UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 1-11527
HOSPITALITY PROPERTIES TRUST
Maryland 04-3262075
(State of incorporation) (IRS Employer Identification No.)
400 Centre Street, Newton, Massachusetts 02458
617-964-8389
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Shares outstanding
Class at May 6, 1999
- ------------------------------------------- ---------------------
Common shares of beneficial 45,628,443
Interest, $.01 par value per share
<PAGE>
<TABLE>
<CAPTION>
HOSPITALITY PROPERTIES TRUST
FORM 10-Q
MARCH 31, 1999
INDEX
<S> <C> <C>
PART I Financial Information (Unaudited) Page
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - March 31, 1999 and
December 31, 1998........................................................ 3
Consolidated Statements of Income - Three Months Ended March 31, 1999 and 1998
4
Condensed Consolidated Statements of Cash Flows - Three Months Ended March
31, 1999 and 1998........................................................ 5
Notes to Condensed Consolidated Financial Statements......................... 6
Item 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................... 8
Item 3.
Quantitative and Qualitative Disclosures About Market Risk................... 12
Certain Important Factors.................................................... 14
PART II Other Information
Item 2.
Changes in Securities........................................................ 14
Item 6.
Exhibits and Reports on Form 8-K............................................. 14
Signature.................................................................... 16
</TABLE>
2
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<TABLE>
<CAPTION>
HOSPITALITY PROPERTIES TRUST
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
March 31, December 31,
1999 1998
----------- -----------
(unaudited)
<S> <C> <C>
ASSETS
Real estate properties ........................................ $ 2,113,258 $ 1,887,735
Accumulated depreciation ...................................... (130,195) (112,924)
----------- -----------
1,983,063 1,774,811
Cash and cash equivalents ..................................... 6,536 24,610
Restricted cash (FF&E Reserve) ................................ 24,407 22,797
Other assets, net ............................................. 14,668 15,420
----------- -----------
$ 2,028,674 $ 1,837,638
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Senior notes, net of discount ................................. $ 414,759 $ 414,753
Revolving debt ................................................ 172,000 --
Security and other deposits ................................... 231,114 206,018
Other liabilities ............................................. 13,209 43,010
Shareholders' equity:
Common shares of beneficial interest, $.01 par value,
100,000,000 shares authorized, 45,628,443 and 45,595,539
issued and outstanding, respectively .................... 456 456
Additional paid-in capital ................................ 1,231,688 1,230,849
Cumulative net income ..................................... 226,403 203,507
Dividends ................................................. (260,955) (260,955)
----------- -----------
Total shareholders' equity .............................. 1,197,592 1,173,857
----------- -----------
$ 2,028,674 $ 1,837,638
=========== ===========
The accompanying notes are an integral part of these financial statements.
</TABLE>
3
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<TABLE>
<CAPTION>
HOSPITALITY PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(unaudited)
For the Three For the Three
Months Ended Months Ended
March 31, March 31,
1999 1998
-------------- -------------
<S> <C> <C>
Revenues:
Rental income ............................................... $ 49,042 $ 32,474
FF&E reserve income ......................................... 4,114 3,818
Interest income ............................................. 117 1,078
-------- --------
Total revenues .......................................... 53,273 37,370
-------- --------
Expenses:
Interest (including amortization of deferred finance costs of
$554 and $1,585, respectively) .......................... 9,935 4,239
Depreciation and amortization ............................... 17,271 11,364
General and administrative .................................. 3,171 2,213
-------- --------
Total expenses .......................................... 30,377 17,816
-------- --------
Income before extraordinary item ............................... 22,896 19,554
Extraordinary loss from extinguishment of debt ................. -- (6,316)
-------- --------
Net income ..................................................... $ 22,896 $ 13,238
======== ========
Weighted average shares outstanding ............................ 45,614 39,779
======== ========
Basic earnings (loss) per common share:
Income before extraordinary item ............................... $ 0.50 $ 0.49
Extraordinary item ............................................. -- (0.16)
-------- --------
Net income ..................................................... $ 0.50 $ 0.33
======== ========
The accompanying notes are an integral part of these financial statements.
