forma Consolidated Balance Sheet as of March 31, 1999.......... F-3
Unaudited Adjusted Pro Forma Consolidated Statement of Income for the year ended
December 31, 1998................................................................... F-4
Unaudited Adjusted Pro Forma Consolidated Statement of Income for the quarter ended
March 31, 1999...................................................................... F-5
Notes to Unaudited Adjusted Pro Forma Consolidated Financial Statements............... F-6
</TABLE>
F-1
<PAGE>
HOSPITALITY PROPERTIES TRUST
INTRODUCTION TO UNAUDITED ADJUSTED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated balance sheet at March 31,
1999 is intended to present the consolidated financial position of HPT as if the
transactions described in the notes hereto (the "Transactions") were consummated
at March 31, 1999. The following unaudited pro forma consolidated statements of
income for the year ended December 31, 1998 and three months ended March 31,
1999 are intended to present the consolidated results of operations of HPT as if
the Transactions were consummated as of January 1, 1998. These unaudited 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, incorporated herein by reference to our Current
Report on Form 8-K dated April 30, 1999 and our Annual Report on Form 10-K for
the year ended December 31, 1998.
In addition to pro forma adjustments relating to operating hotel properties
acquired during 1998 and 1999, these unaudited adjusted pro forma consolidated
financial statements include adjustments for the results of certain hotel
properties which were under development during 1998 and 1999. See Notes B and I.
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, 1998 or January 1,
1998.
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
AS OF MARCH 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
------------------------
ADJUSTED
HISTORICAL (A) ADJUSTMENTS PRO FORMA
-------------- ----------- ----------
<S> <C> <C> <C>
ASSETS
Real estate properties.......................................................... $2,113,258 $75,324(B) $2,188,582
Accumulated depreciation........................................................ (130,195) -- (130,195)
-------------- ----------- ----------
1,983,063 75,324 2,058,387
Cash and cash equivalents....................................................... 6,536 26,462(C) 32,998
Restricted cash (FF&E Reserve).................................................. 24,407 -- 24,407
Other assets, net............................................................... 14,668 -- 14,668
-------------- ----------- ----------
$2,028,674 $101,786 $2,130,460
-------------- ----------- ----------
-------------- ----------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Senior notes, net of discount................................................... $414,759 $-- $414,759
Revolving debt.................................................................. 172,000 (172,000)(D) --
Security and other deposits..................................................... 231,114 7,847(E) 238,961
Other liabilities............................................................... 13,209 -- 13,209
Shareholders' equity:
9 1/2% Series A Cumulative Redeemable Preferred Shares........................ -- 72,438(F) 72,438
Common shares of beneficial interest.......................................... 456 70(G) 526
Additional paid-in capital.................................................... 1,231,688 193,431(G) 1,425,119
Cumulative net income......................................................... 226,403 -- 226,403
Dividends..................................................................... (260,955) -- (260,955)
-------------- ----------- ----------
Total shareholders' equity.................................................. 1,197,592 265,939 1,463,531
-------------- ----------- ----------
$2,028,674 $101,786 $2,130,460
-------------- ----------- ----------
-------------- ----------- ----------
</TABLE>
See accompanying notes to unaudited adjusted pro forma consolidated financial
statements.
F-3
<PAGE>
HOSPITALITY PROPERTIES TRUST
UNAUDITED ADJUSTED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
-----------------------
ADJUSTED
HISTORICAL (H) ADJUSTMENTS PRO FORMA
-------------- ----------- ---------
<S> <C> <C> <C>
Revenues:
Rental income................................................................. $157,223 $59,321(I) $216,544
FF&E reserve income........................................................... 16,108 1,104(J) 17,212
Interest income............................................................... 1,630 -- 1,630
-------------- ----------- ---------
Total revenues............................................................ 174,961 60,425 235,386
-------------- ----------- ---------
Expenses:
Depreciation and amortization................................................. 54,757 18,579(K) 73,336
Interest...................................................................... 21,751 13,220(L) 34,971
General and administrative.................................................... 10,471 2,812(M) 13,283
-------------- ----------- ---------
Total expenses............................................................ 86,979 34,611 121,590
-------------- ----------- ---------
Net income...................................................................... 87,982 25,814 113,796
Preferred dividends declared.................................................... -- 7,125(N) 7,125
Net income available for common shares.......................................... $87,982 $18,689 $106,671
-------------- ----------- ---------
-------------- ----------- ---------
Weighted average shares outstanding............................................. 42,317 10,291(O) 52,608
-------------- ----------- ---------
-------------- ----------- ---------
Net income available for common shares per share................................ $2.08 $2.03
-------------- ---------
-------------- ---------
</TABLE>
See accompanying notes to unaudited adjusted pro forma consolidated financial
statements.
