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Hospitality Properties Trust Announces Second Quarter 2018 Results

August 9, 2018

NEWTON, Mass.--(BUSINESS WIRE)--Aug 9, 2018--Hospitality Properties Trust (Nasdaq: HPT) today announced its financial results for the quarter and six months ended June 30, 2018:

John Murray, President and Chief Executive Officer of HPT, made the following statement:

“HPT’s second quarter 2018 comparable hotel RevPAR grew 2.0% compared to the prior year period despite competition from new room supply growth and disruption from hotel renovations. Eleven comparable hotels were under renovation for all or part of the second quarter. Coverage of hotel minimum rents and returns for the second quarter 2018 was 1.22 times.

Our TA properties generated improved performance for the second quarter of 2018. Total gross margin was up $9.7 million, or 3.1%, versus the same period last year and our travel centers’ rent coverage improved to 1.69 times.”

Results for the Three and Six Months Ended June 30, 2018 and Recent Activities:

Net Income Available for Common Shareholders: Net income available for common shareholders for the quarter ended June 30, 2018 was $97.3 million, or $0.59 per diluted share, compared to net income available for common shareholders of $60.7 million, or $0.37 per diluted share, for the quarter ended June 30, 2017. Net income available for common shareholders for the quarter ended June 30, 2018 includes $20.9 million, or $0.13 per diluted share, of net unrealized gains and losses on equity securities. Net income available for common shareholders for the quarter ended June 30, 2017 includes $17.8 million, or $0.11 per diluted share, of estimated business management incentive fee expense. The weighted average number of diluted common shares outstanding was 164.2 million for each of the quarters ended June 30, 2018 and 2017. Net income available for common shareholders for the six months ended June 30, 2018 was $177.5 million, or $1.08 per diluted share, compared to net income available for common shareholders of $86.5 million, or $0.53 per diluted share, for the six months ended June 30, 2017. Net income available for common shareholders for the six months ended June 30, 2018 includes $45.9 million, or $0.28 per diluted share, of net unrealized gains and losses on equity securities. Net income available for common shareholders for the six months ended June 30, 2017 includes $37.4 million, or $0.23 per diluted share, of estimated business management incentive fee expense and was reduced by $9.9 million, or $0.06 per diluted share, for the amount by which the liquidation preference for HPT’s 7.125% Series D cumulative redeemable preferred shares that were redeemed during the period exceeded the carrying value of those preferred shares as of the date of the redemption. The weighted average number of diluted common shares outstanding was 164.2 million for each of the six months ended June 30, 2018 and 2017. Adjusted EBITDA: Adjusted EBITDA for the quarter ended June 30, 2018 compared to the same period in 2017 increased 3.0% to $226.9 million. Adjusted EBITDA for the six months ended June 30, 2018 compared to the same period in 2017 increased 3.6% to $429.9 million. Normalized FFO Available for Common Shareholders: Normalized FFO available for common shareholders for the quarter ended June 30, 2018 were $176.2 million, or $1.07 per diluted share, compared to Normalized FFO available for common shareholders of $173.6 million, or $1.06 per diluted share, for the quarter ended June 30, 2017. Normalized FFO available for common shareholders for the six months ended June 30, 2018 were $331.1 million, or $2.02 per diluted share, compared to Normalized FFO available for common shareholders of $322.4 million, or $1.96 per diluted share, for the six months ended June 30, 2017. Hotel RevPAR (comparable hotels): For the quarter ended June 30, 2018 compared to the same period in 2017 for HPT’s 305 hotels that were owned continuously since April 1, 2017: average daily rate, or ADR, increased 2.5% to $132.89; occupancy decreased 0.4 percentage points to 79.7%; and revenue per available room, or RevPAR, increased 2.0% to $105.91. For the six months ended June 30, 2018 compared