Hospitality Properties Trust Announces Second Quarter 2019 Results

Second Quarter Net Income of $0.05 Per Common Share

Second Quarter Normalized FFO of $1.03 Per Common Share

Announced Agreement to Acquire a Net Lease Portfolio of Service-Oriented Retail Properties for $2.4 Billion

NEWTON, Mass.–(BUSINESS WIRE)–Hospitality Properties Trust (Nasdaq: HPT) today announced its financial results for the quarter and six months ended June 30, 2019:

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

2019

 

2018

 

2019

 

2018

 

($ in thousands, except per share and RevPAR data)

 

 

 

 

 

 

 

 

Net income

$

8,782

 

 

$

97,289

 

 

$

234,569

 

 

$

177,495

 

Net income per common share

$

0.05

 

 

$

0.59

 

 

$

1.43

 

 

$

1.08

 

Adjusted EBITDAre (1)

$

218,972

 

 

$

226,898

 

 

$

414,873

 

 

$

429,854

 

Normalized FFO (1)

$

168,766

 

 

$

176,193

 

 

$

313,406

 

 

$

331,061

 

Normalized FFO per common share (1)

$

1.03

 

 

$

1.07

 

 

$

1.91

 

 

$

2.02

 

 

 

 

 

 

 

 

 

Portfolio Performance

 

 

 

 

 

 

 

Comparable hotel RevPAR

$

100.78

 

 

$

102.91

 

 

$

93.45

 

 

$

95.84

 

Change in comparable hotel RevPAR

(2.1

%)

 

 

 

(2.5

%)

 

 

RevPAR (all hotels)

$

101.86

 

 

$

104.40

 

 

$

94.73

 

 

$

97.50

 

Change in RevPAR (all hotels)

(2.4

%)

 

 

 

(2.8

%)

 

 

Coverage of HPT’s minimum returns and rents for hotels

1.10x

 

1.23x

 

0.91x

 

1.03x

Coverage of HPT’s minimum rents for travel centers

1.91x

 

1.90x

 

1.81x

 

1.82x

 
  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 three and six months ended June 30, 2019 and 2018 appear later in this press release.

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

In the second quarter, comparable RevPAR declined 2.1% compared to the prior year period due in part to occupancy decreases from fourteen hotels under renovation, nine of which were relatively higher contributing full service hotels that impacted our IHG, Sonesta and Radisson Hotel Group portfolios. For hotels not impacted by renovations, comparable RevPAR declined by 0.3%. HPT’s 179 TA properties performed well during the three months ended June 30, 2019. Total fuel volumes increased 2.6% and total rent coverage remained strong at 1.91x.

In addition, as previously announced, HPT entered into a definitive agreement to acquire a high-quality net lease portfolio of 770 service-oriented retail properties for $2.4 billion in cash, subject to adjustments and other payments, that will provide HPT with increased scale, a more secure financial profile and greater diversity in tenant base, property type and geography. In July 2019, HPT raised $93.9 million, after underwriting fees and before other offering expenses, by selling its shares of The RMR Group Inc. and has commenced marketing certain assets as part of its planned dispositions in connection with this acquisition.”

Results for the Three and Six Months Ended June 30, 2019 and Recent Activities:

  • Net Income: Net income for the quarter ended June 30, 2019 was $8.8 million, or $0.05 per diluted common share, compared to net income of $97.3 million, or $0.59 per diluted common share, for the quarter ended June 30, 2018. Net income for the quarter ended June 30, 2019 includes $60.8 million, or $0.37 per diluted common share, of unrealized losses on equity securities. Net income for the quarter ended June 30, 2018 includes $20.9 million, or $0.13 per diluted common share, of net unrealized gains on equity securities. The weighted average number of diluted common shares outstanding was 164.3 million and 164.2 million for the quarters ended June 30, 2019 and 2018, respectively.

Net income for the six months ended June 30, 2019 was $234.6 million, or $1.43 per diluted common share, compared to net income of $177.5 million, or $1.08 per diluted common share, for the six months ended June 30, 2018. Net income for the six months ended June 30, 2019 includes a $159.5 million, or $0.97 per diluted common share, gain on sale of real estate and $39.8 million, or $0.24 per diluted common share, of net unrealized losses on equity securities. Net income for the six months ended June 30, 2018 includes $45.9 million, or $0.28 per diluted common share, of net unrealized gains on equity securities. The weighted average number of diluted common shares outstanding was 164.3 million and 164.2 million for the six months ended June 30, 2019 and 2018, respectively.