</TABLE>
4
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<TABLE>
<CAPTION>
HOSPITALITY PROPERTIES TRUST
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
For the Three For the Three
Months Ended Months Ended
March 31, March 31,
1999 1998
------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income .................................................................. $ 22,896 $ 13,238
Extraordinary loss from extinguishment of debt .............................. -- 6,316
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization ........................................... 17,271 11,364
Amortization of deferred finance costs as interest ...................... 554 1,585
FF&E reserve income ..................................................... (4,114) (3,818)
Net change in assets and liabilities .................................... 1,791 4,903
--------- ---------
Cash provided by operating activities ............................... 38,398 33,588
--------- ---------
Cash flows from investing activities:
Real estate acquisitions .................................................... (223,019) (312,519)
Increase in security and other deposits ..................................... 25,096 21,646
--------- ---------
Cash used in investing activities ................................... (197,923) (290,873)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of common shares, net ................................... -- 70,958
Proceeds from issuance of term debt, net of discount ........................... -- 149,730
Repayment of credit facility ................................................... -- (125,000)
Draws on revolving credit facility ............................................. 172,000 125,000
Deferred finance costs incurred ................................................ -- (4,723)
Dividends paid ................................................................. (30,549) (24,493)
--------- ---------
Cash provided by financing activities ............................... 141,451 191,472
--------- ---------
Decrease in cash and equivalents ............................................... (18,074) (65,813)
Cash and cash equivalents at beginning of period ............................... 24,610 81,728
--------- ---------
Cash and cash equivalents at end of period ..................................... $ 6,536 $ 15,915
========= =========
Supplemental cash flow information:
Cash paid for interest .................................................. $ 11,680 $ 2,050
Non-cash investing activities:
Property managers' deposits in owned FF&E reserves ...................... 3,845 2,939
Purchases of fixed assets with FF&E reserves proceeds ................... (2,504) (774)
The accompanying notes are an integral part of these financial statements.
</TABLE>
5
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
Note 1. Basis of Presentation
The accompanying condensed consolidated financial statements of Hospitality
Properties Trust, or the Company, and its subsidiaries have been prepared
without audit. Certain information and footnote disclosures required by
generally accepted accounting principles for complete financial statements have
been condensed or omitted. We believe the disclosures made are adequate to make
the information presented not misleading. However, the accompanying financial
statements should be read in conjunction with the financial statements and notes
thereto contained in our Annual Report on Form 10-K for the year ended December
31, 1998. In the opinion of management, all adjustments (which include only
normal recurring adjustments) considered necessary for a fair presentation have
been included. All intercompany transactions and balances between Hospitality
Properties Trust and its subsidiaries have been eliminated. Operating results
for interim periods are not necessarily indicative of the results that may be
expected for the full year.
In 1998, the Financial Accounting Standards Board issued Issue No. 98-9,
"Accounting for Contingent Rent in Interim Financial Periods" ("EITF 98-9"). We
had adopted the provisions of EITF 98-9 prospectively as of May 21, 1998 (the
date of the issuance of EITF 98-9) and continued to apply them until EITF 98-9
was rescinded during the fourth quarter 1998.
If EITF 98-9 was applicable for the three months ended March 31, 1999, net
income would have been $21,957 ($.48/share). For the three months ended March
31, 1998 net income before extraordinary items and net income would have been
$18,575 ($.47/share) and $12,259 ($0.31/share), respectively. The deferred
percentage rent balance as of March 31, 1999 and 1998 would have been $939 and
$979, respectively.
EITF 98-9 had no impact on our annual results of operations, rather the
accounting changes required by EITF 98-9 would have, in general, deferred
recognition of certain percentage rental income from the first, second and third
quarters to the fourth quarter within a fiscal year.
Note 2. Shareholders' Equity
In January 1999, we paid a $0.67 per share dividend to shareholders for the
quarter ended December 31, 1998. On April 5, 1999, the Trustees declared a
dividend of $0.68 per share to be paid to shareholders of record as of April 20,
1999, which will be distributed on or about May 20, 1999.
On April 12, 1999, we issued 3 million shares of 9 1/2% Series A Cumulative
Redeemable Preferred Shares raising net proceeds of approximately $72,400. The
net proceeds were used to repay amounts outstanding under our revolving credit
facility.
On May 5, 1999 we issued 10,000,000 common shares of beneficial interest,
raising net proceeds of $253,925. The net proceeds were used to repay all
amounts outstanding under our revolving credit facility and for general business
purposes.
