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 September 30, 2000
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 November 1, 2000
---------------------------------------- -------------------
Common shares of beneficial
interest, $0.01 par value per share 56,472,512
<PAGE>
<TABLE>
<CAPTION>
HOSPITALITY PROPERTIES TRUST
FORM 10-Q
September 30, 2000
INDEX
<S> <C> <C>
PART I Financial Information (Unaudited) Page
--------------------------------- ----
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - September 30, 2000 and
December 31, 1999.................................................. 3
Consolidated Statements of Income - Three and Nine Months Ended
September 30, 2000 and 1999........................................ 4
Condensed Consolidated Statements of Cash Flows - Nine Months
Ended September 30, 2000 and 1999................................. 5
Notes to Condensed Consolidated Financial Statements................. 6
Item 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................. 10
Item 3.
Quantitative and Qualitative Disclosures About Market Risk........... 16
Certain Important Factors................................................ 17
PART II Other Information
Item 2.
Changes in Securities................................................ 18
Item 6.
Exhibits and Reports on Form 8-K..................................... 18
Signature................................................................ 19
</TABLE>
2
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<TABLE>
<CAPTION>
HOSPITALITY PROPERTIES TRUST
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
September 30, December 31,
2000 1999
--------------- --------------
(unaudited)
<S> <C> <C>
ASSETS
Real estate properties, at cost ............................... $ 2,421,661 $ 2,270,630
Accumulated depreciation ...................................... (250,139) (187,631)
----------- -----------
2,171,522 2,082,999
Cash and cash equivalents ..................................... 24,247 73,554
Restricted cash (FF&E reserves) ............................... 26,063 26,034
Other assets, net ............................................. 11,822 12,265
----------- -----------
$ 2,233,654 $ 2,194,852
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Senior notes, net of discount ................................. $ 464,739 $ 414,780
Revolving credit facility ..................................... -- --
Security and other deposits ................................... 262,652 246,242
Other liabilities ............................................. 18,003 14,115
Shareholders' equity:
Series A preferred shares, 9 1/2% cumulative redeemable at
$25/share, no par value; 3,000,000 shares issued and
outstanding ............................................. 72,207 72,207
Common shares of beneficial interest, $0.01 par value;
56,472,512 and 56,449,743 shares issued and outstanding,
respectively ............................................ 565 564
Additional paid-in capital ................................ 1,506,976 1,506,494
Cumulative net income ..................................... 405,715 315,436
Cumulative preferred distributions ........................ (10,450) (5,106)
Cumulative common distributions ........................... (486,753) (369,880)
----------- -----------
Total shareholders' equity .............................. 1,488,260 1,519,715
----------- -----------
$ 2,233,654 $ 2,194,852
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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<TABLE>
<CAPTION>
HOSPITALITY PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts, unaudited)
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
2000 1999 2000 1999
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Revenues:
Rental income .................. $ 58,658 $ 55,198 $169,968 $157,237
FF&E reserve income ............ 6,724 5,879 19,290 14,947
Interest income ................ 442 1,266 2,382 2,423
-------- -------- -------- --------
Total revenues ............. 65,824 62,343 191,640 174,607
-------- -------- -------- --------
Expenses:
Interest (including amortization
of deferred financing costs
of $521, $512, $1,545 and
$1,711, respectively) ...... 9,891 8,829 27,700 28,523
Depreciation and amortization .. 21,639 19,318 62,508 55,015
General and administrative ..... 3,854 3,791 11,153 10,158
-------- -------- -------- --------
Total expenses ............. 35,384 31,938 101,361 93,696
-------- -------- -------- --------
Net income ........................ 30,440 30,405 90,279 80,911
Preferred distributions ........... 1,781 1,781 5,344 3,325
-------- -------- -------- --------
Net income available for common
shareholders .................... $ 28,659 $ 28,624 $ 84,935 $ 77,586
======== ======== ======== ========
Weighted average common shares
outstanding ..................... 56,469 56,448 56,464 51,257
======== ======== ======== ========
Basic and diluted earnings per
common share:
Net income .................... $ 0.54 $ 0.54 $ 1.60 $ 1.58
======== ======== ======== ========
Net income available for
common shareholders ........ $ 0.51 $ 0.51 $ 1.50 $ 1.51
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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<TABLE>
<CAPTION>
HOSPITALITY PROPERTIES TRUST
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, unaudited)
Nine Months Ended September 30,
-------------------------------
2000 1999
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income ...................................................... $ 90,279 $ 80,911
Adjustments to reconcile net income to cash provided by operating
activities:
Depreciation and amortization ............................... 62,508 55,015
Amortization of deferred financing costs as interest ........ 1,545 1,711
FF&E reserve income ......................................... (19,290) (14,947)
Deferred percentage rent .................................... 4,186 --
Net change in assets and liabilities ........................ (478) 753
--------- ---------
Cash provided by operating activities ................... 138,750 123,443
--------- ---------
Cash flows from investing activities:
Real estate acquisitions ........................................ (131,813) (334,223)