Adjusted EBITDAre: Adjusted EBITDAre for the quarter ended June 30, 2019 compared to the same period in 2018 decreased 3.5% to $219.0 million.

Adjusted EBITDAre for the six months ended June 30, 2019 compared to the same period in 2018 decreased 3.5% to $414.9 million.

Normalized FFO: Normalized FFO for the quarter ended June 30, 2019 were $168.8 million, or $1.03 per diluted common share, compared to Normalized FFO of $176.2 million, or $1.07 per diluted common share, for the quarter ended June 30, 2018.

Normalized FFO for the six months ended June 30, 2019 were $313.4 million, or $1.91 per diluted common share, compared to Normalized FFO of $331.1 million, or $2.02 per diluted common share, for the six months ended June 30, 2018.

Hotel RevPAR (comparable hotels): For the quarter ended June 30, 2019 compared to the same period in 2018 for HPT’s 322 comparable hotels: average daily rate, or ADR, decreased 1.2% to $130.37; occupancy decreased 0.7 percentage points to 77.3%; and revenue per available room, or RevPAR, decreased 2.1% to $100.78.

For the six months ended June 30, 2019 compared to the same period in 2018 for HPT’s 322 comparable hotels: ADR decreased 0.1% to $129.26; occupancy decreased 1.8 percentage points to 72.3%; and RevPAR decreased 2.5% to $93.45.

Hotel RevPAR (all hotels): For the quarter ended June 30, 2019 compared to the same period in 2018 for HPT’s 328 hotels that were owned as of June 30, 2019: ADR decreased 1.3% to $131.94; occupancy decreased 0.9 percentage points to 77.2%; and RevPAR decreased 2.4% to $101.86.

For the six months ended June 30, 2019 compared to the same period in 2018 for HPT’s 328 hotels that were owned as of June 30, 2019: ADR decreased 0.3% to $131.03; occupancy decreased 1.9 percentage points to 72.3%; and RevPAR decreased 2.8% to $94.73.

Coverage of Minimum Returns and Rents: For the quarter ended June 30, 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 1.10x from 1.23x for the quarter ended June 30, 2018.

For the six months ended June 30, 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 0.91x from 1.03x for the six months ended June 30, 2018.

For the quarter ended June 30, 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, excluding payments of previously deferred rent, increased to 1.91x from 1.90x for the quarter ended June 30, 2018.

For the six months ended June 30, 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, excluding payments of previously deferred rent, decreased to 1.81x from 1.82x for the six months ended June 30, 2018.

As of June 30, 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 Acquisition and Investment Activities: As previously announced, 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 InterContinental Hotels Group, plc (LON: IHG; NYSE: IHG (ADRs)), or IHG.

As previously announced, in June 2019, HPT entered into an agreement to acquire a net lease portfolio from Spirit MTA REIT (NYSE: SMTA) for $2.4 billion in cash, excluding transaction costs and subject to customary adjustments or prorations, or the SMTA Transaction. In addition to the $2.4 billion purchase price, HPT has agreed to pay the prepayment penalties to extinguish the existing mortgage debt on the portfolio, which penalties are estimated to be approximately $78.0 million. The portfolio consists of 770 service-oriented retail properties net leased to tenants in 22 different industries. To finance the transaction, HPT has secured commitments from lenders for an up to $2.0 billion unsecured term loan facility. HPT may use the proceeds from this term loan facility, borrowings under its existing revolving credit facility, proceeds from the sale of certain assets, proceeds from the issuance of new unsecured senior notes or other sources to finance this transaction. This transaction is subject to the approval by SMTA’s shareholders and other customary conditions and is expected to close in the third quarter of 2019. HPT has commenced marketing certain assets as part of its previously announced plan to sell approximately $500.0 million of the assets it will acquire in the SMTA Transaction and approximately $300.0 million of other assets to reduce leverage following the SMTA Transaction.

As previously announced, in July 2019, HPT sold all 2,503,777 of its class A common shares of The RMR Group Inc., or RMR Inc., in an underwritten public offering at a price to the public of $40.00 per common share. HPT received $93.9 million in net proceeds after underwriting fees and before other offering expenses that it used to repay debt.