We do not present diluted earnings per share because we have no dilutive
instruments.
Note 3. Indebtedness
As of March 31, 1999 we had $172,000 outstanding on our revolving credit
facility all of which was drawn during the 1999 first quarter. Proceeds from the
draws were used to fund the acquisitions discussed in Note 4. The balance was
reduced to zero in May 1999 with proceeds from the offerings discussed in Note
2.
Note 4. Real Estate Properties
During the three months ended March 31, 1999, certain of our subsidiaries
purchased eighteen Homestead Village(R) hotels, three Candlewood Suites(R)
hotels, five TownePlace Suites by Marriott(R) hotels and one Residence Inn by
Marriott(R) hotel for approximately $221,300, paid for by draws under our
revolving credit facility and cash on hand.
Subsequent to March 31, 1999, one of our subsidiaries purchased one Courtyard
by Marriott(R) hotel for approximately $10,200, paid for by cash on hand.
6
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
Each of these hotels purchased in 1999 was leased to an unaffiliated party as
part of a pool of properties also leased to affiliates of the seller.
Note 5. Significant Tenant
At March 31, 1999, 53 Courtyard by Marriott(R) properties owned by one of our
subsidiaries were leased to a special purpose subsidiary of Host Marriott
Corporation ("Host") and managed by a subsidiary of Marriott International, Inc.
(Marriott). The results of operations for the twelve weeks ended March 26, 1999
and March 27, 1998 and summarized balance sheet data of the Host Marriott
subsidiary to which our Courtyard by Marriott(R) hotels are leased are as
follows:
<TABLE>
<CAPTION>
Twelve weeks ended Twelve weeks ended
March 26, 1999 March 27, 1998
(unaudited) (unaudited)
------------------ ------------------
<S> <C> <C>
Total hotel sales
Rooms ............................ $ 46,717 $ 45,772
Food and beverage ................ 3,462 3,464
Other ............................ 1,852 1,789
-------- --------
Total hotel sales ................ 52,031 51,025
-------- --------
Departmental expenses
Rooms ............................ 10,142 9,562
Food and beverage ................ 3,022 2,958
Other operating departments ...... 477 467
General and administrative ....... 5,633 5,340
Utilities ........................ 1,887 1,991
Repairs, maintenance and accidents 1,967 1,956
Marketing and sales .............. 1,411 453
Chain services ................... 1,041 1,883
-------- --------
Total departmental expenses ...... 25,580 24,610
-------- --------
House profit .............................. 26,451 26,415
Subtenant retainage ....................... (12,732) --
-------- --------
Sublease income earned by Tenant .......... 13,719 26,415
Other ..................................... 722 --
-------- --------
Total revenue ............................. 14,441 26,415
Investment expenses
Base and percentage rent ............. 12,357 12,176
FF&E contribution .................... -- 2,551
Management fees ...................... -- 6,264
Real estate tax ...................... -- 1,860
Other ................................ 105 639
-------- --------
Total investment expenses ........ 12,462 23,490
-------- --------
Income before taxes ....................... 1,979 2,925
Provision for income taxes ................ -- (1,170)
-------- --------
Net income ....................... $ 1,979 $ 1,755
======== ========
<CAPTION>
March 26, 1999 December 31, 1998
(unaudited)
-------------- -----------------
<S> <C> <C>
Assets $ 60,570 $58,884
Liabilities 39,399 39,692
Equity 21,171 19,192
</TABLE>
Beginning on January 1, 1999, Host subleased the 53 Courtyard by Marriott(R)
properties to a subsidiary of Crestline Capital Corporation. However, Host
remains the primary obligor under the leases. Accordingly, beginning January 1,
1999, Host Marriott reports rental income as compared to hotel sales in the
prior year.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation
Results of Operations (dollar amounts in thousands except share and per share
amounts)
Quarter Ended March 31, 1999 versus 1998
Rental income for the 1999 first quarter was $49,042, a 51% increase over rental
income of $32,474 for the 1998 first quarter. This increase was due to the full
impact of 51 hotels acquired in 1998 and the partial impact of 27 hotels
acquired during the first quarter of 1999. Rental income is comprised
principally of base rent, which was $48,102 for the 1999 first quarter, a 53%
increase over base rent of $31, 495 for the 1998 first quarter. Base rents
increased because of the acquisitions discussed above. Rental income also
includes percentage rents which were $939 in the 1999 first quarter,
substantially unchanged from percentage rent of $979 for the 1998 first quarter.