to the same period in 2017 for HPT’s 303 hotels that were owned continuously since January 1, 2017: ADR increased 2.1% to $129.79; occupancy decreased 0.2 percentage points to 75.6%; and RevPAR increased 1.9% to $98.12. Hotel RevPAR (all hotels): For the quarter ended June 30, 2018 compared to the same period in 2017 for HPT’s 325 hotels that were owned as of June 30, 2018: ADR increased 2.4% to $132.78; occupancy decreased 2.0 percentage points to 78.0%; and RevPAR decreased 0.1% to $103.57. For the six months ended June 30, 2018 compared to the same period in 2017 for HPT’s 325 hotels that were owned as of June 30, 2018: ADR increased 2.2% to $130.52; occupancy decreased 1.4 percentage points to 74.2%; and RevPAR increased 0.3% to $96.85. Coverage of Minimum Returns and Rents: For the quarter ended June 30, 2018, the aggregate coverage ratio of (x) total hotel revenues minus all hotel expenses and FF&E reserve escrows which are not subordinated to minimum returns or rents due to HPT to (y) HPT’s minimum returns or rents due from hotels decreased to 1.22x from 1.26x for the quarter ended June 30, 2017. For the six months ended June 30, 2018, the aggregate coverage ratio of (x) total hotel revenues minus all hotel expenses and FF&E reserve escrows which are not subordinated to minimum returns or rents due to HPT to (y) HPT’s minimum returns or rents due from hotels decreased to 1.02x from 1.07x for the six months ended June 30, 2017. For the quarter ended June 30, 2018, the aggregate coverage ratio of (x) total travel center revenues less travel center expenses to (y) HPT’s minimum rent due from leased travel centers increased to 1.69x from 1.60x for the quarter ended June 30, 2017. For the six months ended June 30, 2018, the aggregate coverage ratio of (x) total travel center revenues less travel center expenses to (y) HPT’s minimum rent due from leased travel centers increased to 1.62x from 1.40x for the six months ended June 30, 2017. As of June 30, 2018, approximately 74% of HPT’s aggregate annual minimum returns and rents were secured by guarantees or security deposits from HPT’s managers and tenants pursuant to the terms of HPT’s operating agreements. Recent Property Acquisition Activities: In June 2018, HPT acquired the 360 room Radisson Blu ® hotel located in Minneapolis, MN for a purchase price of $75.0 million, excluding acquisition related costs. HPT added this hotel to its management agreement with Radisson Hospitality, Inc., or Radisson. Also in June 2018, HPT acquired the 117 suite Staybridge Suites ® hotel located at Louisiana State University in Baton Rouge, LA for a purchase price of $15.8 million, excluding acquisition related costs. HPT added this hotel to its management agreement with InterContinental Hotels Group, plc (LON: IHG; NYSE: IHG (ADRs)), or InterContinental. Financing Activities: In May 2018, HPT amended and restated the agreement governing its $1.0 billion unsecured revolving credit facility and $400.0 million unsecured term loan. As a result of the amendment, the interest rate payable on borrowings under HPT’s revolving credit facility was reduced from a rate of LIBOR plus a premium of 110 basis points per annum to a rate of LIBOR plus a premium of 100 basis points per annum and the facility fee remained unchanged at 20 basis points per annum on the total amount of lending commitments under this facility. Both the interest rate premium and facility fee are subject to change based upon changes to our credit ratings. Also as a result of the amendment, the interest rate payable on borrowings under HPT’s term loan was reduced from a rate of LIBOR plus a premium of 120 basis points per annum to a rate of LIBOR plus a premium of 110 basis points per annum, subject to adjustment based on changes to our credit ratings. In addition, as a result of the amendment, the stated maturity date of HPT’s revolving credit facility was extended from July 15, 2018 to July 15, 2022 and the stated maturity date of HPT’s term loan was extended from April 15, 2019 to July 15, 2023. Subject to the payment of an extension fee and meeting certain other conditions, HPT also has an option to further extend the stated maturity date of its revolving credit facility by two additional six month periods.

