Third Quarter Net Income of $0.30 per share
Normalized FFO of $1.03 per share for the Third Quarter
Comparable Hotel RevPAR for the Third Quarter Grows 3.8% Year Over Year
NEWTON, Mass.–Hospitality Properties Trust (Nasdaq: HPT) today announced its financial results for the quarter and nine months ended September 30, 2016.
Three Months Ended
Nine Months Ended
September 30,
September 30,
2016 2015 2016 2015
($ in thousands, except per share and RevPAR data)
Net income available for common shareholders $ 46,646 $ 56,019 $ 144,426 $ 170,414 Net income available for common shareholders per share $ 0.30 $ 0.37 $ 0.94 $ 1.13
Adjusted EBITDA (1)
$ 210,514 $ 192,713 $ 613,825 $ 551,167 Normalized FFO available for common shareholders (1) $ 162,135 $ 149,692 $ 468,003 $ 422,580
Normalized FFO available for common shareholders per share (1)
$ 1.03 $ 0.99 $ 3.05 $ 2.80
Portfolio Performance
Comparable hotel RevPAR $ 101.77 $ 98.02 $ 98.37 $ 94.15 Comparable hotel RevPAR growth 3.8% — 4.5% — RevPAR (all hotels) $ 101.35 $ 97.95 $ 97.35 $ 94.33 RevPAR growth (all hotels) 3.5% — 3.2% — Coverage of HPT’s minimum returns and rents for hotels 1.25x 1.18x 1.18x 1.13x Coverage of HPT's minimum rents for travel centers 1.78x 1.74x 1.59x 1.79x
(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 and nine months ended September 30, 2016 and 2015 appear later in this press release.
John Murray, President and Chief Operating Officer of HPT, made the following statement regarding today's announcement:
“We are pleased with the continued strong performance from our hotel and travel center properties this quarter. HPT’s comparable hotel RevPAR growth of 3.8% exceeded the industry for the 15th consecutive quarter and aggregate coverage of our minimum returns and rents improved compared to the same quarter last year. During the quarter, we also raised $372 million of net proceeds from a common equity offering and principally used the net proceeds to repay debt.”
Results for the Three and Nine Months Ended September 30, 2016 and Recent Activities:
- Net Income Available for Common Shareholders: Net income available for common shareholders for the quarter ended September 30, 2016 was $46.6 million, or $0.30 per diluted share, compared to net income available for common shareholders of $56.0 million, or $0.37 per diluted share, for the quarter ended September 30, 2015. Net income available for common shareholders includes $25.0 million, or $0.16 per diluted share, and $8.6 million, or $0.06 per diluted share, of estimated business management incentive fee expense for the quarters ended September 30, 2016 and 2015, respectively. The weighted average number of diluted common shares outstanding was 157.3 million and 151.4 million for the quarters ended September 30, 2016 and 2015, respectively. Net income available for common shareholders for the nine months ended September 30, 2016 was $144.4 million, or $0.94 per diluted share, compared to net income available for common shareholders of $170.4 million, or $1.13 per diluted share, for the nine months ended September 30, 2015. Net income available for common shareholders for the nine months ended September 30, 2016 includes $56.3 million, or $0.37 per diluted share, of estimated business management incentive fee expense. Net income available for common shareholders for the nine months ended September 30, 2015 includes $17.4 million, or $0.12 per diluted share, of estimated business management incentive fee expense and an $11.0 million, or $0.07 per diluted share, gain on the sale of real estate. The weighted average number of diluted common shares outstanding was 153.4 million and 150.9 million for the nine months ended September 30, 2016 and 2015, respectively.
- Adjusted EBITDA: Adjusted EBITDA for the quarter ended September 30, 2016 compared to the same period in 2015 increased 9.2% to $210.5 million. Adjusted EBITDA for the nine months ended September 30, 2016 compared to the same period in 2015 increased 11.4% to $613.8 million.
