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Hospitality Properties Trust Announces First Quarter 2017 Results

May 10, 2017 7:00 AM

First Quarter Net Income Available to Common Shareholders of $0.16 Per Share

First Quarter Normalized FFO Available to Common Shareholders of $0.91 Per Share

NEWTON, Mass.--(BUSINESS WIRE)-- Hospitality Properties Trust (Nasdaq: HPT) today announced its financial results for the quarter ended March 31, 2017.

Three Months Ended March 31,
2017 2016
($ in thousands, except per share and RevPAR data)
Net income available for common shareholders $ 25,843 $ 46,885
Net income available for common shareholders per share $ 0.16 $ 0.31
Adjusted EBITDA (1) $ 194,576 $ 187,703
Normalized FFO available for common shareholders (1) $ 148,807 $ 140,154
Normalized FFO available for common shareholders per share (1) $ 0.91 $ 0.93

Portfolio Performance

Comparable hotel RevPAR $ 89.40 $ 88.49
Comparable hotel RevPAR growth 1.0 % —
RevPAR (all hotels) $ 89.45 $ 88.67
RevPAR growth (all hotels) 0.9 % —
Coverage of HPT’s minimum returns and rents for hotels

0.88

x

0.92x
Coverage of HPT's minimum rents for travel centers

1.22

x

1.37x

(1) Reconciliations of net income determined in accordance with U.S. generally accepted accounting principles, or GAAP, to earnings before interest, taxes, depreciation and amortization, or EBITDA, and EBITDA as adjusted, or Adjusted EBITDA, and net income available for common shareholders determined in accordance with GAAP to funds from operations, or FFO, available for common shareholders, and Normalized FFO available for common shareholders, for the quarters ended March 31, 2017 and 2016 appear later in this press release.

John Murray, President and Chief Operating Officer of HPT, made the following statement regarding today's announcement:

“HPT's first quarter 2017 comparable hotel RevPAR grew by 1% despite competition from new room supply and certain market specific impacts. We continued our steady pace of acquisition growth, took advantage of debt capital market opportunities to lower our capital costs and raised our quarterly dividend. We remain cautiously optimistic regarding performance for the balance of 2017.”

Results for the Three Months Ended March 31, 2017 and Recent Activities:

Tenants and Managers: As of March 31, 2017, HPT had nine operating agreements with seven hotel operating companies for 308 hotels with 47,187 rooms, which represented 65% of HPT’s total annual minimum returns and rents, and five lease agreements with one travel center operating company for 198 travel centers, which represented 35% of HPT’s total annual minimum returns and rents.

Conference Call:

On Wednesday, May 10, 2017, at 10:00 a.m. Eastern Time, John Murray, President and Chief Operating Officer, and Mark Kleifges, Chief Financial Officer and Treasurer, will host a conference call to discuss HPT's first quarter 2017 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 Wednesday, May 17, 2017. To hear the replay, dial (412) 317-0088. The replay pass code is 10104365.

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 first quarter conference call is strictly prohibited without the prior written consent of HPT.

Supplemental Data:

A copy of HPT’s First Quarter 2017 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, 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 following pages 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 according to 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:

THE INFORMATION CONTAINED IN HPT’S FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION, OR 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.

HOSPITALITY PROPERTIES TRUST

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(amounts in thousands, except share data)

(Unaudited)

Three Months Ended March 31,
2017 2016
Revenues:
Hotel operating revenues (1) $ 407,587 $ 396,503
Rental income (2) 79,788 76,259
FF&E reserve income (3) 1,227 1,356
Total revenues 488,602 474,118
Expenses:
Hotel operating expenses (1) 282,723 276,305
Depreciation and amortization 93,451 87,271
General and administrative (4) 32,346 16,023
Acquisition related costs (5) — 612
Total expenses 408,520 380,211
Operating income 80,082 93,907
Dividend income 626 —
Interest income 257 98

Interest expense (including amortization of debt issuance costs and debt discounts and