Increase in security and other deposits ......................... 16,410 36,996
--------- ---------
Cash used in investing activities ....................... (115,403) (297,227)
--------- ---------
Cash flows from financing activities:
Distributions paid to common shareholders ....................... (116,873) (100,524)
Distributions paid to preferred shareholders .................... (5,344) (3,325)
Debt issuance, net of discount .................................. 49,938 --
Draws on revolving credit facility .............................. 42,000 172,000
Repayments of revolving credit facility ......................... (42,000) (172,000)
Deferred finance costs incurred ................................. (375) --
Proceeds from issuance of common shares, net .................... -- 274,595
Proceeds from issuance of preferred shares, net ................. -- 72,227
--------- ---------
Cash (used in) provided by financing activities ......... (72,654) 242,973
--------- ---------
(Decrease) increase in cash and cash equivalents ................... (49,307) 69,189
Cash and cash equivalents at beginning of period ................... 73,554 24,610
--------- ---------
Cash and cash equivalents at end of period ......................... $ 24,247 $ 93,799
========= =========
Supplemental cash flow information:
Cash paid for interest ...................................... $ 27,826 $ 29,343
Non-cash investing and financing activities:
Property managers' deposits in FF&E reserve ................. 17,060 13,218
Purchases of fixed assets with FF&E reserve ................. (19,478) (13,444)
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
HOSPITALITY PROPERTIES TRUST
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
Note 1. Basis of Presentation
The accompanying condensed consolidated financial statements of Hospitality
Properties Trust 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, 1999. 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. Our operating results for interim periods
and those of our tenants are not necessarily indicative of the results that may
be expected for the full year.
In December 1999 the Securities and Exchange Commission released Staff
Accounting Bulletin No. 101 ("SAB 101"). SAB 101 is expected to have no impact
on our annual results of operations. SAB 101 requires us to defer recognition of
certain percentage rental income from the first, second and third quarters to
the fourth quarter within a year. We adopted SAB 101 beginning January 1, 2000,
without restatement of prior periods. If SAB 101 had been applicable for the
three and nine months ended September 30, 1999, net income available for common
shareholders would have been $27,760 ($0.49/share) and $74,748 ($1.46/share),
respectively, and the deferred percentage rent balance would have been $2,838 at
September 30, 1999. If SAB 101 had not been applicable for the three and nine
months ended September 30, 2000, net income available for common shareholders
would have been $30,075 ($0.53/share) and $89,121 ($1.58/share), respectively.
Note 2. Shareholders' Equity
In August 2000 we paid a $0.69 per share distribution to common shareholders for
the quarter ended June 30, 2000. On October 5, 2000, our Trustees declared a
distribution of $0.70 per share to be paid to common shareholders of record on
October 19, 2000, which will be distributed on or about November 21, 2000.
On September 29, 2000, we paid a $0.59375 per share distribution to preferred
shareholders.
We do not present diluted earnings per share because we have no dilutive
instruments.
Note 3. Indebtedness
As of September 30, 2000, we had zero outstanding on our $300,000 revolving
credit facility.
In July 2000 we issued $50,000 of 9.125% unsecured senior notes due 2010. Net
proceeds of $49,630 were used to repay amounts outstanding on our revolving
credit facility and for general business purposes.
Note 4. Real Estate Properties
During the nine months ended September 30, 2000, we purchased twelve hotels for
approximately $128,331 using cash on hand and borrowings under our revolving
credit facility. We did not purchase any hotels during the three months ended
September 30, 2000.
6
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HOSPITALITY PROPERTIES TRUST
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
Note 5. Significant Tenant
At September 30, 2000, HMH HPT Courtyard LLC, a 100% owned special purpose
subsidiary of Host Marriott Corporation ("Host"), is the lessee of 53 Courtyard
by Marriott(R) properties which we own and which represent 22% of our
investments, at cost. The following results of operations for the thirty-six
weeks ended September 8, 2000, and September 10, 1999, and summarized balance
sheet data of HMH HPT Courtyard LLC as provided by the lessee's management are
included here in compliance with applicable accounting and disclosure
regulations of the Securities and Exchange Commission.
<TABLE>
<CAPTION>
Thirty-six weeks ended Thirty-six weeks ended
September 8, 2000 September 10, 1999
(unaudited) (unaudited)
---------------------- ----------------------
<S> <C> <C>
Revenues:
Rental income1 ................. $ 35,068 $ 35,021
Interest income ................ 417 172
Amortization of deferred gain .. 1,992 1,992
Other income ................... 31 --
-------- --------
Total revenues .............. 37,508 37,185
-------- --------
Expenses:
Base and percentage rent expense 38,486 37,132
Corporate expenses ............. 927 269
Other expenses ................. 64 16
-------- --------
Total expenses .............. 39,477 37,417
-------- --------
Income (loss) before taxes ... (1,969) (232)
Provision for income taxes ... -- (142)
-------- --------
Net (loss) income ............ (1,969) (374)
======== ========
<CAPTION>
September 8, 2000
(unaudited) December 31, 1999
----------------- -----------------
<S> <C> <C>
Assets $ 68,564 $ 67,821
Liabilities 46,384 43,672
Equity 22,180 24,149
<FN>
1 The statement of operations for the thirty-six weeks ended September 10, 1999, has been
restated by the lessee to reflect their retroactive adoption of SAB 101 effective January
1, 1999. As a result of the lessee's adoption of SAB 101, recognition of percentage
rental revenue for the thirty-six weeks ended September 10, 1999, of $7,314 was deferred.
