Hospitality Properties Trust Announces First Quarter 2019 Results

First Quarter Net Income of $1.37 Per Common Share

First Quarter Normalized FFO of $0.88 Per Common Share

NEWTON, Mass.–(BUSINESS WIRE)–Hospitality Properties Trust (Nasdaq: HPT) today announced its financial
results for the quarter ended March 31, 2019:

   
Three Months Ended March 31,
2019     2018
($ in thousands, except per share and RevPAR data)
 
Net income $ 225,787 $ 80,206
Net income per common share $ 1.37 $ 0.49
Adjusted EBITDAre (1) $ 195,901 $ 202,956
Normalized FFO (1) $ 144,640 $ 154,868
Normalized FFO per common share (1) $ 0.88 $ 0.94
 

Portfolio Performance

Comparable hotel RevPAR $ 87.02 $ 89.91
Change in comparable hotel RevPAR (3.2 %)
RevPAR (all hotels) $ 87.77 $ 90.62
Change in RevPAR (all hotels) (3.1 %)
Coverage of HPT’s minimum returns and rents for hotels

0.71

x

0.82x
Coverage of HPT’s minimum rents for travel centers

1.71

x

1.74x
 

(1) Additional information and reconciliations of net income determined
in accordance with U.S. generally accepted accounting principles, or
GAAP, to certain non-GAAP measures including EBITDA, EBITDAre,
Adjusted EBITDAre, FFO and Normalized FFO, for the quarters ended
March 31, 2019 and 2018 appear later in this press release.

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

“HPT’s first quarter 2019 comparable hotel RevPAR declined 3.2% compared
to the prior year period due to occupancy decreases from twenty-eight
hotels under renovation, non-recurring business related to significant
weather events, the first quarter 2019 U.S. government shutdown and
competition from new hotels. For hotels not impacted by these events,
comparable RevPAR increased 1.6%.

HPT’s 179 TA properties performed well during the three months ended
March 31, 2019. Total fuel volumes were up 2.2% versus the same period
last year, and non-fuel gross margins increased 2.9% with increases in
the store, quick service restaurants and truck services businesses.

In April 2019, HPT announced a dividend increase to $0.54 per common
share ($2.16 per share per year) which marks the eighth year in a row it
has raised its common share dividend.”

Results for the Quarter Ended March 31, 2019 and Recent Activities:

  • Net Income: Net income for the quarter ended March 31, 2019 was
    $225.8 million, or $1.37 per diluted common share, compared to net
    income of $80.2 million, or $0.49 per diluted common share, for the
    quarter ended March 31, 2018. Net income for the quarter ended
    March 31, 2019 includes a $159.5 million, or $0.97 per diluted common
    share, gain on sale of real estate and $21.0 million, or $0.13 per
    diluted common share, of unrealized gains on equity securities. Net
    income for the quarter ended March 31, 2018 includes $25.0 million, or
    $0.15 per diluted common share, of net unrealized gains and losses on
    equity securities. The weighted average number of diluted common
    shares outstanding was 164.3 million and 164.2 million for the
    quarters ended March 31, 2019 and 2018, respectively.
  • Adjusted EBITDAre: Adjusted EBITDAre for the
    quarter ended March 31, 2019 compared to the same period in 2018
    decreased 3.5% to $195.9 million.
  • Normalized FFO: Normalized FFO for the quarter ended March 31,
    2019 were $144.6 million, or $0.88 per diluted common share, compared
    to Normalized FFO of $154.9 million, or $0.94 per diluted common
    share, for the quarter ended March 31, 2018.
  • Hotel RevPAR (comparable hotels): For the quarter ended
    March 31, 2019 compared to the same period in 2018 for HPT’s 323
    hotels that were owned continuously since January 1, 2018: average
    daily rate, or ADR, increased 1.0% to $129.11; occupancy decreased 2.9
    percentage points to 67.4%; and revenue per available room, or RevPAR,
    decreased 3.2% to $87.02.
  • Hotel RevPAR (all hotels): For the quarter ended March 31, 2019
    compared to the same period in 2018 for HPT’s 327 hotels that were
    owned as of March 31, 2019: ADR increased 0.9% to $130.03; occupancy
    decreased 2.8 percentage points to 67.5%; and RevPAR decreased 3.1% to
    $87.77.
  • Coverage of Minimum Returns and Rents: For the quarter ended
    March 31, 2019, 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 0.71x from 0.82x
    for the quarter ended March 31, 2018.