FF&E reserve income represents amounts paid by our tenants into restricted
accounts owned by us, the purpose of which is to accumulate funds for future
necessary capital expenditures at our owned properties. The terms of our leases
require these amounts to be calculated as a percentage of total hotel sales at
these properties. The FF&E reserve income for the 1999 first quarter was $4,114,
an 8% increase over FF&E reserve income for the 1998 first quarter. This
increase is due principally to the impact of additional hotels owned and the
increased level of total hotel sales experienced at our hotels. Interest income
for the 1999 first quarter was $117, a $961 decrease from interest income of
$1,078 for the 1998 first quarter. This decrease was due to a lower average cash
balance in the 1999 period versus the 1998 period.
Interest expense for the 1999 first quarter was $9,935, a 134% increase over
interest expense of $4,239 for the 1998 first quarter. The increase was due to
higher average borrowing during the 1999 period. Borrowings increased primarily
as a result of three separate issuances of senior unsecured notes in February,
November and December of 1998 for a total of $415,000. Depreciation and
amortization expense for the 1999 first quarter was $17,271, a 52% increase over
depreciation and amortization expense of $11,364 for the 1998 first quarter.
This increase was due principally to the full quarter's impact of the
depreciation of 51 hotels acquired in 1998 and the partial impact of 27 hotels
acquired during the first quarter of 1999. General and administrative expense
for the 1999 first quarter was $3,171, a 43% increase over general and
administrative expense in the 1998 first quarter. This increase is due
principally to the impact of additional hotels purchased in 1998 and in the
first quarter of 1999.
Income before extraordinary item for the 1999 first quarter was $22,896, a 17%
increase over income before extraordinary item for the 1998 first quarter. The
increase was primarily due to higher rental income partially offset by increases
in depreciation and interest expense. These increases were due primarily to the
impact of hotel acquisitions during 1998 and in the first quarter 1999.
On a per share basis, income before extraordinary item was $0.50, a 2% increase
over the 1998 first quarter. The increase was due to the effect of acquisitions
discussed above, partially offset by the increase in the weighted average shares
outstanding that resulted from our common share issuances during 1998.
Funds from operations, or FFO, is defined as net income before extraordinary and
non-recurring items plus depreciation and amortization of real estate assets
plus those deposits made into refurbishment escrows which are not included in
revenue. Cash available for distribution, or CAD, is FFO less refurbishment
escrows plus amortization of deferred financing costs and other non-cash
charges. For the quarter ended March 31, 1999, FFO was $43,238 ($.95 per share)
and CAD was $36,909 ($.81 per share). FFO and CAD were $33,717 ($.85 per share)
and $28,957 ($.73 per share), respectively, in the 1998 period. Growth in FFO
and CAD is primarily related to the effects on revenues and expenses of
acquisitions in 1998 and 1999.
Cash flow provided by (used for) operating, investing and financing activities
was $38,398, ($197,923) and $141,451, respectively, for the quarter ended March
31, 1999. Cash flow from operations in 1999 increased 14% from $33,588 in 1998
primarily due to the impact on rental revenue from investments made in 1998 and
1999. Cash used in investing activities and provided by financing activities
decreased in 1999 from 1998 levels primarily because of investments in and
related financing of 25 hotels during the first quarter 1998 for $312,519 versus
the investment in and related financing of 27 hotels during the first quarter
1999 for $223,019.
Our total assets increased to $2.0 billion as of March 31, 1999 from $1.8
billion as of December 31, 1998. The increase resulted primarily from hotel
acquisitions completed in the first quarter of 1999.
8
<PAGE>
Liquidity and Capital Resources (dollar amounts in thousands except per share
amounts)
During the three months ended March 31, 1999, certain of our subsidiaries
acquired 18 Homestead Village(R) hotels, three Candlewood Suites(R) hotels, five
TownePlace Suites by Marriott(R) hotels, and one Residence Inn by Marriott(R)
hotel for $223,019. Cash used to make these acquisitions plus closing costs was
funded with proceeds from draws under our revolving credit facility and cash on
hand.