Recognition of percentage rental revenue for the thirty-six weeks ended September 8,
2000, of $8,389 was deferred and is included in liabilities as deferred rent. Percentage
rent will be recognized as income during the year once specified hotel sales thresholds
are achieved.
</FN>
</TABLE>
7
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HOSPITALITY PROPERTIES TRUST
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
At September 30, 2000, CCMH Courtyard I LLC, a 100% owned special purpose
subsidiary of Crestline Capital Corporation ("Crestline"), is the sublessee of
the 53 Courtyard by Marriott(R) properties discussed above. The following
results of operations for the thirty-six weeks ended September 8, 2000, and
September 10, 1999, and summarized balance sheet data of CCMH Courtyard I LLC as
provided by the sublessee's management are included here in compliance with
applicable accounting and disclosure regulations of the Securities and Exchange
Commission.
<TABLE>
<CAPTION>
Thirty-six weeks ended Thirty-six weeks ended
September 8, 2000 September 10, 1999
(unaudited) (unaudited)
---------------------- ----------------------
<S> <C> <C>
Revenues:
Hotels:
Rooms ............................. $ 154,732 $ 147,325
Food and beverage ................. 10,672 10,610
Other ............................. 5,756 5,791
--------- ---------
Total hotel revenues .......... 171,160 163,726
--------- ---------
Operating costs and expenses:
Hotels:
Property-level costs and expenses:
Rooms ......................... 33,781 31,827
Food and beverage ............. 9,585 9,209
Other ......................... 55,772 54,183
Other operating costs and expenses:
System management fees ........ 5,135 4,912
Other management fees ......... 16,966 15,419
Lease expense ................. 44,411 43,856
--------- ---------
Total hotel expenses .......... 165,650 159,406
--------- ---------
Operating profit .............. 5,510 4,320
--------- ---------
Corporate expenses ......................... (217) (253)
Interest expense ........................... (196) (217)
Interest income ............................ 120 5
--------- ---------
Income before income taxes ................. 5,217 3,855
Income taxes ............................... (2,139) (1,572)
--------- ---------
Net income ................................. $ 3,078 $ 2,283
========= =========
<CAPTION>
September 8, 2000
(unaudited) December 31, 1999
----------------- -----------------
<S> <C> <C>
Assets $ 33,495 $ 30,157
Liabilities 9,021 8,761
Equity 24,474 21,396
</TABLE>
8
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HOSPITALITY PROPERTIES TRUST
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
Operating results for these 53 Courtyard by Marriott(R) properties derived from
data provided by management of HMH HPT Courtyard LLC (our tenant) and CCMH
Courtyard I LLC (Host's subtenant) are detailed below:
<TABLE>
<CAPTION>
Thirty-six weeks ended Thirty-six weeks ended
September 8, 2000 September 10, 1999
(unaudited) (unaudited)
---------------------- ----------------------
<S> <C> <C>
Total hotel sales:
Rooms .............................. $154,732 $147,325
Food and beverage .................. 10,672 10,610
Other .............................. 5,756 5,791
-------- --------
Total hotel sales .................. 171,160 163,726
-------- --------
Expenses:
Rooms .............................. 33,781 31,827
Food and beverage .................. 9,585 9,209
Other operating departments ........ 1,233 1,543
General and administrative ......... 17,186 17,080
Utilities .......................... 5,513 5,343
Repairs, maintenance and accidents . 6,297 6,017
Marketing and sales ................ 5,123 4,468
Chain services ..................... 3,800 3,536
FF&E escrow deposits ............... 8,558 8,186
Real estate tax .................... 5,563 5,513
Land rent .......................... 1,465 1,347
System fees ........................ 5,135 4,912
Other costs ........................ 1,034 1,150
-------- --------
Total .............................. 104,273 100,131
-------- --------
Hotel revenues in excess of property-level costs
and expenses ................................ $ 66,887 $ 63,595
======== ========
</TABLE>
Total amounts shown above represent hotel-level cash flows after costs which are
not subordinate to the minimum rent for this lease of $35,217 in the 2000 period
and $35,165 in the 1999 period. These interim results are not necessarily
indicative of the results that may be expected for the full year.
