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Hospitality Properties Trust Announces Third Quarter 2017 Results

November 8, 2017 7:00 AM

Third Quarter Net Income Available for Common Shareholders of $0.52 Per Share

Third Quarter Normalized FFO Available for Common Shareholders of $1.07 Per Share

NEWTON, Mass.--(BUSINESS WIRE)-- Hospitality Properties Trust (Nasdaq: HPT) today announced its financial results for the quarter and nine months ended September 30, 2017:

Three Months Ended Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
($ in thousands, except per share and RevPAR data)
Net income available for common shareholders $ 85,728 $ 46,646 $ 172,270 $ 144,426
Net income available for common shareholders per share $ 0.52 $ 0.30 $ 1.05 $ 0.94
Adjusted EBITDA (1) $ 223,469 $ 210,514 $ 638,342 $ 613,825
Normalized FFO available for common shareholders (1) $ 175,458 $ 162,135 $ 497,869 $ 468,003
Normalized FFO available for common shareholders per share (1) $ 1.07 $ 1.03 $ 3.03 $ 3.05
Portfolio Performance
Comparable hotel RevPAR $ 101.43 $ 101.86 $ 97.85 $ 97.69
Change in comparable hotel RevPAR (0.4 %) — 0.2 % —
RevPAR (all hotels) $ 101.85 $ 103.00 $ 98.33 $ 98.50
Change in RevPAR (all hotels) (1.1 %) — (0.2 %) —
Coverage of HPT’s minimum returns and rents for hotels 1.19x 1.27x 1.11x 1.18x
Coverage of HPT's minimum rents for travel centers 1.72x 1.78x 1.51x 1.59x
(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 three and nine months ended September 30, 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 continued its strategic growth this quarter, acquiring two full service hotels and 14 extended stay hotels for $231.0 million and adding them to HPT’s management agreements with InterContinental and Sonesta, respectively. We also sold three Carlson hotels for an aggregate of $24.6 million, resulting in a total gain on sale of $9.3 million.

While third quarter 2017 hotel RevPAR declined compared to last year, coverage of our minimum returns and rents remained strong. In October, we improved our balance sheet by issuing $400 million of 3.950% senior unsecured notes due 2028 and redeeming $350 million of 6.70% senior unsecured notes due 2018.”

Results for the Three and Nine Months Ended September 30, 2017 and Recent Activities:

Conference Call:

On Wednesday, November 8, 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 third 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, November 15, 2017. To hear the replay, dial (412) 317-0088. The replay pass code is 10113391.

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

Supplemental Data:

A copy of HPT’s Third 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 Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
Revenues:
Hotel operating revenues (1) $ 495,550 $ 464,981 $ 1,392,995 $ 1,334,656
Rental income (2) 80,896 77,470 240,274 229,760
FF&E reserve income (3) 1,142 1,065 3,524 3,517
Total revenues 577,588 543,516 1,636,793 1,567,933
Expenses:
Hotel operating expenses (1) 343,274 322,012 965,546 923,239
Depreciation and amortization 98,205 90,139 286,811 266,192
General and administrative (4) 13,404 37,739 76,097 91,127
Acquisition related costs (5) — 156 — 885
Total expenses 454,883 450,046 1,328,454 1,281,443
Operating income 122,705 93,470 308,339 286,490
Dividend income 626 626 1,878 1,375
Interest income 211 89 590 227
Interest expense (including amortization of debt issuance costs and debt discounts and premiums of $2,194 and $2,122 and $6,541 and $6,114, respectively) (46,574 ) (41,280 ) (135,329 ) (124,564 )
Loss on early extinguishment of debt (6) — (158 ) — (228 )
Income before income taxes, equity in earnings of an investee and gain on sale of real estate 76,968 52,747 175,478 163,300
Income tax expense (619 ) (948 ) (1,761 ) (3,483 )
Equity in earnings of an investee 31 13 533 107
Income before gain on sale of real estate 76,380 51,812 174,250 159,924
Gain on sale of real estate (7) 9,348 — 9,348 —
Net income 85,728 51,812 183,598 159,924
Preferred distributions — (5,166 ) (1,435 ) (15,498 )
Excess of liquidation preference over carrying value of preferred shares redeemed (8) — — (9,893 ) —
Net income available for common shareholders $ 85,728 $ 46,646 $ 172,270 $ 144,426
Weighted average common shares outstanding (basic) 164,149 157,217 164,131 153,357
Weighted average common shares outstanding (diluted) 164,188 157,263 164,168 153,390
Net income available for common shareholders per common share (basic and diluted) $ 0.52 $ 0.30 $ 1.05 $ 0.94

See Notes on pages 11 and 12

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 Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
Calculation of Funds from Operations (FFO) and Normalized FFO available for common shareholders: (9)
Net income available for common shareholders $ 85,728 $ 46,646 $ 172,270 $ 144,426

Add (less): Depreciation and amortization

98,205 90,139 286,811 266,192
Gain on sale of real estate (7) (9,348 ) — (9,348 ) —
FFO available for common shareholders 174,585 136,785 449,733 410,618

Add: Acquisition related costs (5)