- Normalized FFO Available for Common Shareholders: Normalized FFO available for common shareholders for the quarter ended September 30, 2016 were $162.1 million, or $1.03 per diluted share, compared to Normalized FFO available for common shareholders of $149.7 million, or $0.99 per diluted share, for the quarter ended September 30, 2015. Normalized FFO available for common shareholders for the nine months ended September 30, 2016 were $468.0 million, or $3.05 per diluted share, compared to Normalized FFO available for common shareholders of $422.6 million, or $2.80 per diluted share, for the nine months ended September 30, 2015.
- Hotel RevPAR (comparable hotels): For the quarter ended September 30, 2016 compared to the same period in 2015 for HPT’s 293 hotels that were owned continuously since July 1, 2015: average daily rate, or ADR, increased 3.3% to $126.58; occupancy increased 0.4 percentage points to 80.4%; and revenue per available room, or RevPAR, increased 3.8% to $101.77. For the nine months ended September 30, 2016 compared to the same period in 2015 for HPT’s 291 hotels that were owned continuously since January 1, 2015: ADR increased 3.4% to $125.95; occupancy increased 0.8 percentage points to 78.1%; and RevPAR increased 4.5% to $98.37.
- Hotel RevPAR (all hotels): For the quarter ended September 30, 2016 compared to the same period in 2015 for HPT’s 305 hotels: ADR increased 3.0% to $126.69; occupancy increased 0.4 percentage points to 80.0%; and RevPAR increased 3.5% to $101.35. For the nine months ended September 30, 2016 compared to the same period in 2015 for HPT’s 305 hotels: ADR increased 3.1% to $125.94; occupancy increased 0.1 percentage points to 77.3%; and RevPAR increased 3.2% to $97.35.
- Coverage of Minimum Returns and Rents: For the quarter ended September 30, 2016, 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 and minimum rent payments to HPT to (y) HPT’s minimum returns and rents due from hotels increased to 1.25x from 1.18x for the quarter ended September 30, 2015. For the nine months ended September 30, 2016, 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 and minimum rent payments to HPT to (y) HPT’s minimum returns and rents due from hotels increased to 1.18x from 1.13x for the nine months ended September 30, 2015. For the quarter ended September 30, 2016, the aggregate coverage ratio of (x) total travel center revenues less travel center expenses to (y) HPT’s minimum rent due from leased travel centers increased to 1.78x from 1.74x for the quarter ended September 30, 2015. For the nine months ended September 30, 2016, 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 1.59x from 1.79x for the nine months ended September 30, 2015. As of September 30, 2016, approximately 79% 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: On September 30, 2016, HPT acquired from TravelCenters of America LLC (Nasdaq: TA), or TA, a newly developed travel center located in Caryville, TN for $16.6 million, excluding acquisition related costs. HPT added this TA branded travel center to its TA No. 2 lease. As previously disclosed, in July 2016, HPT entered into an agreement to acquire a full service hotel with 236 rooms located in Milpitas, CA for $52.0 million. The agreement was subsequently terminated and in October 2016 HPT entered into a new agreement to acquire this hotel for $46.0 million, excluding acquisition related costs. HPT currently expects to complete this acquisition during the fourth quarter of 2016. HPT plans to add this hotel to its management agreement with Sonesta International Hotels Corporation, or Sonesta. In October 2016, HPT entered into an agreement to acquire a full service hotel with 101 rooms located in Addison, TX for a purchase price of $9.0 million, excluding acquisition related costs. HPT currently expects to complete this acquisition in the first quarter of 2017. HPT plans to add this Radisson branded hotel to its management agreement with Carlson Hotels Worldwide, or Carlson. In November 2016, HPT entered into an agreement to acquire a full service hotel with 483 rooms located in Chicago, IL for a purchase price of $86.7 million, excluding acquisition related costs. HPT currently expects to complete this acquisition in the first quarter of 2017. HPT plans to add this Kimpton branded hotel to its management agreement with InterContinental Hotels Group, plc (LON: IHG; NYSE: IHG (ADRs)), or InterContinental.
Financing Activities:
In August 2016, HPT issued 12,650,000 common shares in a public offering at a price of $30.75 per share. The net proceeds from this offering of approximately $372.0 million after payment of the underwriters' discount and other offering expenses were used to repay amounts outstanding under HPT's revolving credit facility and for general business purposes.