(43,566 ) (41,586 )

premiums of $2,152 and $1,865, respectively)

Loss on early extinguishment of debt (6) — (70 )
Income before income taxes and equity in earnings of an investee 37,399 52,349
Income tax expense (356 ) (375 )
Equity in earnings of an investee 128 77
Net income 37,171 52,051
Preferred distributions (1,435 ) (5,166 )
Excess of liquidation preference over carrying value of preferred shares redeemed (7) (9,893 ) —
Net income available for common shareholders $ 25,843 $ 46,885
Weighted average common shares outstanding (basic) 164,120 151,402
Weighted average common shares outstanding (diluted) 164,149 151,415
Net income available for common shareholders per common share (basic and diluted) $ 0.16 $ 0.31

See Notes on pages 10 and 11

HOSPITALITY PROPERTIES TRUST

RECONCILIATIONS OF FUNDS FROM OPERATIONS,

NORMALIZED FUNDS FROM OPERATIONS, EBITDA AND ADJUSTED EBITDA

(amounts in thousands, except share data)

(Unaudited)

Three Months Ended March 31,
2017 2016

Calculation of Funds from Operations (FFO) and Normalized FFO available for common shareholders: (8)

Net income available for common shareholders $ 25,843 $ 46,885

Add:

Depreciation and amortization

93,451 87,271
FFO available for common shareholders 119,294 134,156

Add:

Acquisition related costs (5)

— 612
Estimated business management incentive fees (4) 19,620 5,316
Loss on early extinguishment of debt (6) — 70
Excess of liquidation preference over carrying value of preferred shares redeemed (7) 9,893 —
Normalized FFO available for common shareholders $ 148,807 $ 140,154
Weighted average common shares outstanding (basic) 164,120 151,402
Weighted average common shares outstanding (diluted) 164,149 151,415
Basic and diluted per common share amounts:
FFO available for common shareholders $ 0.73 $ 0.89
Normalized FFO available for common shareholders $ 0.91 $ 0.93
Distributions declared per share $ 0.51 $ 0.50
Three Months Ended March 31,
2017 2016
Calculation of EBITDA and Adjusted EBITDA: (9)
Net income $ 37,171 $ 52,051

Add:

Interest expense

43,566 41,586
Income tax expense 356 375
Depreciation and amortization 93,451 87,271
EBITDA 174,544 181,283

Add:

Acquisition related costs (5)

— 612
General and administrative expense paid in common shares (10) 412 422
Estimated business management incentive fees (4) 19,620 5,316
Loss on early extinguishment of debt (6) — 70
Adjusted EBITDA $ 194,576 $ 187,703

See Notes on pages 10 and 11

(1) At March 31, 2017, HPT owned 308 hotels; 305 of these hotels were managed by hotel operating companies and three hotels were leased to hotel operating companies. At March 31, 2017, HPT also owned 198 travel centers; all 198 of these travel centers were leased to a travel center operating company 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, $16,924 and $16,429 less than the minimum returns due to HPT in the three months ended March 31, 2017 and 2016, respectively. When the managers of these hotels fund the shortfalls under the terms of HPT’s operating 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. Hotel operating expenses were reduced by $6,662 and $4,377 in the three months ended March 31, 2017 and 2016, respectively, as a result of such fundings. HPT had shortfalls at certain of its managed hotel portfolios not funded by the managers of these hotels under the terms of its operating agreements of $11,889 and $12,052 in the three months ended March 31, 2017 and 2016, respectively, which represent the unguaranteed portions of HPT's minimum returns from Sonesta. Certain of HPT’s managed hotel portfolios had net operating results that were, in the aggregate, $2,791 and $8,363 more than the minimum returns due to HPT in the three months ended March 31, 2017 and 2016, respectively. Certain guarantees to HPT and security deposits held by HPT may be replenished by a share of these excess cash flows from the applicable hotel operations pursuant to the terms of the respective operating agreements or the guarantees. When these 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. Hotel operating expenses were increased by $1,504 and $2,522 in the three months ended March 31, 2017 and 2016, respectively, as a result of such replenishments.