9
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HOSPITALITY PROPERTIES TRUST
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations (dollar amounts in thousands, except per share amounts)
Three Months Ended September 30, 2000 versus 1999
Rental income for the 2000 third quarter was $58,658, a 6.3% increase over
rental income of $55,198 for the 1999 third quarter. This increase was due to
the full quarter's impact of rent from the acquisition of 15 hotels subsequent
to the second quarter 1999, offset somewhat by the adoption of SAB 101. Rental
income in the 2000 period is minimum rent, of $58,658, an 8.0% increase over
minimum rent of $54,334 for the 1999 third quarter. Minimum rent increased
principally because of the acquisitions discussed above. Percentage rent was
$1,416 and $864 in the 2000 and 1999 third quarters, respectively. Due to our
adoption of SAB 101, recognition of $1,416 of percentage rental income was
deferred in the 2000 third quarter until such time as annual thresholds are met.
If we had not adopted SAB 101, percentage rental income would have increased by
63.9%. This increase is the result of hotels that began to yield percentage rent
during the last 12 months and to increases in total sales at our hotels. 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 capital
expenditures. The terms of our leases require these amounts to be calculated as
a percentage of total hotel sales at our properties. The FF&E reserve income for
the 2000 third quarter was $6,724, a 14.4% increase over FF&E reserve income of
$5,879 for the 1999 third quarter. This increase is due principally to the
impact of acquisitions and the increased level of total sales experienced at our
hotels. Interest income for the 2000 third quarter was $442, a 65.1% decrease
from interest income of $1,266 for the 1999 third quarter. This decrease was due
to a lower average cash balance partially offset by a higher average interest
rate in the 2000 period.
Interest expense for the 2000 third quarter was $9,891, a 12.0% increase over
interest expense of $8,829 for the 1999 third quarter. The increase was
primarily due to higher average borrowings during the 2000 period from $50,000
of 9.125% Senior Notes issued in July 2000. Depreciation and amortization
expense for the 2000 third quarter was $21,639, a 12.0% increase over
depreciation and amortization expense of $19,318 for the 1999 third quarter.
This increase was due principally to the full quarter's impact of the
depreciation of 15 hotels acquired and the purchase of depreciable assets with
funds from FF&E reserve restricted accounts owned by us subsequent to the second
quarter 1999. General and administrative expense for the 2000 third quarter was
$3,854, a 1.7% increase over general and administrative expense of $3,791 in the
1999 third quarter. This increase is due principally to the impact of additional
hotels purchased in 1999 and 2000.
Net income for the 2000 third quarter was $30,440, or $0.54 per share, a 0.1%
increase over net income for the 1999 third quarter of $30,405, or $0.54 per
share. The increase was due to higher rental income, the effects of which were
partially offset by the following: the adoption of SAB 101, a decrease in
interest income and increases in depreciation, interest expense and general and
administrative expenses discussed above.
Net income available for common shareholders for the 2000 third quarter was
$28,659 or $0.51 per share, a 0.1% increase over net income available for common
shareholders of $28,624, or $0.51 per share for the 1999 third quarter. This
change resulted primarily from the investment and operating activity discussed
above offset somewhat by the impact of SAB 101.
Funds from operations, or FFO, is defined as net income available for common
shareholders before extraordinary and non-recurring items, plus depreciation and
amortization of real estate assets, plus deferred percentage rent relating to
operations from the current periods, plus FF&E escrow payments which are not
included in revenue. FFO does not equal cash flow from operating activities as
defined by generally accepted accounting principals and should not be considered
an alternative to net income as an indication of the Company's performance or to
cash as a measure of liquidity. Cash available for distribution, or CAD, is FFO
less FF&E escrow payments plus amortization of deferred financing costs and
other non-cash charges. For the 2000 third quarter FFO was $55,672, or $0.99 per
share, and CAD was $45,849, or $0.81 per share. For the 1999 third quarter FFO
was $51,319, or $0.91 per share, and CAD was $42,897, or $0.76 per share.
Increases in FFO and CAD are attributable to the effects on revenues and
expenses of the operating, investing and financing activities discussed above.
10
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HOSPITALITY PROPERTIES TRUST
Nine Months Ended September 30, 2000 versus 1999
Rental income for the first nine months of 2000 was $169,968, an 8.1% increase
over rental income of $157,237 for the 1999 period. This increase was due to the
full period's impact of 37 hotels purchased during the 1999 period, three hotels
purchased subsequent to the 1999 period and the partial period impact of the 12
hotels purchased during the 2000 period, offset somewhat by the adoption of SAB
101. Rental income in the 2000 period is minimum rent, of $169,968 for the first
nine months of 2000, a 10.1% increase over minimum rent of $154,399 for the same
period in 1999. Minimum rent increased principally because of the acquisitions
discussed above. Percentage rent was $4,186 and $2,838 for the first nine months
of 2000 and 1999, respectively. Due to our adoption of SAB 101, recognition of
$4,186 of percentage rental income was deferred in 2000 until such time as
annual thresholds are met. If we had not adopted SAB 101, percentage rental
income would have increased by 47.5%. This increase is primarily the result of
hotels that began to yield percentage rent during the last 12 months, and to
increases in total sales at some of our hotels. FF&E reserve income for the
first nine months of 2000 was $19,290 a 29.1% increase over FF&E reserve income
of $14,947 for the 1999 period. This increase is due principally to the impact
of acquisitions and the increased level of total sales experienced at some of
our hotels. Interest income for the first nine months of 2000 was $2,382, a 1.7%
decrease from interest income of $2,423 for the 1999 period. This decrease was
due to a lower average cash balance being partially offset by a higher average
interest rate in the 2000 period.