    For the quarter
    ended March 31, 2019, 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 decreased to 1.71x from 1.74x for the
    quarter ended March 31, 2018.

    As of March 31, 2019,
    approximately 73% 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: As previously
    announced, in February 2019, HPT acquired the 335 room Hotel Palomar
    located in Washington, D.C. for a purchase price of $141.5 million,
    excluding acquisition related costs. HPT added this Kimpton®
    branded hotel to its management agreement with InterContinental Hotels
    Group, plc (LON: IHG; NYSE: IHG (ADRs)), or IHG.

    In May
    2019, HPT acquired the 198 room Crowne Plaza® hotel located
    in Milwaukee, WI for a purchase price of $30.0 million, excluding
    acquisition related costs. HPT added this hotel to its management
    agreement with IHG.

  • Transaction with TravelCenters of America LLC: As previously
    announced, in January 2019, HPT sold 20 travel centers in 15 states to
    TravelCenters of America LLC (Nasdaq: TA), or TA, that HPT owned and
    leased to TA for $308.2 million. HPT realized a gain of $159.5 million
    from these sales during the quarter ended March 31, 2019. HPT used the
    proceeds from these sales to repay borrowings under its revolving
    credit facility and for general business purposes, including hotel
    acquisitions. HPT and TA also amended and extended the terms of their
    leases. On April 1, 2019, HPT received the first of 16 quarterly
    installments of $4.4 million of previously deferred rents under the
    terms of the amended leases.

Tenants and Managers: As of March 31, 2019, HPT had eight
operating agreements with six hotel operating companies for 327 hotels
with 50,882 rooms, which represented 71% of HPT’s total annual minimum
returns and rents, and five lease agreements with TA for 179 travel
centers, which represented 29% of HPT’s total annual minimum returns and
rents.