Subsequent to March 31, 1999, one of our subsidiaries purchased one Courtyard by
Marriott(R) hotel for approximately $10,205. Cash used to make this purchase
plus closing costs was funded primarily with cash on hand. We have agreed to
acquire an additional six hotels from Marriott International for an additional
total investment of approximately $64,744. The acquisition of these six hotels
is expected to occur during the remainder of 1999.
At March 31, 1999, we had $6,532 of cash and cash equivalents and $172,000
outstanding on our revolving credit facility, with the ability to draw up to an
additional $128,000. From time to time, including currently, we consider
entering or pursuing transactions which would provide equity or debt capital of
various forms and on various terms. On January 15, 1998, our shelf registration
statement for up to $2 billion of securities, including debt securities, was
declared effective by the Securities and Exchange Commission, or the SEC. An
effective shelf registration statement enables us to issue specific securities
to the public on an expedited basis by filing a prospectus supplement with the
SEC. After giving effect to our $75 million preferred share issuance in April
1999, we have $1.3 billion available on our shelf registration statement. We
believe that the capital available to us from time to time will be sufficient to
enable the execution of our business plans and the funding of our existing
commitments.
On April 12, 1999, we issued three million shares of 9 1/2% Series A Cumulative
Redeemable Preferred Shares raising gross proceeds of $75,000 (net proceeds of
$72,400). The net proceeds were used to repay amounts outstanding under our
revolving credit facility.
All our investments are leased to and operated by third parties. All costs of
operating and maintaining the hotel properties are borne by our tenants and
operators. All of our leases require a percentage (usually 5%) of total hotel
sales to be escrowed by the tenant or operator as a reserve for renovations and
refurbishment ("FF&E Reserve"). We use funds escrowed in the FF&E reserve
accounts for capitalized improvements and replacements to, and refurbishment of,
our hotels. Capital expenditures for routine maintenance, replacement and
refurbishment of our properties are required to be paid for from funds in cash
FF&E Reserves. As of March 31, 1999, we and our several tenants had
approximately $31,312 on deposit in these refurbishment escrow accounts.
To maintain our status as a real estate investment trust ("REIT") under the
Internal Revenue Code of 1986, as amended, we must meet certain requirements
including the distribution of at least 95% of its taxable income to its
shareholders. As a REIT, we expect not to be subject to federal income taxes.
Dividends are based principally on cash available for distribution which is net
income plus depreciation and amortization of real estate assets and certain
non-cash charges less FF&E reserve income. Cash available for distribution may
not equal cash provided by operating activities because the cash flow of the
Company is affected by other factors not included in the cash available for
distribution calculation.
Dividends with respect to the fourth quarter 1998 results of $0.67 per share
were distributed in January 1999. Dividends declared with respect to first
quarter 1999 results of $0.68 per share will be paid to shareholders on or about
May 20, 1999. Dividends for a year in excess of taxable income for that year
constitute return of capital.
Funding for current expenses and distributions is provided for by our
operations, which are primarily comprised of leasing activity related to owned
properties.
Property Leases
As of March 31, 1999 we own or are committed to purchase 204 hotels which 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 Village
("Homestead"), Candlewood Hotel Company ("Candlewood") and ShoLodge, Inc.
("ShoLodge"). The tables on the following pages summarize the key terms of our
leases and the operating results of our tenants.