Tenants and Managers: As of June 30, 2019, HPT had eight operating agreements with six hotel operating companies for 328 hotels with 51,080 rooms, which represented 71% of HPT’s total annual minimum returns and rents, and five leases with TravelCenters of America Inc., or TA, for 179 travel centers, which represented 29% of HPT’s total annual minimum returns and rents.

  • Marriott Agreements: As of June 30, 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 $71.6 million as of June 30, 2019 (approximately $17.9 million per quarter). During the three months ended June 30, 2019, HPT realized returns under its Marriott No. 1 agreement of $21.4 million, of which $1.6 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 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 $109.0 million as of June 30, 2019 (approximately $27.3 million per quarter). During the three months ended June 30, 2019, HPT realized returns under its Marriott No. 234 agreement of $27.1 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 June 30, 2019, the available security deposit was replenished by $4.8 million from a share of hotel cash flows in excess of the minimum returns due to HPT during the period. As of June 30, 2019, the available security deposit from Marriott for the Marriott No. 234 agreement was $35.4 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, 2019 of $2.6 million was paid to HPT.
  • IHG Agreement: As of June 30, 2019, 102 of HPT’s hotels were operated by subsidiaries of IHG under one agreement requiring annual minimum returns and rents to HPT of $207.4 million as of June 30, 2019 (approximately $51.9 million per quarter). During the three months ended June 30, 2019, HPT realized returns and rents under its IHG agreement of $51.6 million. HPT’s IHG agreement is partially secured by a security deposit. During the three months ended June 30, 2019, the available security deposit was replenished by $2.4 million from a share of hotel cash flows in excess of the minimum returns and rents due to HPT during the period. As of June 30, 2019, the available IHG security deposit which HPT held to pay future payment shortfalls was $88.1 million.
  • Sonesta Agreement: As of June 30, 2019, 51 of HPT’s hotels were operated under a management agreement with Sonesta International Hotels Corporation, or Sonesta, requiring annual minimum returns of $129.0 million as of June 30, 2019 (approximately $32.3 million per quarter). During the three months ended June 30, 2019, HPT realized returns under its Sonesta agreement of $28.0 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 June 30, 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 $28.0 million as of June 30, 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 June 30, 2019, HPT realized returns under its Wyndham agreement of $6.0 million, which represents 85% of the minimum returns due for the period.

HPT currently expects to exit its relationship with Wyndham and to rebrand or sell its 22 hotels currently managed by Wyndham.

HPT 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 June 30, 2019 was paid to HPT.

  • Hyatt Agreement: As of June 30, 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 June 30, 2019 (approximately $5.5 million per quarter). During the three months ended June 30, 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 June 30, 2019, the available guaranty was replenished by $1.1 million from a share of hotel cash flows in excess of the minimum returns due to HPT during the period. As of June 30, 2019, there was $22.6 million available under Hyatt’s guaranty.
  • Radisson Agreement: As of June 30, 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 $20.3 million as of June 30, 2019 (approximately $5.1 million per quarter). During the three months ended June 30, 2019, HPT realized returns under its Radisson agreement of $5.0 million. HPT’s Radisson agreement is partially secured by a limited guaranty from Radisson. During the three months ended June 30, 2019, the available guaranty was replenished by $0.6 million from a share of hotel cash flows in excess of the minimum returns due to HPT during the period. As of June 30, 2019, there was $40.6 million available under Radisson’s guaranty.
  • Travel Center Agreements: As of June 30, 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). In addition, HPT received the first of 16 quarterly installments of $4.4 million of previously deferred rents under the terms of the TA leases. As of June 30, 2019, all payments due to HPT from TA under these leases were current.

Conference Call:

At 10:00 a.m. Eastern Time this morning, President and Chief Executive Officer, John Murray, Chief Financial Officer and Treasurer, Brian Donley, and Vice President, Todd Hargreaves, will host a conference call to discuss HPT’s second 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, August 16, 2019. To access the replay, dial (412) 317-0088. The replay pass code is 10132777.

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

Supplemental Data:

A copy of HPT’s Second 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 RMR 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.

Comparable Hotels Data:

HPT presents RevPAR, ADR and occupancy for the periods presented on a comparable basis to facilitate comparisons between periods. HPT generally defines comparable hotels as those that were owned by it and were open and operating for the entire periods being compared. For each of the three and six months ended June 30, 2019 and 2018, HPT excluded six hotels from its comparable results. Five of these hotels were not owned for the entire periods and one was closed for a major renovation during part of the periods presented.