  • Marriott Agreements: As of March 31, 2019, 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 $71.5 million as of March 31, 2019 (approximately
    $17.9 million per quarter). During the three months ended March 31,
    2019, HPT realized returns under its Marriott No. 1 agreement of $15.7
    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 hotel 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 $108.2 million as of March 31, 2019 (approximately $27.0
    million per quarter). During the three months ended March 31, 2019,
    HPT realized returns under its Marriott No. 234 agreement of $26.9
    million. HPT’s Marriott No. 234 agreement is partially secured by a
    security deposit and a limited guaranty from Marriott; during the
    three months ended March 31, 2019, HPT reduced the available security
    deposit by $2.1 million to cover shortfalls in hotel cash flows
    available to pay the minimum returns due to HPT during the period. As
    of March 31, 2019, the available security deposit from Marriott for
    the Marriott No. 234 agreement was $30.6 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 March 31, 2019 of $2.6 million
    was paid to HPT.
  • IHG Agreement: As of March 31, 2019, 101 of HPT’s hotels were
    operated by subsidiaries of IHG under one agreement requiring annual
    minimum returns and rents to HPT of $205.0 million as of March 31,
    2019 (approximately $51.3 million per quarter). During the three
    months ended March 31, 2019, HPT realized returns and rents under its
    IHG agreement of $49.6 million. HPT’s IHG agreement is partially
    secured by a security deposit. During the three months ended March 31,
    2019, HPT reduced the available security deposit by $14.3 million to
    cover shortfalls in hotel cash flows available to pay the minimum
    returns and rents due to HPT during the period. As of March 31, 2019,
    the available IHG security deposit which HPT held to pay future
    payment shortfalls was $85.7 million. In connection with the February
    acquisition of the Hotel Palomar described above, IHG agreed to
    provide HPT $5.0 million to supplement the existing security deposit.
  • Sonesta Agreement: As of March 31, 2019, 51 of HPT’s hotels
    were operated under a management agreement with Sonesta International
    Hotels Corporation, or Sonesta, requiring annual minimum returns of
    $127.6 million as of March 31, 2019 (approximately $31.9 million per
    quarter). During the three months ended March 31, 2019, HPT realized
    returns under its Sonesta agreement of $14.2 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 hotel operating expenses including
    management and related fees.
  • Wyndham Agreement: As of March 31, 2019, 22 of HPT’s hotels
    were operated under a management agreement with subsidiaries of
    Wyndham Hotels & Resorts, Inc. (NYSE: WH), or Wyndham, requiring
    annual minimum returns of $27.9 million as of March 31, 2019
    (approximately $7.0 million per quarter). The guaranty provided by
    Wyndham with respect to the management agreement was limited to $35.7
    million and has been depleted since 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
    March 31, 2019, HPT realized returns under its Wyndham agreement of
    $5.9 million, which represents 85% of the minimum returns due for the
    period. 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 $1.5 million
    (approximately $0.4 million per quarter). The guaranty provided by
    Destinations with respect to the lease is unlimited. The contractual
    rent due to HPT under the lease for Destinations’ 48 vacation units
    during the three months ended March 31, 2019 was paid to HPT.
  • Hyatt Agreement: As of March 31, 2019, 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 March 31, 2019 (approximately $5.5
    million per quarter). During the three months ended March 31, 2019,
    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 March 31, 2019, the hotels under this
    agreement generated cash flows that were less than the minimum returns
    due to HPT, and Hyatt made $0.4 million of guaranty payments to cover
    the shortfall. As of March 31, 2019, there was $21.5 million available
    under Hyatt’s guaranty.
  • Radisson Agreement: As of March 31, 2019, nine of HPT’s hotels
    were operated under a management agreement with a subsidiary of
    Radisson Hospitality, Inc., or Radisson, requiring annual minimum
    returns of $19.8 million as of March 31, 2019 (approximately $4.9
    million per quarter). During the three months ended March 31, 2019,
    HPT realized returns under its Radisson agreement of $4.8 million.
    HPT’s Radisson agreement is partially secured by a limited guaranty
    from Radisson. During the three months ended March 31, 2019, the
    hotels under this agreement generated cash flows that were less than
    the minimum returns due to HPT, and Radisson made $2.6 million of
    guaranty payments to cover the shortfall. As of March 31, 2019, there
    was $39.9 million available under Radisson’s guaranty.
  • Travel Center Agreements: As of March 31, 2019, HPT’s 179
    travel centers located along the U.S. Interstate Highway system were
    leased to TA under five lease agreements, which require aggregate
    annual minimum rents of $246.1 million (approximately $61.5 million
    per quarter). As of March 31, 2019, all payments due to HPT from TA
    under these leases were current. See above regarding transactions we
    completed with TA in January 2019.

Conference Call:

At 10:00 a.m. Eastern Time this morning, President and Chief Executive
Officer, John Murray, and Chief Financial Officer and Treasurer, Brian
Donley, will host a conference call to discuss HPT’s first quarter 2019
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 Friday, May 17, 2019. To access the replay, dial
(412) 317-0088. The replay pass code is 10130293.

A live audio webcast of the conference call will also be available in a
listen-only mode on HPT’s website, 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 first
quarter conference call is strictly prohibited without the prior written
consent of HPT.

Supplemental Data:

A copy of HPT’s First Quarter 2019 Supplemental Operating and Financial
Data is available for download at HPT’s website, 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, the District of Columbia, 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.