9
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<TABLE>
<CAPTION>
===================================================================================================================================
Lease Pool Courtyard by Residence Inn by Residence Residence Marriott(R)/Residence
Marriott(R) Marriott(R) Inn(R)/Courtyard by Inn(R)/Courtyard by Inn(R)/Courtyard(R)/
Marriott(R) Marriott(R) TownePlace Suite(R)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Number of Hotels 53 18 14 9 17
Number of Rooms 7,610 2,178 1,819 1,336 2,665
Number of States 24 14 7 8 7
Tenant Subsidiary of Subsidiary of Subsidiary of Subsidiary of Subsidiary of
Host subleased Host subleased Marriott Marriott Marriott
to subsidiary of to subsidiary of
Crestline Crestline
Manager Subsidiary of Subsidiary of Subsidiary of Subsidiary of Subsidiary of
Marriott Marriott Marriott Marriott Marriott
Investment at
March 31, 1999
(000's) $506,464 $172,905 $148,812 $129,377 $201,643 (1)
Security Deposits
(000's) $50,540 $17,220 $14,881 $12,938 $21,322
End of Initial
Lease Term 2012 2010 2014 2012 2013
Renewal Options (2) 3 for 12 years 1 for 10 years, 1 for 12 years, 2 for 10 years 2 for 10 years
each 2 for 15 years 1 for 10 years each each
each
Current Annual
Minimum Rent (000's) $50,646 $17,290 $14,881 $12,938 $21,322
Percentage Rent (3) 5.0% 7.5% 7.0% 7.0% 7.0%
First quarter
1999: Occupancy 79.1% 81.2% 80.5% 74.4% (4) 70.6% (5)
ADR $92.42 $100.77 $85.51 $105.68 (4) $82.18 (5)
RevPAR $73.10 $ 81.83 $68.84 $78.63 (4) $58.02 (5)
1998: Occupancy 78.0% 82.7% 77.3%
ADR $91.83 $103.32 $82.15 (6) (6)
RevPAR $71.63 $ 85.45 $63.50
===================================================================================================================================
<FN>
(1) Amount includes $126.7 million invested as of March 31, 1999, $10.2 million invested since March 31, 1999 and $64.7 million
in commitments expected to be funded later in 1999.
(2) Renewal options may be exercised by the tenant for all, but not less than all, of the hotels within a lease pool.
(3) Each lease provides for payment of a percentage of increases in total hotel sales over base year levels to us as additional
rent.
(4) Data includes two hotels that were open for less than one full year as of March 31, 1999 and four which opened in the first
quarter of 1998.
(5) Data includes ten hotels open as of March 31, 1999, including three opened in 1999 and three opened in the fourth quarter of
1998.
(6) Because a majority of these properties have operating histories of less than one year as of the beginning of the period
presented, a display of comparative operating results is not meaningful.
</FN>
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
=====================================================================================================================
Lease Pool Wyndham(R) Summerfield Sumner Candlewood Candlewood Homestead
Suites(R) Suites(R) Suites(R) Suites(R) Village(R)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Number of Hotels 12 15 14 17 17 18
Number of Rooms 2,321 1,822 1,641 1,839 2,053 2,399
Number of States 8 8 8 13 13 5
Tenant Subsidiary of Subsidiary of Subsidiary of Subsidiary of Subsidiary of Subsidiary of
Patriot Patriot ShoLodge Candlewood Candlewood Homestead
Manager Subsidiary of Subsidiary of Subsidiary of Subsidiary of Subsidiary of Subsidiary of
Wyndham Wyndham ShoLodge Candlewood Candlewood Homestead
Investment at
March 31, 1999 (000's) $182,570 $240,000 $140,000 $118,500 $142,400 $145,000
Security Deposits
(000's) $18,325 $15,000 $14,000 $12,081 $14,253 $15,960
End of Initial Lease
Term 2012 2015 2008 2011 2011 2015
Renewal Options (1) 4 for 12 4 for 12 5 for 10 3 for 15 3 for 15 2 for 15
years each years each years each years each years each years each
Current Annual
Minimum Rent (000's) $18,325 $25,000 $14,000 $12,081 $14,253 $15,960
Percentage Rent (2) 8.0% 7.5% 8.0% 10.0% 10.0% 10.0%
First quarter
1999: Occupancy (3) 69.7% 78.3% 60.5% 63.7% (4) 62.1% (5) 70.9% (6)
ADR (3) $104.87 $122.31 $79.68 $58.62 (4) $60.48 (5) $52.97 (6)
RevPAR (3) $73.09 $95.77 $48.21 $37.44 (4) $37.56 (5) $37.56 (6)
1998: Occupancy (3) 76.3% 79.5% 62.0% 62.8% 76.1% (7)
ADR (3) $104.81 $123.54 $78.49 $54.17 (5) $42.80 (7)
RevPAR (3) $79.97 $98.21 $48.66 $34.02 $32.57 (7)
=====================================================================================================================
<FN>
(1) Renewal options may be exercised by the tenant for all, but not less than all, of the hotels within a lease pool.
(2) Each lease provides for payment of a percentage of increases in total hotel sales over base year levels to us as
additional rent.
(3) Includes information for periods prior to the acquisition of certain properties by us.