(2) Rental income includes $3,008 and $3,752 in the three months ended March 31, 2017 and 2016, respectively, of adjustments necessary to record scheduled rent increases 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 three 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 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 this expense, if any, in the first, second and third quarters for purposes of calculating net income, HPT does not include these amounts in the calculation of Normalized FFO available for common shareholders or Adjusted EBITDA until the fourth quarter, which is when the business management incentive fee expense amount for the year, if any, is determined. Net income includes $19,620 and $5,316 of estimated business management incentive fee expense in the three months ended March 31, 2017 and 2016, respectively.

(5) Represents costs associated with HPT’s acquisition activities. Acquisition costs incurred during the 2017 period have been capitalized in purchase accounting pursuant to a change in GAAP.

(6) HPT recorded a loss on early extinguishment of debt of $70 in the three months ended March 31, 2016, in connection with the redemption of certain senior unsecured notes.

(7) On February 10, 2017, HPT redeemed all 11,600,000 of its outstanding 7.125% Series D cumulative redeemable preferred shares at the stated liquidation preference of $25.00 per share plus accrued and unpaid distributions to the date of redemption (an aggregate of $291,435). The liquidation preference of the redeemed shares exceeded the carrying amount for the redeemed shares as of the date of redemption by $9,893, or $0.06 per share, and HPT reduced net income available to common shareholders in the three months ended March 31, 2017 by that excess amount.

(8) HPT calculates FFO available for common shareholders and Normalized FFO available for common shareholders as shown above. FFO available for common shareholders is calculated on the basis defined by The National Association of Real Estate Investment Trusts, or NAREIT, which is net income available for common shareholders calculated in accordance with GAAP, excluding any gain or loss on sale of properties and loss on impairment of real estate assets, if any, plus real estate depreciation and amortization, as well as certain other adjustments currently not applicable to HPT. HPT’s calculation of Normalized FFO available for common shareholders differs from NAREIT’s definition of FFO available for common shareholders because HPT includes business management incentive fees, if any, only in the fourth quarter versus the quarter when they are recognized as expense in accordance with GAAP due to their quarterly volatility not necessarily being indicative of HPT’s core operating performance and the uncertainty as to whether any such business management incentive fees will be payable when all contingencies for determining such fees are known at the end of the calendar year, and HPT excludes excess of liquidation preference over carrying value of preferred shares redeemed, acquisition related costs expensed under GAAP and loss on early extinguishment of debt. HPT considers FFO available for common shareholders and Normalized FFO available for common shareholders to be appropriate supplemental measures of operating performance for a REIT, along with net income, net income available for common shareholders and operating income. HPT believes that FFO available for common shareholders and Normalized FFO available for common shareholders provide useful information to investors because by excluding the effects of certain historical amounts, such as depreciation expense, FFO available for common shareholders and Normalized FFO available for common shareholders may facilitate a comparison of HPT’s operating performance between periods and with other REITs. FFO available for common shareholders and Normalized FFO available for common shareholders are among the factors considered by HPT’s Board of Trustees when determining the amount of distributions to shareholders. Other factors include, but are not limited to, requirements to maintain HPT’s qualification for taxation as a REIT, limitations in its credit agreement and public debt covenants, the availability to HPT of debt and equity capital, HPT’s expectation of its future capital requirements and operating performance and HPT’s expected needs for and availability of cash to pay its obligations. FFO available for common shareholders and Normalized FFO available for common shareholders do not represent cash generated by operating activities in accordance with GAAP and should not be considered as alternatives to net income, net income available for common shareholders or operating income as an indicator of HPT’s operating performance or as a measure of HPT’s liquidity. These measures should be considered in conjunction with net income, net income available for common shareholders and operating income as presented in HPT’s condensed consolidated statements of income. Other real estate companies and REITs may calculate FFO available for common shareholders and Normalized FFO available for common shareholders differently than HPT does.