Interest expense for the first nine months of 2000 was $27,700, a 2.9% decrease
over interest expense of $28,523 for the first nine months of 1999. The decrease
was due to lower average borrowings during the 2000 period offset somewhat by an
increase in weighted average interest rates from 7.8% in the 1999 period to 8.0%
in the 2000 period. Depreciation and amortization expense for the first nine
months of 2000 was $62,508, a 13.6% increase over depreciation and amortization
expense of $55,015 for the first nine months of 1999. This increase was due
principally to the full period's impact of the depreciation of 37 hotels
acquired and the purchase of depreciable assets with funds from FF&E reserve
restricted accounts owned by us during 1999 and the partial impact of the 12
hotels acquired along with the purchase of depreciable assets with funds from
FF&E reserve restricted accounts owned by us during the 2000 period. General and
administrative expense for the first nine months of 2000 was $11,153, a 9.8%
increase over general and administrative expense of $10,158 for the first nine
months of 1999. This increase is due principally to the impact of additional
hotels purchased in 1999 and 2000.
Net income for the first nine months of 2000 was $90,279, a 11.6% increase over
net income of $80,911 for the first nine months of 1999. The increase was
primarily due to higher rental income and lower interest expense, the effects of
which were partially offset by the adoption of SAB 101 and increases in
depreciation and general and administrative expenses.
Net income available for common shareholders for the first nine months of 2000
was $84,935, a 9.5% increase over net income available for common shareholders
of $77,586 for the 1999 period. This increase resulted primarily from the
investment and operating activity discussed above, partially offset by
distributions to holders of preferred shares which were outstanding for the
entire 2000 period versus the 1999 period in which they were outstanding for
approximately five months and the impact of SAB 101 discussed above.
On a per share basis, net income available for common shareholders was $1.50,
which is a 0.7% decline from the 1999 period of $1.51. This decline results from
the 9.5% increase in net income available for common shareholders discussed
above, offset by a 10.2% increase in weighted average common shares outstanding.
Funds from operations, or FFO, is defined as net income available for common
shareholders before extraordinary and non-recurring items, plus depreciation and
amortization of real estate assets, plus deferred percentage rent relating to
operations from the current periods, FF&E escrow payments which are not included
in revenue. Cash available for distribution, or CAD, is FFO less FF&E escrow
payments plus amortization of deferred financing costs and other non-cash
charges. For the first nine months of 2000 FFO was $163,091, or $2.89 per share,
and CAD was $134,906, or $2.39 per share. For the first nine months of 1999 FFO
was $142,411, or $2.78 per share and CAD was $120,331, or $2.35 per share.
Changes in FFO and CAD are attributable to the effects on revenues and expenses
of the operating, investing and financing activities discussed above.
11
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HOSPITALITY PROPERTIES TRUST
Liquidity and Capital Resources (dollar amounts in thousands, except per share
amounts)
Our total assets increased to $2,233,654 as of September 30, 2000, from
$2,194,852 as of December 31, 1999. The increase resulted primarily from new
investments in hotels of approximately $151,074 offset by reduced cash balances
and depreciation expense.
Each of our leases requires the tenant to post a security deposit, generally
equal to one year's minimum rent. The security deposit is payable to each tenant
at lease expiration in the event the tenant elects not to exercise its lease
renewal options. Some of our leases are guaranteed by our tenant's affiliates
and these affiliates have deposited with us an aggregate of $34,942 in addition
to the lease security deposits to secure their guaranty obligations. These
guarantee deposits are payable to the guarantors upon the achievement and
documentation of certain operating performance thresholds at the leased
properties. We expect that guarantee deposits of $5,275 will be returned during
2000.
We have agreed, subject to certain customary conditions, to purchase for $55,562
two hotels now under construction by the seller. We expect to purchase one of
these hotels for $30,898 during the fourth quarter of 2000 and the other for
$24,664 during the first quarter 2001. From time to time, including currently,
we consider entering or pursuing transactions which would require future cash
purchases of hotels or other investments.
At September 30, 2000, we had $24,247 of cash and cash equivalents and zero
outstanding on our $300,000 revolving credit facility. 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 July
14, and July 28, 2000, we issued an aggregate of $50,000 of senior unsecured
notes due 2010. Net proceeds of approximately $49,630 were used to reduce the
outstanding balances on our line of credit to zero and for general business
purposes. On January 15, 1998, our shelf registration statement for up to
$2,000,000 of securities, including debt securities, was declared effective by
the Securities and Exchange Commission. 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 Securities and Exchange
Commission. Currently, we have $950,000 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.