Tenants and Managers: As of June 30, 2018, HPT had eight operating agreements with six hotel operating companies for 325 hotels with 50,379 rooms, which represented 67% of HPT’s total annual minimum returns and rents, and five lease agreements with one travel center operating company for 199 travel centers, which represented 33% of HPT’s total annual minimum returns and rents.

Marriott Agreements: As of June 30, 2018, 122 of HPT’s hotels were operated by subsidiaries of Marriott International, Inc. (Nasdaq: MAR), or Marriott, under three agreements. HPT’s Marriott No. 1 agreement includes 53 hotels, and provides for annual minimum return payments to HPT of $69.3 million as of June 30, 2018 (approximately $17.3 million per quarter). During the three months ended June 30, 2018, HPT realized returns under its Marriott No. 1 agreement of $21.1 million, of which $2.5 million represents HPT’s share of hotel cash flows in excess of the minimum returns due to HPT for the period. Because there is no guarantee or security deposit for this agreement, the minimum returns HPT receives under this agreement are limited to available hotel cash flows after payment of operating expenses and funding of a FF&E reserve. HPT’s Marriott No. 234 agreement includes 68 hotels and requires annual minimum returns to HPT of $106.9 million as of June 30, 2018 (approximately $26.7 million per quarter). During the three months ended June 30, 2018, HPT realized returns under its Marriott No. 234 agreement of $26.7 million. HPT’s Marriott No. 234 agreement is partially secured by a security deposit and a limited guarantee from Marriott; during the three months ended June 30, 2018, the available security deposit was replenished by $5.8 million from a share of hotel cash flows in excess of the minimum returns due to HPT during the period. At June 30, 2018, the available security deposit from Marriott for the Marriott No. 234 agreement was $31.0 million and there was $30.7 million available under Marriott’s guaranty for up to 90% of the minimum returns due to HPT to cover future payment shortfalls if and after the available security deposit is depleted. HPT’s Marriott No. 5 agreement includes one resort hotel in Kauai, HI which is leased to Marriott on a full recourse basis. The contractual rent due to HPT for this hotel for the three months ended June 30, 2018 of $2.6 million was paid to HPT. InterContinental Agreement: As of June 30, 2018, 100 of HPT’s hotels were operated by subsidiaries of InterContinental under one agreement requiring annual minimum returns and rents to HPT of $190.5 million as of June 30, 2018 (approximately $47.6 million per quarter). During the three months ended June 30, 2018, HPT realized returns and rents under its InterContinental agreement of $49.1 million, of which $1.7 million represents HPT’s share of hotel cash flows in excess of the minimum returns due to HPT for the period. HPT’s InterContinental agreement is partially secured by a security deposit. During the three months ended June 30, 2018, the available security deposit was replenished by $5.9 million from a share of hotel cash flows in excess of the minimum returns due to HPT for the period. At June 30, 2018, the available InterContinental security deposit which HPT held to pay future payment shortfalls was at the contractually capped amount of $100.0 million. Sonesta Agreement: As of June 30, 2018, 50 of HPT’s hotels were operated under a management agreement with Sonesta International Hotels Corporation, or Sonesta, requiring annual minimum returns of $121.5 million as of June 30, 2018 (approximately $30.4 million per quarter). During the three months ended June 30, 2018, HPT realized returns under its Sonesta agreement of $27.9 million. Because there is no guarantee or security deposit for this agreement, the minimum returns HPT receives under this agreement are limited to available hotel cash flows after payment of operating expenses including management and related fees. Morgans Agreement: On May 8, 2018, pursuant to a settlement agreement with Morgans Hotel Group Co., or Morgans, HPT’s lease with Morgans for