Non-GAAP Financial Measures:

HPT presents certain “non-GAAP financial measures” within the meaning of
applicable Securities and Exchange Commission, or SEC, rules, including
EBITDA, EBITDAre, Adjusted EBITDAre, FFO and Normalized
FFO. These measures do not represent cash generated by operating
activities in accordance with GAAP and should not be considered
alternatives to net income as indicators of HPT’s operating performance
or as measures of HPT’s liquidity. These measures should be considered
in conjunction with net income as presented in HPT’s condensed
consolidated statements of income. HPT considers these non-GAAP measures
to be appropriate supplemental measures of operating performance for a
REIT, along with net income. HPT believes these measures provide useful
information to investors because by excluding the effects of certain
historical amounts, such as depreciation and amortization expense, they
may facilitate a comparison of HPT’s operating performance between
periods and with other REITs.

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 and Normalized FFO, EBITDA, EBITDAre
and Adjusted EBITDAre and a reconciliation of those amounts to
amounts determined in accordance with GAAP.

 
HOSPITALITY PROPERTIES TRUST
CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(amounts in thousands, except share data)

(Unaudited)

    Three Months Ended March 31,
2019     2018
Revenues:
Hotel operating revenues (1) $ 455,385 $ 445,276
Rental income (2) 68,151 81,993
FF&E reserve income (3) 1,372   1,364  
Total revenues 524,908   528,633  
 
Expenses:
Hotel operating expenses (1) 319,125 314,982
Depreciation and amortization 99,365 99,617
General and administrative (4) 12,235   11,734  
Total expenses 430,725 426,333
 
Gain on sale of real estate (5) 159,535
Dividend income 876 626
Unrealized gains and losses on equity securities, net (6) 20,977 24,955
Interest income 637 292
Interest expense (including amortization of debt issuance costs and
debt discounts and premiums of $2,570 and $2,478, respectively)
(49,766 ) (47,540 )
Income before income taxes and equity in earnings of an investee 226,442 80,633
Income tax expense (1,059 ) (471 )
Equity in earnings of an investee 404   44  
Net income $ 225,787   $ 80,206  
 
Weighted average common shares outstanding (basic) 164,278   164,199  
Weighted average common shares outstanding (diluted) 164,322   164,219  
 
Net income per common share (basic and diluted) $ 1.37   $ 0.49  

 

See Notes on page 8

   
HOSPITALITY PROPERTIES TRUST
RECONCILIATIONS OF FUNDS FROM OPERATIONS,
NORMALIZED FUNDS FROM OPERATIONS, EBITDA, EBITDAre AND ADJUSTED
EBITDAre

(amounts in thousands, except share data)

(Unaudited)

Three Months Ended March 31,
2019     2018
Calculation of FFO and Normalized FFO: (7)
Net income $ 225,787 $ 80,206
Add (Less): Depreciation and amortization 99,365 99,617
Gain on sale of real estate (5) (159,535 )
Unrealized gains and losses on equity securities, net (6) (20,977 ) (24,955 )
FFO and Normalized FFO $ 144,640   $ 154,868  
 
Weighted average common shares outstanding (basic) 164,278   164,199  
Weighted average common shares outstanding (diluted) 164,322   164,219  
 
Basic and diluted per common share amounts:
FFO and Normalized FFO $ 0.88 $ 0.94
Distributions declared per share $ 0.53 $ 0.52
 
           
Three Months Ended March 31,
2019 2018
Calculation of EBITDA, EBITDAre and Adjusted EBITDAre: (8)
Net income $ 225,787 $ 80,206

Add:

Interest expense

49,766 47,540
Income tax expense 1,059 471
Depreciation and amortization 99,365   99,617  
EBITDA 375,977 227,834

Less:

Gain on sale of real estate (5)

(159,535 )  
EBITDAre 216,442 227,834

Add (Less):

General and administrative expense paid in common shares (9)