All of our hotels are leased to and operated by third parties. All costs of
operating and maintaining our hotels are paid by our tenants. In addition to
minimum and percentage rents, all of our leases require a percentage, usually
5%, of total hotel sales to be escrowed by the tenant or operator into a reserve
for future renovations and refurbishment ("FF&E Reserve"). As of September 30,
2000, we and our tenants had approximately $40,566 on deposit in these
refurbishment escrow accounts. During the nine months ended September 30, 2000,
$30,752 was deposited into these accounts and $28,451 was spent to renovate and
refurbish our properties.
To maintain our status as a real estate investment trust ("REIT") under the
Internal Revenue Code, we must meet certain requirements including the
distribution of a substantial portion of our taxable income to our shareholders.
As a REIT, we expect not to pay federal income taxes. In 1999 federal
legislation was enacted which will, as of January 1, 2001, among other things,
allow a REIT to lease hotels to a so-called "taxable REIT subsidiary" if the
hotel is operated and managed on behalf of such subsidiary by an independent
third party. Many, but not all, states have adopted the provisions of the
federal legislation. We believe that this legislation may provide opportunities
to enable us to consider or enter into transactions without the need to rely
upon a third-party tenant intermediary.
Distributions are based principally on cash available for distribution, which is
net income available for common shareholders plus deferred percentage rent,
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 cash flow provided by operating
activities is affected by other factors not included in the cash available for
distribution calculation.
On August 14, 2000, our Trustees declared a distribution on preferred shares of
$0.59375 per preferred share to be paid to preferred shareholders of record as
of September 15, 2000, which was distributed on September 29, 2000.
Common share distributions with respect to the second quarter 2000 results of
$0.69 per common share were made in August 2000. Common share distributions
declared with respect to third quarter 2000 results of $0.70 per common share
will be paid to shareholders in November 2000.
12
<PAGE>
HOSPITALITY PROPERTIES TRUST
Funding for current expenses and distributions is provided by our operations,
primarily leasing of our owned hotels.
Property Leases
As of September 30, 2000, we own or have committed to purchase 224 hotels which
are grouped into combinations and leased to 11 separate affiliates of publicly
owned companies: Marriott International, Inc. ("Marriott"), Host, Crestline,
Wyndham International, Inc. ("Wyndham"), Security Capital Group, Inc. ("Security
Capital"), Candlewood Hotel Company ("Candlewood") and Prime Hospitality Corp.
("Prime").
On July 11, 2000, we announced our consent to the assignment of a lease for 24
hotels then leased to ShoLodge, Inc. to Prime Hospitality Corp. (NYSE: PDQ). All
24 hotels, which were branded as Sumner Suites(R), have been re-branded as
AmeriSuites(R)hotels. In connection with the lease assignment to Prime the
initial lease term was extended two years to 2013.
The tables the following pages summarize the key terms of our leases at
September 30, 2000, and recent comparative operating statistics of our tenants'
hotels for the first nine months ended September 30, 2000 and 1999.
13
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
Lease Pool Courtyard by Residence Inn by Residence Residence Marriott(R)/Residence
Marriott(R) Marriott(R) Inn(R)/Courtyard Inn(R)/Courtyard Inn(R)/Courtyard(R)/
by Marriott(R) by Marriott(R)/ TownePlace Suites(R)
TownePlaceSuites(R)
/SpringHill
Suites(R)(1)
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Number of Hotels 53 18 14 19 17
Number of Rooms 7,610 2,178 1,819 2,756 2,663
Number of States 24 14 7 14 7
Tenant Subsidiary of Subsidiary of Subsidiary of Subsidiary of Subsidiary of
Host subleased Host subleased Marriott Crestline 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
September 30, 2000
(000s) $510,093 $175,776 $148,812 $218,815 $201,643
Security Deposits
(000s) $50,540 $17,220 $14,881 $22,552 $21,322
End of Initial
Lease Term 2012 2010 2014 2015 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 (000s)
$51,009 $17,523 $14,881 $28,525 $21,322
Percentage Rent (3) 5.0% 7.5% 7.0% 7.0% 7.0%
First Nine Months:
2000: Occupancy 81.3% 85.0% 82.9% 80.5% (4) 77.4% (5)
ADR $99.25 $104.21 $89.80 $106.63 (4) $85.06 (5)
RevPAR $80.69 $88.58 $74.44 $85.84 (4) $65.84 (5)
1999: Occupancy 81.8% 83.9% 83.2% 77.3% (4) 75.9% (5)
ADR $93.86 $101.25 $87.34 $101.44 (4) $84.39 (5)
RevPAR $76.78 $84.95 $72.67 $78.41 (4) $64.05 (5)
---------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Includes our second quarter 2000 acquisition of eight hotels and commitment to purchase two additional hotels.