F-4
<PAGE>
HOSPITALITY PROPERTIES TRUST
UNAUDITED ADJUSTED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE QUARTER ENDED MARCH 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
-----------------------
ADJUSTED
HISTORICAL (H) ADJUSTMENTS PRO FORMA
-------------- ----------- ---------
<S> <C> <C> <C>
Revenues:
Rental income................................................................. $49,042 $5,165(I) $54,207
FF&E reserve income........................................................... 4,114 603(J) 4,717
Interest income............................................................... 117 -- 117
-------------- ----------- ---------
Total revenues............................................................ 53,273 5,768 59,041
-------------- ----------- ---------
Expenses:
Depreciation and amortization................................................. 17,271 1,593(K) 18,864
Interest...................................................................... 9,935 (1,192)(L) 8,743
General and administrative.................................................... 3,171 241(M) 3,412
-------------- ----------- ---------
Total expenses............................................................ 30,377 642 31,019
-------------- ----------- ---------
Net income...................................................................... 22,896 5,126 28,022
Preferred dividends declared.................................................... -- 1,781(N) 1,781
-------------- ----------- ---------
Net income available for common shares.......................................... $22,896 $3,345 $26,241
-------------- ----------- ---------
-------------- ----------- ---------
Weighted average shares outstanding............................................. 45,614 7,000(O) 52,614
-------------- ----------- ---------
-------------- ----------- ---------
Net income available for common shares per share................................ $0.50 $0.50
-------------- ---------
-------------- ---------
</TABLE>
See accompanying notes to unaudited adjusted pro forma consolidated financial
statements.
F-5
<PAGE>
HOSPITALITY PROPERTIES TRUST
NOTES TO UNAUDITED ADJUSTED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
CONSOLIDATED BALANCE SHEET ADJUSTMENTS
A. Represents the historical unaudited consolidated balance sheet of HPT at
March 31, 1999.
B. Represents the purchase of 7 hotels not acquired as of March 31, 1999 as
follows:
<TABLE>
<S> <C>
Cash purchase prices:
Three Courtyard by Marriott-Registered Trademark- hotels.................... $29,716
Two TownePlace Suites by Marriott-Registered Trademark- hotels.............. 16,429
Two Residence Inn by Marriott-Registered Trademark- hotels.................. 20,957
Purchase price withheld as security deposit................................. 7,847
Closing costs............................................................... 375
---------
Total....................................................................... $75,324
---------
---------
</TABLE>
Included in the above are certain hotel properties HPT has purchased or
expects to purchase from sellers upon completion of construction, one of
which was purchased by HPT after March 31, 1999 for a purchase price of
$10,205.
C. Represents pro forma impact on cash as follows:
<TABLE>
<S> <C>
Cash transactions:
Net proceeds from this offering............................................ $193,501
Net proceeds from issuance of the 9 1/2% Series A Cumulative Preferred
Shares in April 1999..................................................... 72,438
Repayments of outstanding borrowings under HPT's credit facility........... (172,000)
Cash used for acquisitions, including closing costs........................ (67,477)
---------
Net impact on cash......................................................... $26,462
---------
---------
</TABLE>
D. Represents amounts repaid under the credit facility after completion of this
offering, the issuance of the 9 1/2% Series A Cumulative Preferred shares
and the Transactions described Note in B above.
E. Represents security deposits held or to be held by HPT as a result of
purchasing and leasing the following hotels:
<TABLE>
<S> <C>
Three Courtyard by Marriott-Registered Trademark- hotels....................... $3,475
Two TownePlace Suites by Marriott-Registered Trademark- hotels................. 1,921
Two Residence Inn by Marriott-Registered Trademark- hotels..................... 2,451
---------
Total.......................................................................... $7,847
---------
---------
</TABLE>
F. Represents the proceeds from the issuance of the 9 1/2% Series A Cumulative
Preferred Shares in April 1999, net of transaction costs of $2,562.
F-6
<PAGE>
G. Represents the following:
<TABLE>
<S> <C>
Gross proceeds from this offering (7,000,000 shares at $29 1/4 per share).... $204,750
Estimated expenses of this offering.......................................... (11,249)
---------
Net proceeds of this offering.............................................. 193,501
Par value ($.01) of 7,000,000 shares......................................... (70)
---------
Additional paid-in capital................................................. $193,431
---------
---------
</TABLE>
CONSOLIDATED INCOME STATEMENT ADJUSTMENTS
H. Represents the historical consolidated statement of income for the period
presented excluding an extraordinary loss related to the early
extinguishment of debt in 1998 of $6,641.