 

HOSPITALITY PROPERTIES TRUST

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(amounts in thousands, except share data)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

2019

 

2018

 

2019

 

2018

Revenues:

 

 

 

 

 

 

 

 

Hotel operating revenues (1)

 

$

541,668

 

 

$

529,599

 

 

$

997,053

 

 

$

974,875

 

Rental income (2)

 

67,764

 

 

81,018

 

 

135,915

 

 

163,011

 

FF&E reserve income (3)

 

1,130

 

 

1,334

 

 

2,502

 

 

2,698

 

Total revenues

 

610,562

 

 

611,951

 

 

1,135,470

 

 

1,140,584

 

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

 

Hotel operating expenses (1)

 

381,703

 

 

374,081

 

 

700,828

 

 

689,063

 

Depreciation and amortization

 

99,196

 

 

99,684

 

 

198,561

 

 

199,301

 

General and administrative (4)

 

12,207

 

 

13,121

 

 

24,442

 

 

24,855

 

Total expenses

 

493,106

 

 

486,886

 

 

923,831

 

 

913,219

 

 

 

 

 

 

 

 

 

 

Gain on sale of real estate (5)

 

 

 

 

 

159,535

 

 

 

Dividend income

 

876

 

 

626

 

 

1,752

 

 

1,252

 

Unrealized gains and (losses) on equity securities, net (6)

 

(60,788

)

 

20,940

 

 

(39,811

)

 

45,895

 

Interest income

 

449

 

 

323

 

 

1,086

 

 

615

 

Interest expense (including amortization of debt issuance costs and debt

discounts and premiums of $2,570, $2,559, $5,140 and $5,037, respectively)

 

(49,601

)

 

(48,741

)

 

(99,367

)

 

(96,281

)

Loss on early extinguishment of debt (7)

 

 

 

(160

)

 

 

 

(160

)

Income before income taxes and equity in earnings of an investee

 

8,392

 

 

98,053

 

 

234,834

 

 

178,686

 

Income tax benefit (expense)

 

260

 

 

(771

)

 

(799

)

 

(1,242

)

Equity in earnings of an investee

 

130

 

 

7

 

 

534

 

 

51

 

Net income

 

$

8,782

 

 

$

97,289

 

 

$

234,569

 

 

$

177,495

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding (basic)

 

164,284

 

 

164,205

 

 

164,281

 

 

164,202

 

Weighted average common shares outstanding (diluted)

 

164,326

 

 

164,243

 

 

164,324

 

 

164,226

 

 

 

 

 

 

 

 

 

 

Net income per common share (basic and diluted)

 

$

0.05

 

 

$

0.59

 

 

$

1.43

 

 

$

1.08

 

 

See Notes on pages 9 and 10

 

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 June 30,

 

Six Months Ended June 30,

 

2019

 

2018

 

2019

 

2018

Calculation of FFO and Normalized FFO: (8)

 

 

 

 

 

 

 

Net income

$

8,782

 

 

$

97,289

 

 

$

234,569

 

 

$

177,495

 

Add (Less): Depreciation and amortization

99,196

 

 

99,684

 

 

198,561

 

 

199,301

 

Gain on sale of real estate (5)

 

 

 

 

(159,535

)

 

 

Unrealized (gains) and losses on equity securities, net (6)

60,788

 

 

(20,940

)

 

39,811

 

 

(45,895

)

FFO

168,766

 

 

176,033

 

 

313,406

 

 

330,901

 

Add: Loss on early extinguishment of debt (7)

 

 

160

 

 

 

 

160

 

Normalized FFO

$

168,766

 

 

$

176,193

 

 

$

313,406

 

 

$

331,061

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding (basic)

164,284

 

 

164,205

 

 

164,281

 

 

164,202

 

Weighted average common shares outstanding (diluted)

164,326

 

 

164,243

 

 

164,324

 

 

164,226

 

 

 

 

 

 

 

 

 

Basic and diluted per common share amounts:

 

 

 

 

 

 

 

FFO and Normalized FFO

$

1.03

 

 

$

1.07

 

 

$

1.91

 

 

$

2.02

 

Distributions declared per share

$

0.54

 

 

$

0.53

 

 

$

1.07

 

 

$

1.05

 

Contacts

Katie Strohacker, Senior Director, Investor Relations

(617) 796-8232

Read full story here

error: Content is protected !!