(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 to us as additional rent of a percentage of increases in total hotel sales over
base year levels.
(4) Includes the nine hotels in this lease pool which were open for at least one year prior to January 1, 2000, and
information for periods prior to our acquisition of certain properties.
(5) Includes the seven hotels in this lease pool which were open for at least one year prior to January 1, 2000, and
information for periods prior to our acquisition of certain properties.
</FN>
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
Lease Pool Wyndham(R) Summerfield AmeriSuites(R) Candlewood Candlewood Homestead
Suites by Suites(R) Suites(R) Village(R)
Wyndham(R)
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Number of Hotels 12 15 24 17 17 18
Number of Rooms 2,321 1,822 2,929 1,839 2,053 2,399
Number of States 8 8 13 14 14 5
Tenant Subsidiary of Subsidiary of Subsidiary of Subsidiary of Subsidiary of Subsidiary of
Wyndham Wyndham Prime Candlewood Candlewood Security
Capital
Manager Subsidiary of Subsidiary of Subsidiary of Subsidiary of Subsidiary of Subsidiary of
Wyndham Wyndham Prime Candlewood Candlewood Security
Capital
Investment at
September 30, 2000
(000s) $182,570 $240,000 $243,350 $118,500 $142,400 $145,000
Security Deposits
(000s) $18,325 $15,000 $25,575 $12,081 $14,253 $15,960
End of Initial
Lease Term 2014 2017 2013 2011 2011 2015
Renewal Options (1) 4 for 12 4 for 12 3 for 15 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
(000s) $18,325 $25,000 $25,575 $12,081 $14,253 $15,960
Percentage Rent (2) 8.0% 7.5% 8.0% 10.0% 10.0% 10.0%
First Nine Months:
2000: Occupancy 73.8% 84.0% 62.1% (3) 79.6% 80.1% 81.1%
ADR $92.27 $127.13 $77.17 (3) $55.44 $56.77 $50.27
RevPAR $68.10 $106.79 $47.92 (3) $44.13 $45.47 $40.77
1999: Occupancy 71.3% 82.7% 58.4% (3) 68.3% (4) 69.8% (4) 75.7% (4)
ADR $96.76 $121.59 $79.13 (3) $59.44 (4) $59.65 (4) $51.59 (4)
RevPAR $68.99 $100.55 $46.21 (3) $40.60 (4) $41.64 (4) $39.05 (4)
--------------------------------------------------------------------------------------------------------------------
<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 to us as additional rent of a percentage of increases in total hotel sales
over base year levels.
(3) Includes the 20 hotels in this lease pool which were open for at least one year prior to January 1, 2000, and
information for periods in 1999 prior to
our acquisition of certain properties.
(4) Includes information for periods prior to our acquisition of certain properties.
</FN>
</TABLE>
15
<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 tenants to pay our
rents on a regular basis notwithstanding seasonal fluctuations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk (dollar
amounts in thousands)
We are exposed to risks associated with market changes in interest rates.
We manage our exposure to this market risk by monitoring available financing
alternatives. Our strategy to manage exposure to changes in interest rates is
unchanged since December 31, 1999. Other than as described below we do not
foresee any significant changes in our exposure to fluctuations in interest
rates or in how we manage this exposure in the near future. At September 30,
2000, our outstanding debt included four issues of fixed rate, senior unsecured
notes as follows:
<TABLE>
<CAPTION>
Interest Rate Total Interest
Principal Balance Per Year Maturity Interest Payments Due Expense Per Year
----------------- -------- -------- --------------------- ----------------
<S> <C> <C> <C> <C>
$115,000 8.25% 2005 Monthly $ 9,488
$150,000 7.00% 2008 Semi-Annually $ 10,500
$150,000 8.50% 2009 Monthly $ 12,750
$ 50,000 9.125% 2010 Semi-Annually $ 4,563
</TABLE>
No principal repayments are due under these notes until maturity. Because these
notes bear interest at fixed rates, changes in market interest rates during the
term of this debt will not effect our operating results. If at maturity these
notes are refinanced at interest rates which are 10% higher than shown above,
our per annum interest cost would increase by approximately $3,730. Based on the
balances outstanding as of September 30, 2000, a hypothetical immediate 10%
change in interest rates would change the fair value of our fixed rate debt
obligations by approximately $19,685.
Each of our fixed rate debt arrangements allow us to make repayments earlier
than the stated maturity date. In some cases, we are allowed to make early
repayment at par after a set date and in other cases we are allowed to make
prepayments only at a premium to face value. These prepayment rights may afford
us the opportunity to mitigate the risk of refinancing at maturity at higher
rates by refinancing prior to maturity.