In September 2016, HPT redeemed at par plus accrued interest all $300.0 million of its 5.625% senior notes due 2017 using cash on hand and borrowings under its revolving credit facility.
Tenants and Managers: As of September 30, 2016, HPT had nine operating agreements with seven hotel operating companies for 305 hotels with 46,347 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.
- Marriott Agreements: As of September 30, 2016, 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 $68.6 million as of September 30, 2016 (approximately $17.2 million per quarter). Because there is no guarantee or security deposit for this agreement, the minimum returns HPT receives under this agreement may be limited to available hotel cash flows after payment of operating expenses and funding of the FF&E reserve. During the three months ended September 30, 2016, HPT realized returns under its Marriott No. 1 agreement of $21.5 million. HPT’s Marriott No. 234 agreement includes 68 hotels and requires annual minimum returns to HPT of $106.2 million as of September 30, 2016 (approximately $26.6 million per quarter). During the three months ended September 30, 2016, HPT realized returns under its Marriott No. 234 agreement of $26.6 million. HPT’s Marriott No. 234 agreement is partially secured by a security deposit and a limited guarantee from Marriott; during the three months ended September 30, 2016, the available security deposit was replenished by $4.2 million from a share of hotel cash flows in excess of the minimum returns due to HPT for the period. At September 30, 2016, the available security deposit from Marriott for the Marriott No. 234 agreement was $17.4 million and there was $30.7 million remaining under Marriott’s guaranty for up to 90% of the minimum returns due to HPT to cover future payment shortfalls 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 September 30, 2016 of $2.5 million was paid to HPT. During the quarter ended September 30, 2016, Marriott notified HPT it does not intend to extend its lease for the Kauai resort hotel when it expires on December 31, 2019. HPT intends to have discussions with Marriott about the future of this hotel.
- InterContinental Agreement: As of September 30, 2016, 94 of HPT’s hotels were operated by subsidiaries of InterContinental under one agreement requiring annual minimum returns and rents to HPT of $160.3 million (approximately $40.1 million per quarter). During the three months ended September 30, 2016, HPT realized returns and rents under its InterContinental agreement of $43.6 million. HPT’s InterContinental agreement is partially secured by a security deposit. During the three months ended September 30, 2016, the available security deposit was replenished by $7.0 million from a share of hotel cash flows in excess of the returns and rents due to HPT for the period. At September 30, 2016, the available InterContinental security deposit which HPT held to pay future payment shortfalls was $71.0 million.
- Other Hotel Agreements: As of September 30, 2016, HPT’s remaining 89 hotels are operated under five agreements: one management agreement with Sonesta (33 hotels), requiring annual minimum returns of $86.0 million as of September 30, 2016 (approximately $21.5 million per quarter); one management agreement with a subsidiary of Wyndham Worldwide Corporation (NYSE: WYN), or Wyndham (22 hotels), requiring annual minimum returns and rents of $28.2 million (approximately $7.1 million per quarter); one management agreement with a subsidiary of Hyatt Hotels Corporation (NYSE: H), or Hyatt (22 hotels), requiring annual minimum returns of $22.0 million as of September 30, 2016 (approximately $5.5 million per quarter); one management agreement with a subsidiary of Carlson (11 hotels), requiring annual minimum returns of $12.9 million as of September 30, 2016 (approximately $3.2 million per quarter); and one lease with a subsidiary of Morgans Hotel Group Co. (Nasdaq: MHGC) (1 hotel) requiring annual minimum rent of $7.6 million as of September 30, 2016 (approximately $1.9 million per quarter). Minimum returns and rents due to HPT are partially guaranteed under the Wyndham, Hyatt and Carlson agreements. There is no guarantee or security deposit for the Sonesta agreement and the minimum returns HPT receives under that agreement are limited to available hotel cash flows after payment of operating expenses. The payments due to HPT under these agreements for the three months ended September 30, 2016 were paid to HPT.
- Travel Center Agreements: As of September 30, 2016, HPT’s 198 travel centers located along the U.S. Interstate Highway system were leased to TA under five lease agreements, which required aggregate annual minimum rents of $271.2 million (approximately $67.8 million per quarter). As of September 30, 2016, all payments due to HPT from TA under these leases were current.
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