436 77
Unrealized gains and losses on equity securities, net (6) (20,977 ) (24,955 )
Adjusted EBITDAre $ 195,901   $ 202,956  
 

See Notes on page 8

(1) As of March 31, 2019, HPT owned 327 hotels; 325 of these hotels were
managed by hotel operating companies and two hotels were leased to hotel
operating companies. As of March 31, 2019, HPT also owned 179 travel
centers; all 179 of these travel centers were leased to TA under five
lease agreements. HPT’s condensed consolidated statements of income
include hotel operating revenues and expenses of managed hotels and
rental income from its leased hotels and travel centers. Certain of
HPT’s managed hotels had net operating results that were, in the
aggregate, $42,839 and $27,586 less than the minimum returns due to HPT
for the three months ended March 31, 2019 and 2018, respectively. When
managers of these hotels are required to fund the shortfalls under the
terms of HPT’s management agreements or their guarantees, HPT reflects
such fundings (including security deposit applications) in its condensed
consolidated statements of income as a reduction of hotel operating
expenses. The reduction to hotel operating expenses was $22,465 and
$10,851 for the three months ended March 31, 2019 and 2018,
respectively. When HPT reduces the amounts of the security deposit it
holds for any of its operating agreements for payment deficiencies, it
does not result in additional cash flows to HPT of the deficiency
amounts, but reduces the refunds due to the respective tenants or
managers who have provided HPT with these deposits upon expiration of
the respective operating agreement. The security deposits are
non-interest bearing and are not held in escrow. HPT had shortfalls at
certain of its managed hotel portfolios not funded by the managers of
these hotels under the terms of its management agreements of $20,676 and
$17,769 for the three months ended March 31, 2019 and 2018,
respectively, which represent the unguaranteed portions of HPT’s minimum
returns from its Marriott, Sonesta and Wyndham agreements. Certain of
HPT’s managed hotel portfolios had net operating results that were, in
the aggregate, $1,275 more than the minimum returns due to HPT for the
three months ended March 31, 2018. The net operating results of HPT’s
managed hotel portfolios did not exceed the minimum returns due to HPT
for the three months ended March 31, 2019. Certain of HPT’s guarantees
and its security deposits may be replenished by a share of future cash
flows from the applicable hotel operations in excess of the minimum
returns due to HPT pursuant to the terms of the respective agreements.
When HPT’s guarantees and security deposits are replenished by cash
flows from hotel operations, HPT reflects such replenishments in its
condensed consolidated statements of income as an increase to hotel
operating expenses. HPT had $1,275 of guaranty and security deposit
replenishments for the three months ended March 31, 2018. There were no
replenishments for the three months ended March 31, 2019.

(2) Rental income includes decreases of $1,132 and increases of $3,079
for the three months ended March 31, 2019 and 2018, respectively, of
adjustments necessary to record scheduled rent changes under certain of
HPT’s leases, the deferred rent obligations under HPT’s travel center
leases and the estimated future payments to HPT under its travel center
leases for the cost of removing underground storage tanks on a straight
line basis.

(3) Various percentages of total sales at certain of HPT’s hotels are
escrowed as reserves for future renovations or refurbishment, or FF&E
reserve escrows. HPT owns all the FF&E reserve escrows for its hotels.
HPT reports deposits by its tenants into the escrow accounts under its
hotel leases as FF&E reserve income. HPT does not report the amounts
which are escrowed as FF&E reserves for its managed hotels as FF&E
reserve income.

(4) Incentive fees under HPT’s business management agreement with The
RMR Group LLC are payable after the end of each calendar year, are
calculated based on common share total return, as defined, and are
included in general and administrative expense in HPT’s condensed
consolidated statements of income. In calculating net income in
accordance with GAAP, HPT recognizes estimated business management
incentive fee expense, if any, in the first, second and third quarters.
Although HPT recognizes

Contacts

Katie Strohacker, Senior Director, Investor Relations
(617) 796-8232

Read full story here

error: Content is protected !!