(9) HPT calculates EBITDA and Adjusted EBITDA as shown above. HPT considers EBITDA and Adjusted EBITDA to be appropriate supplemental measures of its operating performance, along with net income, net income available for common shareholders and operating income. HPT believes that EBITDA and Adjusted EBITDA provide useful information to investors because by excluding the effects of certain historical amounts, such as interest, depreciation and amortization expense, EBITDA and Adjusted EBITDA may facilitate a comparison of current operating performance with HPT’s past operating performance. In calculating Adjusted EBITDA, HPT includes business management incentive fees only in the fourth quarter versus the quarter when they are recognized as expense in accordance with GAAP due to their quarterly volatility not necessarily being indicative of HPT’s core operating performance and the uncertainty as to whether any such business management incentive fees will be payable when all contingencies for determining such fees are known at the end of the calendar year. EBITDA and Adjusted EBITDA do not represent cash generated by operating activities in accordance with GAAP and should not be considered an alternative to net income, net income available for common shareholders or operating income as an indicator of operating performance or as a measure of HPT’s liquidity. These measures should be considered in conjunction with net income, net income available for common shareholders and operating income as presented in HPT’s condensed consolidated statements of income. Other real estate companies and REITs may calculate EBITDA and Adjusted EBITDA differently than HPT does.

(10) Amounts represent the equity compensation for HPT’s trustees, its officers and certain other employees of HPT’s manager.

HOSPITALITY PROPERTIES TRUST

CONDENSED CONSOLIDATED BALANCE SHEETS

(amounts in thousands, except share data)

(Unaudited)

March 31, December 31,
2017 2016
ASSETS
Real estate properties:
Land $ 1,604,366 $ 1,566,630
Buildings, improvements and equipment 7,307,972 7,156,759
Total real estate properties, gross 8,912,338 8,723,389
Accumulated depreciation (2,590,844 ) (2,513,996 )
Total real estate properties, net 6,321,494 6,209,393
Cash and cash equivalents 23,772 10,896
Restricted cash (FF&E reserve escrow) 56,713 60,456
Due from related persons 68,920 65,332
Other assets, net 318,535 288,151
Total assets $ 6,789,434 $ 6,634,228
LIABILITIES AND SHAREHOLDERS’ EQUITY
Unsecured revolving credit facility $ 130,000 $ 191,000
Unsecured term loan, net 398,587 398,421
Senior unsecured notes, net 3,160,757 2,565,908
Convertible senior unsecured notes 47 8,478
Security deposits 100,640 89,338
Accounts payable and other liabilities 162,137 188,053
Due to related persons 24,180 58,475
Dividends payable — 5,166
Total liabilities 3,976,348 3,504,839
Commitments and contingencies
Shareholders’ equity:
Preferred shares of beneficial interest, no par value; 100,000,000 shares authorized:

Series D preferred shares; 7 1/8% cumulative redeemable; zero and 11,600,000shares issued and outstanding, respectively, aggregate liquidation preference ofzero and $290,000, respectively

— 280,107

Common shares of beneficial interest, $.01 par value; 200,000,000 shares

1,643 1,643

authorized; 164,268,199 shares issued and outstanding

Additional paid in capital 4,539,673 4,539,673
Cumulative net income 3,132,044 3,104,767
Cumulative other comprehensive income 61,322 39,583
Cumulative preferred distributions (343,412 ) (341,977 )
Cumulative common distributions (4,578,184 ) (4,494,407 )
Total shareholders’ equity 2,813,086 3,129,389
Total liabilities and shareholders’ equity $ 6,789,434 $ 6,634,228

A Maryland Real Estate Investment Trust with transferable shares of beneficial interest listed on the Nasdaq.No shareholder, Trustee or officer is personally liable for any act or obligation of the Trust.

Hospitality Properties Trust

Katie Strohacker, 617-796-8232

Senior Director, Investor Relations

Source: Hospitality Properties Trust

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