one hotel was terminated and Morgans surrendered possession of that hotel to HPT. The contractual rent due to HPT under the Morgans lease through May 8, 2018 was paid to HPT. HPT rebranded this hotel to the Royal Sonesta ® brand and added it to its management agreement with Sonesta. Wyndham Agreement: As of June 30, 2018, 22 of HPT’s hotels were operated under a management agreement with a subsidiary of Wyndham Hotels & Resorts, Inc. (NYSE: WH), or Wyndham, requiring annual minimum returns of $27.6 million as of June 30, 2018 (approximately $6.9 million per quarter). HPT also leases 48 vacation units in one of the hotels to a subsidiary of Wyndham Destinations, Inc. (NYSE: WYND), or Destinations, which requires annual minimum rent of $1.4 million (approximately $0.4 million per quarter). The guarantee provided by Destinations with respect to the lease is unlimited. The guarantee provided by Wyndham with respect to the management agreement was limited to $35.7 million and was depleted during 2017. HPT’s agreement with the Wyndham subsidiary provides that if the hotels’ cash flows available after payment of hotel operating expenses are less than the minimum returns due to HPT and if the guaranty is depleted, to avoid default Wyndham is required to pay HPT the greater of the available hotel cash flows after payment of hotel operating expenses and 85% of the contractual minimum amount due. During the three months ended June 30, 2018, HPT realized returns under its Wyndham agreement of $5.9 million, which represents 85% of the minimum returns due for the period. The contractual rent due to HPT under the lease for Destinations’ 48 vacation units during the three months ended June 30, 2018 was paid to HPT. Hyatt Agreement: As of June 30, 2018, 22 of HPT’s hotels were operated under a management agreement with a subsidiary of Hyatt Hotels Corporation (NYSE: H), or Hyatt, requiring annual minimum returns of $22.0 million as of June 30, 2018 (approximately $5.5 million per quarter). During the three months ended June 30, 2018, HPT realized returns under its Hyatt agreement of $5.5 million. HPT’s Hyatt agreement is partially secured by a limited guaranty from Hyatt. During the three months ended June 30, 2018, the available guaranty was replenished by $2.4 million from a share of hotel cash flows in excess of the minimum returns due to HPT during the period. At June 30, 2018, there was $23.8 million available under Hyatt’s guaranty. Radisson Agreement: As of June 30, 2018, nine of HPT’s hotels were operated under a management agreement with a subsidiary of Radisson requiring annual minimum returns of $18.9 million as of June 30, 2018 (approximately $4.7 million per quarter). During the three months ended June 30, 2018, HPT realized returns under its Radisson agreement of $3.5 million. The $3.5 million of returns realized by HPT during the three months ended June 30, 2018 equals the total amount due from Radisson during the period. The required annual minimum returns increased by $6.0 million as of June 30, 2018 as a result of HPT’s acquisition of the Radisson Blu Hotel in Minneapolis, MN in June 2018. HPT’s Radisson agreement is partially secured by a limited guaranty from Radisson. During the three months ended June 30, 2018, the available guaranty was replenished by $1.7 million from a share of hotel cash flows in excess of the minimum returns due to HPT during the period. In connection with HPT’s acquisition of the Radisson Blu hotel described above, the available balance of the guaranty under HPT’s Radisson agreement was increased by $6.0 million and the guaranty cap was increased to $46.0 million. At June 30, 2018, there was $42.0 million available under Radisson’s guaranty. Travel Center Agreements: As of June 30, 2018, HPT’s 199 travel centers located along the U.S. Interstate Highway system were leased to TravelCenters of America LLC (Nasdaq: TA), or TA, under five lease agreements, which require aggregate annual minimum rents of $286.9 million (approximately $71.7 million per quarter). As of June 30, 2018, all payments due to HPT from TA under these leases were current.