— 156 — 885
Estimated business management incentive fees (4) 873 25,036 38,243 56,272
Loss on early extinguishment of debt (6) — 158 — 228
Excess of liquidation preference over carrying value of preferred shares redeemed (8) — — 9,893 —
Normalized FFO available for common shareholders $ 175,458 $ 162,135 $ 497,869 $ 468,003
Weighted average common shares outstanding (basic) 164,149 157,217 164,131 153,357
Weighted average common shares outstanding (diluted) 164,188 157,263 164,168 153,390
Basic and diluted per common share amounts:
FFO available for common shareholders $ 1.06 $ 0.87 $ 2.74 $ 2.68
Normalized FFO available for common shareholders $ 1.07 $ 1.03 $ 3.03 $ 3.05
Distributions declared per share $ 0.52 $ 0.51 $ 1.55 $ 1.52
Three Months Ended Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
Calculation of EBITDA and Adjusted EBITDA: (10)
Net income $ 85,728 $ 51,812 $ 183,598 $ 159,924
Add: Interest expense 46,574 41,280 135,329 124,564
Income tax expense 619 948 1,761 3,483
Depreciation and amortization 98,205 90,139 286,811 266,192
EBITDA 231,126 184,179 607,499 554,163
Add (less): Acquisition related costs (5) — 156 — 885
General and administrative expense paid in common shares (11) 818 985 1,948 2,277
Estimated business management incentive fees (4) 873 25,036 38,243 56,272
Loss on early extinguishment of debt (6) — 158 — 228
Gain on sale of real estate (7) (9,348 ) — (9,348 ) —
Adjusted EBITDA $ 223,469 $ 210,514 $ 638,342 $ 613,825

See Notes on pages 11 and 12

(1) At September 30, 2017, HPT owned 323 hotels; 320 of these hotels were managed by hotel operating companies and three hotels were leased to hotel operating companies. At September 30, 2017, HPT also owned 199 travel centers; all 199 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. The net operating results of HPT's managed hotel portfolios exceeded, in the aggregate, the minimum returns due to HPT in both the three months ended September 30, 2017 and 2016. Certain of HPT's managed hotels had net operating results that were, in the aggregate, $5,699 and $2,248 less than the minimum returns due to HPT in the three months ended September 30, 2017 and 2016, respectively, and $18,971 and $12,618 less than the minimum returns due to HPT in the nine months ended September 30, 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. There was no reduction to hotel operating expenses in the three months ended September 30, 2017 or 2016 and reductions of $2,689 and $592 in the nine months ended September 30, 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 $5,699 and $2,248 in the three months ended September 30, 2017 and 2016, respectively, and $16,282 and $12,026 in the nine months ended September 30, 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, $31,355 and $35,123 more than the minimum returns due to HPT in the three months ended September 30, 2017 and 2016, respectively, and $67,052 and $80,867 more than the minimum returns due to HPT in the nine months ended September 30, 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 $10,099 and $15,103 in the three months ended September 30, 2017 and 2016, respectively, and $26,319 and $33,897 in the nine months ended September 30, 2017 and 2016, respectively, as a result of such replenishments.

(2) Rental income includes $3,087 and $2,932 in the three months ended September 30, 2017 and 2016, respectively, and $9,208 and $10,377 in the nine months ended September 30, 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 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 $873 and $25,036 of estimated business management incentive fee expense in the three months ended September 30, 2017 and 2016, respectively, and $38,243 and $56,272 of estimated business management incentive fee expense in the nine months ended September 30, 2017 and 2016, respectively.

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

(6) HPT recorded losses of $158 and $228 on early extinguishment of debt during the three and nine months ended September 30, 2016, respectively, in connection with the redemption of certain senior unsecured notes.

(7) HPT recorded a $9,348 gain on sale of real estate during the three months ended September 30, 2017 in connection with the sale of three hotels.

(8) In February 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 nine months ended September 30, 2017 by that excess amount.

(9) 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 the 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 alternatives to net income, net income available for common shareholders or operating 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, 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.

(10) 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 alternatives to net income, net income available for common shareholders or operating income as indicators of operating performance or as measures 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.

(11) 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)
September 30, December 31,
2017 2016
ASSETS
Real estate properties:
Land $ 1,668,493 $ 1,566,630
Buildings, improvements and equipment 7,719,367 7,156,759
Total real estate properties, gross 9,387,860 8,723,389
Accumulated depreciation (2,719,738 ) (2,513,996 )
Total real estate properties, net 6,668,122 6,209,393
Cash and cash equivalents 14,489 10,896
Restricted cash (FF&E reserve escrow) 73,115 60,456
Due from related persons 75,231 65,332
Other assets, net 313,510 288,151
Total assets $ 7,144,467 $ 6,634,228
LIABILITIES AND SHAREHOLDERS’ EQUITY
Unsecured revolving credit facility $ 458,000 $ 191,000
Unsecured term loan, net 398,920 398,421
Senior unsecured notes, net 3,163,865 2,565,908
Convertible senior unsecured notes — 8,478
Security deposits 126,574 89,338
Accounts payable and other liabilities 160,144 188,053
Due to related persons 47,509 58,475
Dividends payable — 5,166
Total liabilities 4,355,012 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 11,600,000 shares issued and outstanding, respectively, aggregate liquidation preference of zero and $290,000, respectively — 280,107
Common shares of beneficial interest, $.01 par value; 200,000,000 shares authorized; 164,349,141 and 164,268,199 shares issued and outstanding, respectively 1,643 1,643
Additional paid in capital 4,541,978 4,539,673
Cumulative net income 3,278,475 3,104,767
Cumulative other comprehensive income 59,801 39,583
Cumulative preferred distributions (343,412 ) (341,977 )
Cumulative common distributions (4,749,030 ) (4,494,407 )
Total shareholders’ equity 2,789,455 3,129,389
Total liabilities and shareholders’ equity $ 7,144,467 $ 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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