Our line of credit bears interest at floating rates and matures in 2002. As of
September 30, 2000, there was zero outstanding and $300,000 available for
drawing under our revolving credit facility. Our revolving credit facility is
available to finance our commitments and for general business purposes. Our
exposure to fluctuations in interest rates may in the future increase if we
incur debt to fund future acquisitions or otherwise. A change in interest rates
would not affect the value of our floating rate debt obligations but would
affect the interest which we must pay on this debt. The interest rate market
which has an impact upon us is the U.S. dollar interest rate for corporate
obligations, including floating rate LIBOR based obligations and fixed rate
obligations.
16
<PAGE>
CERTAIN IMPORTANT FACTORS
THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS STATEMENTS WHICH ARE FORWARD LOOKING
IN NATURE 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, ACTIONS, POSSIBLE
ACTIONS, OR INACTION BY OUR TRUSTEES OR OFFICERS WITH RESPECT TO THE DECLARATION
OR PAYMENT OF DISTRIBUTIONS AND OR THE TIMING THEREOF, OUR POLICIES AND PLANS
REGARDING INVESTMENTS, THE RE-BRANDING OF CERTAIN HOTELS AS AMERISUITES(R),
FINANCINGS, PAYMENT OF OBLIGATIONS, TAXATION AND OTHER MATTERS, THE EFFECT OF
LEGISLATION, SEASONALITY AND POSSIBLE CHANGES IN FINANCIAL MARKETS, INCLUDING
BUT NOT LIMITED TO CHANGES IN INTEREST RATES, OUR QUALIFICATION AND CONTINUED
QUALIFICATION AS A REAL ESTATE INVESTMENT TRUST OR TRENDS AFFECTING US OR
RESULTS OF OPERATIONS. READERS ARE CAUTIONED THAT FORWARD-LOOKING STATEMENTS ARE
NOT GUARANTEES OF FUTURE PERFORMANCE AND ALL FORWARD-LOOKING STATEMENTS INVOLVE
KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE THE
ACTUAL TRANSACTIONS, RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY TO BE
MATERIALLY DIFFERENT FROM ANY FUTURE TRANSACTIONS, RESULTS, PERFORMANCE, OR
ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. THESE
FACTORS INCLUDE, WITHOUT LIMITATION, CHANGES IN FINANCING TERMS OR METHODS, OUR
ABILITY OR INABILITY TO COMPLETE NEW INVESTMENTS, TO REFINANCE EXISTING DEBT AND
COMPLETE NEW FINANCING TRANSACTIONS, RESULTS OF OPERATIONS OF OUR TENANTS AND
HOTELS, CHANGES TO OUR BUSINESS PLAN OR OUR POLICIES AND GENERAL CHANGES IN
ECONOMIC CONDITIONS NOT PRESENTLY EXPECTED. ALTHOUGH WE BELIEVE THE EXPECTATIONS
REFLECTED IN OUR FORWARD-LOOKING STATEMENTS ARE BASED UPON REASONABLE
ASSUMPTIONS AND BUSINESS OPPORTUNITIES, WE CAN GIVE NO ASSURANCE THAT OUR
EXPECTATIONS WILL BE ATTAINED OR THAT ANY DEVIATIONS WILL NOT BE MATERIAL. WE
UNDERTAKE NO OBLIGATION TO PUBLICLY RELEASE THE RESULT OF ANY REVISIONS TO THESE
FORWARD-LOOKING STATEMENTS THAT MAY BE MADE TO REFLECT ANY FUTURE EVENTS OR
CIRCUMSTANCES. THE ACCOMPANYING INFORMATION CONTAINED IN THIS FORM 10-Q AND
INFORMATION IN OUR ANNUAL REPORT ON FORM 10-K, INCLUDING THE INFORMATION UNDER
THE HEADING "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS," IDENTIFIES OTHER IMPORTANT FACTORS THAT COULD CAUSE
DIFFERENCES BETWEEN OUR FORWARD-LOOKING STATEMENTS AND ACTUAL FUTURE RESULTS.
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 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.
17
<PAGE>
PART II Other Information
Item 2. Changes in Securities
In August 2000 we granted 9,000 common shares pursuant to our Incentive Share
Award Plan to officers and certain key employees of our advisor, REIT Management
& Research, Inc., valued at $25.00 per common share, the closing price of the
common shares on the New York Stock Exchange on August 1, 2000. The grants were
made pursuant to the exemption from registration contained in Section 4(2) of
the Securities Act of 1933, as amended.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
12. Ratio of Earnings to Fixed Charges
27. Financial Data Schedule.
(b) Reports on Form 8-K
(i) Current report on Form 8-K, dated July 11, 2000, filing as
exhibits (a) underwriting agreement, supplemental indenture
of trust and opinion of counsel relating to issuance of $35
million of 9.125% senior notes due 2010 and (b) ratio of
earnings to fixed charges (Item 7).
(ii) Current report on Form 8-K, dated July 24, 2000, filing as
exhibits underwriting agreement and supplemental indenture
of trust and opinion of counsel relating to issuance of $15
million of 9.125% senior notes due 2010 (Item 7).
18
<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: November 1, 2000
19