I. Represents the adjusted pro forma effect of leases entered since January 1,
1998 and to be entered. This pro forma effect is derived as follows:
<TABLE>
<CAPTION>
THREE
YEAR ENDED MONTHS
DECEMBER ENDED MARCH
31, 31,
1998 1999
----------- -----------
<S> <C> <C>
Pro forma Minimum Rent............................ $213,108 $53,268
Pro forma Percentage Rent......................... 3,436 939
Amounts included in historical Minimum Rent....... (153,787) (48,103)
Amounts included in historical Percentage Rent.... (3,436) (939)
----------- -----------
$59,321 $5,165
----------- -----------
----------- -----------
</TABLE>
Certain of the hotels purchased by HPT were under development during the
three months ended March 31, 1999 and others are currently under development
by the sellers of these properties. HPT is not contractually obligated to
acquire these hotels until they are completed. The adjusted pro forma
consolidated income statement assumes these hotels were completed and
acquired on January 1, 1998. Percentage rent, which is based upon a
percentage of gross revenue increases, cannot be calculated for unopened
hotels under development, and no such amounts are included.
J. FF&E Reserve escrow accounts for all of HPT's Marriott-Registered Trademark-
brand hotels are owned by HPT and periodic payments into these escrow
accounts are recorded as additional rent under generally accepted accounting
principles ("GAAP"). A pro forma adjustment to record additional rent
relating to FF&E escrow contributions of $1,104 has been made for the year
ended December 31, 1998 for four hotels acquired in December 1998 which were
open and operating throughout 1998. A pro forma adjustment to record
additional rent relating to FF&E escrow contributions of $603 has been made
for the three months ended March 31, 1999 for ten hotels owned or acquired
and operating through March 31, 1999. No pro forma adjustment for the FF&E
Reserve income related to newly constructed hotels purchased or to be
purchased by HPT from Marriott has been made, as this amount cannot be
calculated. The FF&E Reserves for HPT's Wyndham-Registered Trademark-,
Sumner Suites-Registered Trademark-, Candlewood
Suites-Registered Trademark-, Summerfield Suites-Registered Trademark- and
Homestead Village-Registered Trademark- hotels remain 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 term, any remaining funds in
F-7
<PAGE>
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.
K. Represents the impact of the Transactions on depreciation expense for the
entire period presented.
L. Represents the following adjustments to interest expense:
- Eliminate 1998 interest expense recognized on the $125 million mortgage
notes repaid in February 1998 including amortization of deferred financing
costs.
- Eliminate interest on credit facility borrowings for the period presented
repaid with the proceeds from this offering, the senior notes, the 6.7
million common shares issued during 1998, and the preferred shares issued
in April 1999.
- Add interest, including amortization of deferred financing costs, on the
$415 million of senior notes issued during 1998 for the entire year ended
December 31, 1998.
- Add amortization of deferred financing costs related to the Company's $300
million credit facility for the entire year ended December 31, 1998.
M. Represents the pro forma impact of the Transactions on general and
administrative expenses of HPT for the periods presented.
N. Represents preferred dividends on the 9 1/2% Series A Cumulative Preferred
Shares for the periods presented.
O. Represents the weighted average impact of this offering and 6.7 million
common shares issued during 1998.
F-8
<PAGE>
[Inside Back Cover]
HOSPITALITY PROPERTIES TRUST
<TABLE>
<S> <C> <C>
[Picture of Hotel] [Picture of Hotel]
Homestead Village- Candlewood Suites-
Registered Trademark- Registered Trademark-
Atlanta, Georgia Birmingham, Alabama
[Picture of Hotel]
Residence Inn by Marriott-
Registered Trademark-
Westborough, Massachusetts
[Picture of Hotel] [Picture of Hotel]
Sumner Suites-Registered Summerfield Suites-
Trademark- Registered Trademark-
Dallas, Texas Lake Buena Vista, Florida
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
7,000,000 SHARES
HOSPITALITY PROPERTIES TRUST
COMMON SHARES OF BENEFICIAL INTEREST
----------------------------
PROSPECTUS SUPPLEMENT
----------------------------
MERRILL LYNCH & CO.
DONALDSON, LUFKIN & JENRETTE
A.G. EDWARDS & SONS, INC.
FIRST UNION CAPITAL MARKETS CORP.
LEGG MASON WOOD WALKER
INCORPORATED
PRUDENTIAL SECURITIES
SALOMON SMITH BARNEY
MAY , 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