Conference Call:

At 1:00 p.m. Eastern Time this afternoon, President and Chief Executive Officer, John Murray, and Chief Financial Officer and Treasurer, Mark Kleifges, will host a conference call to discuss HPT’s second quarter 2018 financial results. The conference call telephone number is (877) 329-3720. Participants calling from outside the United States and Canada should dial (412) 317-5434. No pass code is necessary to access the call from either number. Participants should dial in about 15 minutes prior to the scheduled start of the call. A replay of the conference call will be available through Thursday, August 16, 2018. To access the replay, dial (412) 317-0088. The replay pass code is 10121847.

A live audio webcast of the conference call will also be available in a listen-only mode on HPT’s website, which is located at www.hptreit.com. Participants wanting to access the webcast should visit HPT’s website about five minutes before the call. The archived webcast will be available for replay on HPT’s website for about one week after the call. The transcription, recording and retransmission in any way of HPT’s second quarter conference call is strictly prohibited without the prior written consent of HPT.

Supplemental Data:

A copy of HPT’s Second Quarter 2018 Supplemental Operating and Financial Data is available for download at HPT’s website, which is located at www.hptreit.com. HPT’s website is not incorporated as part of this press release.

Hospitality Properties Trust is a real estate investment trust, or REIT, which owns a diverse portfolio of hotels and travel centers located in 45 states, Puerto Rico and Canada. HPT’s properties are operated under long term management or lease agreements. HPT is managed by the operating subsidiary of The RMR Group Inc. (Nasdaq: RMR), an alternative asset management company that is headquartered in Newton, Massachusetts.

Please see the pages attached hereto for a more detailed statement of HPT’s operating results and financial condition and for an explanation of HPT’s calculation of FFO available for common shareholders and Normalized FFO available for common shareholders, EBITDA and Adjusted EBITDA and a reconciliation of those amounts to amounts determined in accordance with GAAP.

WARNING CONCERNING FORWARD LOOKING STATEMENTS

THIS PRESS RELEASE CONTAINS STATEMENTS THAT CONSTITUTE FORWARD LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND OTHER SECURITIES LAWS. ALSO, WHENEVER HPT USES WORDS SUCH AS “BELIEVE”, “EXPECT”, “ANTICIPATE”, “INTEND”, “PLAN”, “ESTIMATE”, “WILL”, “MAY” AND NEGATIVES OR DERIVATIVES OF THESE OR SIMILAR EXPRESSIONS, HPT IS MAKING FORWARD LOOKING STATEMENTS. THESE FORWARD LOOKING STATEMENTS ARE BASED UPON HPT’S PRESENT INTENT, BELIEFS OR EXPECTATIONS, BUT FORWARD LOOKING STATEMENTS ARE NOT GUARANTEED TO OCCUR AND MAY NOT OCCUR. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE CONTAINED IN OR IMPLIED BY HPT’S FORWARD LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS. FOR EXAMPLE:

MR. MURRAY STATES IN THIS PRESS RELEASE THAT HPT’S COMPARABLE HOTEL REVPAR GREW DURING THE SECOND QUARTER OF 2018 COMPARED WITH THE PRIOR YEAR PERIOD, THAT TA’S PROPERTY RESULTS WERE IMPROVED DURING THE SECOND QUARTER AND THAT COVERAGE OF HPT’S MINIMUM RENTS WAS 1.69X. THESE STATEMENTS MAY IMPLY HOTEL REVPAR MAY CONTINUE TO GROW, TA’S PROPERTY RESULTS WILL CONTINUE TO IMPROVE OR COVERAGE OF MINIMUM RETURNS AND RENTS WILL REMAIN ABOVE 1.0X FOR HPT’S TRAVEL CENTERS. IN FACT, HOTEL REVPAR MAY NOT CONTINUE TO GROW AND MAY DECLINE. IN ADDITION, TA’S IMPROVED PROPERTY RESULTS MAY NOT CONTINUE AND ITS OPERATING RESULTS MAY DECLINE. IN ADDITION, COVERAGE OF HPT’S MINIMUM RETURNS AND RENTS MAY DECLINE IN FUTURE PERIODS. AS OF JUNE 30, 2018, APPROXIMATELY 74% OF HPT’S AGGREGATE ANNUAL MINIMUM RETURNS AND RENTS WERE SECURED BY GUARANTEES OR SECURITY DEPOSITS FROM HPT’S MANAGERS AND TENANTS. THIS MAY IMPLY THAT THESE MINIMUM RETURNS AND RENTS WILL BE PAID. IN FACT, CERTAIN OF THESE GUARANTEES AND SECURITY DEPOSITS ARE LIMITED IN AMOUNT AND DURATION AND ALL THE GUARANTEES ARE SUBJECT TO THE GUARANTORS’ ABILITIES AND WILLINGNESS TO PAY. HPT CANNOT BE SURE OF THE FUTURE FINANCIAL PERFORMANCE OF HPT’S PROPERTIES AND WHETHER SUCH PERFORMANCE WILL COVER HPT’S MINIMUM RETURNS AND RENTS, WHETHER THE GUARANTEES OR SECURITY DEPOSITS WILL BE ADEQUATE TO COVER FUTURE SHORTFALLS IN THE MINIMUM RETURNS OR RENTS DUE TO HPT WHICH THEY GUARANTY OR SECURE, OR REGARDING HPT’S MANAGERS’, TENANTS’ OR GUARANTORS’ FUTURE ACTIONS IF AND WHEN THE GUARANTEES AND SECURITY DEPOSITS EXPIRE OR ARE DEPLETED OR THEIR ABILITIES OR WILLINGNESS TO PAY MINIMUM RETURNS AND RENTS OWED TO HPT. MOREOVER, THE SECURITY DEPOSITS HPT HOLDS ARE NOT SEGREGATED FROM HPT’S OTHER ASSETS AND THE APPLICATION OF SECURITY DEPOSITS TO COVER PAYMENT SHORTFALLS WILL RESULT IN HPT RECORDING INCOME, BUT WILL NOT RESULT IN HPT RECEIVING ADDITIONAL CASH. THE BALANCE OF HPT’S ANNUAL MINIMUM RETURNS AND RENTS AS OF JUNE 30, 2018 WAS NOT SECURED BY GUARANTEES OR SECURITY DEPOSITS. WYNDHAM’S $35.7 MILLION LIMITED GUARANTY WAS DEPLETED DURING THE YEAR ENDED DECEMBER 31, 2017. HPT DOES NOT HOLD A SECURITY DEPOSIT WITH RESPECT TO AMOUNTS DUE UNDER THE WYNDHAM AGREEMENT. WYNDHAM HAS PAID 85% OF THE MINIMUM RETURNS DUE TO HPT FOR EACH OF THE THREE AND SIX MONTHS ENDED JUNE 30, 2018. HPT CAN PROVIDE NO ASSURANCE AS TO WHETHER WYNDHAM WILL CONTINUE TO PAY AT LEAST THE GREATER OF AVAILABLE HOTEL CASH FLOWS AFTER PAYMENT OF HOTEL OPERATING EXPENSES AND 85% OF THE MINIMUM RETURNS DUE TO HPT OR IF WYNDHAM WILL DEFAULT ON ITS PAYMENTS. HPT HAS NO GUARANTEES OR SECURITY DEPOSITS FOR THE MINIMUM RETURNS DUE TO HPT FROM HPT’S MARRIOTT NO. 1 OR HPT’S SONESTA HOTEL AGREEMENTS. ACCORDINGLY, HPT MAY RECEIVE AMOUNTS THAT ARE LESS THAN THE CONTRACTUAL MINIMUM RETURNS STATED IN THESE AGREEMENTS.

THE INFORMATION CONTAINED IN HPT’S FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION, OR THE SEC, INCLUDING UNDER THE CAPTION “RISK FACTORS” IN HPT’S PERIODIC REPORTS, OR INCORPORATED THEREIN, IDENTIFIES OTHER IMPORTANT FACTORS THAT COULD CAUSE DIFFERENCES FROM HPT’S FORWARD LOOKING STATEMENTS. HPT’S FILINGS WITH THE SEC ARE AVAILABLE ON THE SEC’S WEBSITE AT WWW.SEC.GOV.

YOU SHOULD NOT PLACE UNDUE RELIANCE UPON FORWARD LOOKING STATEMENTS.

EXCEPT AS REQUIRED BY LAW, HPT DOES NOT INTEND TO UPDATE OR CHANGE ANY FORWARD LOOKING STATEMENTS AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE.

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