(4) Data includes two hotels that were open for less than one full year as of March 31, 1999.
(5) Data includes 13 hotels that were open for less than one full year as of March 31, 1999. Because these properties
have operating histories of less than one year as of the beginning of the period presented, a display of
comparative operating results is not meaningful.
(6) Data includes four hotels that were open for less than one full year as of March 31, 1999.
(7) Data includes 14 hotels, including 12 hotels that were open for less than one full year as of March 31, 1998.
</FN>
</TABLE>
11
<PAGE>
Seasonality
Our hotels have historically experienced seasonal differences typical of the
hotel industry with higher revenues in the second and third quarters of calendar
years compared with the first and fourth quarters. This seasonality is not
expected to cause fluctuations in our rental income because we believe that the
revenues generated by our hotels will be sufficient for the lessees to pay rents
on a regular basis notwithstanding seasonal fluctuations.
Year 2000
Our in-house computer systems environment is limited to software and hardware
developed by third parties and installed, operated and monitored by our
investment advisor. All of our computer systems (which are limited to financial
reporting and accounting systems) were installed within the last two years and
we believe such systems are Year 2000 compliant. All costs associated with our
computer systems are borne by our investment advisor.
Our business is heavily dependent upon the efforts of our third party tenants
and their affiliates which operate all of our hotels. Our leases and other
contractual relationships require these operators to conduct the daily
operations of our hotels and the scope of the operators' responsibilities
includes ensuring preparedness for the year 2000. As such, our activities
related to year 2000 issues that might effect the systems used by our operators
(which include reservations, financial, accounting, personnel, payroll, payables
and other systems) have been limited to inquiry and evaluation of our operators'
preparedness and contingency plans. Each tenant and operator as of March 31,
1999 (including Marriott, Host, Wyndham, Candlewood, Homestead and ShoLodge) has
responded to our inquiries related to the year 2000. Based on operator responses
to these inquiries, we believe that these operators are in the process of
studying their systems and the systems of their vendors, suppliers and service
providors to ensure preparedness. Current levels of preparedness are varied and
include partially completed inventory and assessment of potential risks,
testing, implementation of plans for remediation and reprogramming. While we
believe the efforts of our tenants and their contingency plans described in
their responses will be or are adequate to address year 2000 concerns, there can
be no guarantee that the systems of other companies on which we rely will be
year 2000 compliant on a timely basis and will not have a material effect on us.
Our costs related to the year 2000 issues are expected to be zero.
If the efforts of our vendors and tenants to prepare for the year 2000 were
ineffective, our properties could be subject to significant adverse effects,
including, but not limited to, loss of business and growth opportunities,
reduced revenues and increased expenses which might cause operating losses by
its tenants at their operating properties. Continued or severe operating losses
may cause one or more of our tenants to ultimately default on their leases.
Numerous lease defaults could jeopardize our ability to maintain our financial
results of operations and meet our financial operating and capital obligations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to risks associated with interest rate changes. We manage our
exposure to this market risk through our monitoring of available financing
alternatives. Our strategy to manage exposure to changes in interest rates is
unchanged from December 31, 1998. Furthermore, we do not foresee any significant
changes in our exposure to fluctuations in interest rates or in how we manage
such exposure in the near future. At March 31, 1999, our total outstanding debt
consisted of three issues of fixed rate, senior unsecured notes:
Principal Balance Coupon Maturity Interest Payments Due
- ----------------- ------ -------- ---------------------
$115 million 8 1/4% 2005 Monthly
$150 million 7% 2008 Semi-Annually
$150 million 8 1/2% 2009 Monthly
No principal repayments are due under these notes until maturity.
Hypothetically, if at maturity these notes were refinanced at interest rates
which are 1/2 percentage point higher than shown above, our per annum interest
cost would increase by approximately $2 million. Based on the balances
outstanding as of March 31, 1999, a hypothetical immediate 1/2 percentage point
change in interest rates would change the fair value of our fixed rate debt
obligations by approximately $13 million.
Each of our fixed rate debt arrangements allow us to make repayments earlier
than the stated maturity date. In some cases, we are not allowed to make early
repayment prior to a cutoff date and in other cases we are allowed to make
12
<PAGE>
prepayments only at a premium to face value. In any event, these prepayment
rights may afford us the opportunity to mitigate the risk of refinancing at
maturity at higher rates by refinancing at lower rates prior to maturity.
Our line of credit bears interest at floating rates and has a maturity in 2002.
As March 31, 1999, there was $172,000 outstanding and $128,000 was available for
drawing under our revolving credit facility. Our revolving credit facility is
available to finance our acquisition commitments. As of March 31, 1999, our
acquisition commitments totaled approximately $67,000 (excluding closing costs),
net of security deposits. Assuming these commitments were funded with borrowings
under our revolving credit facility, and assuming interest rates increased 1/2
percentage point, our annualized interest cost would increase by approximately
$335. Repayments under the revolving credit facility may be made at any time
without penalty.
13
<PAGE>
CERTAIN IMPORTANT FACTORS
Our quarterly report on Form 10-Q contains statements which constitute forward
looking statements within the meaning of the Securities Exchange Act of 1934, as
amended. Those statements appear in a number of places in this Form 10-Q and
include statements regarding our intent, belief or expectations, our Trustees or
officers with respect to the declaration or payment of distributions, the effect
of Year 2000 issues, our policies and plans regarding investments, financings or
other matters, our qualification and continued qualification as a real estate
investment trust or trends affecting us or our hotels' financial condition or
results of operations. Readers are cautioned that any such forward looking
statements are not guarantees of future performance and involve risks and
uncertainties, and that actual results may differ materially from those
contained in the forward looking statement as a result of various factors. Such
factors include without limitation changes in financing terms, our ability or
inability to complete acquisitions and financing transactions, results of
operations of our hotels and general changes in economic conditions not
presently contemplated. The accompanying information contained in this Form 10-Q
including the information under the heading "Management's Discussion and
Analysis of Financial Condition and Results of Operation," identifies other
important factors that could cause such differences.
THE AMENDED AND RESTATED DECLARATION OF TRUST OF THE COMPANY, DATED AUGUST 21,
1995 A COPY OF WHICH, TOGETHER WITH ALL AMENDMENTS THERETO (THE "DECLARATION"),
IS DULY FILED IN THE OFFICE OF THE DEPARTMENT OF ASSESSMENTS AND TAXATION OF THE
STATE OF MARYLAND, PROVIDES THAT THE NAME "HOSPITALITY PROPERTIES TRUST" REFERS
TO THE TRUSTEES UNDER THE DECLARATION COLLECTIVELY AS TRUSTEES, BUT NOT
INDIVIDUALLY OR PERSONALLY, AND THAT NO TRUSTEE, OFFICER, SHAREHOLDER, EMPLOYEE
OR AGENT OF THE TRUST SHALL BE HELD TO ANY PERSONAL LIABILITY, JOINTLY OR
SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM AGAINST, THE TRUST. ALL PERSONS
DEALING WITH THE TRUST, IN ANY WAY, SHALL LOOK ONLY TO THE ASSETS OF THE TRUST
FOR THE PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY OBLIGATION.
PART II Other Information
Item 2. Changes in Securities
In February 1999 we issued 32,904 common shares to REIT
Management & Research, Inc. in payment of an incentive fee of
$846,340 for services rendered during 1998 based upon a per
common share price of $25.7220. These restricted securities were
issued pursuant to the exemption from registration provided under
Section 4(2) of the Securities Act of 1933, as amended.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27. Financial Data Schedule.
(b) Reports on Form 8-K
(i) Current Report on Form 8-K, dated February 11, 1999, reporting
(a) management's discussion and analysis of results of
operations and financial condition and (b) consolidated
financial statements and related schedule of Hospitality
Properties Trust for the years ended December 31, 1998, 1997
and 1996 (Items 5 and 7).
(ii) Current Report on Form 8-K, dated March 23, 1999, (a)
reporting unaudited consolidated pro forma financial
statements and other data and (b) filing as exhibits certain
material contracts, a computation of pro forma ratio of
earnings to fixed charges, a computation of pro forma ratio of
earnings to combined fixed charges and preferred dividends and
accountants' consents (Item 7).
14
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HOSPITALITY PROPERTIES TRUST
/S/Thomas M. O'Brien
Thomas M. O'Brien
Treasurer and Chief Financial Officer
(authorized officer and principal
financial officer)
Dated: May 10, 1999
15
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