Hospitality Properties Trust | March 01, 2017

Fourth Quarter Net Income Available to Common Shareholders of $0.35 Per Share

Fourth Quarter Normalized FFO Available to Common Shareholders of $0.57 Per Share

NEWTON, Mass.–Hospitality Properties Trust (Nasdaq: HPT) today announced its financial results for the quarter and year ended December 31, 2016.

Three Months Ended Year Ended December 31, December 31, 2016 2015 2016 2015 ($ in thousands, except per share and RevPAR data) Net income (loss) available for common shareholders $ 58,020 $ (24,660 ) $ 202,446 $ 145,754 Net income (loss) available for common shareholders per share $ 0.35 $ (0.16 ) $ 1.30 $ 0.97 Adjusted EBITDA (1) $ 136,989 $ 123,729 $ 750,814 $ 674,896 Normalized FFO available for common shareholders (1) $ 93,380 $ 81,083 $ 561,383 $ 503,663 Normalized FFO available for common shareholders per share (1) $ 0.57 $ 0.54 $ 3.60 $ 3.34

Portfolio Performance

Comparable hotel RevPAR $ 84.76 $ 84.28 $ 95.20 $ 91.91 Comparable hotel RevPAR growth 0.6 % — 3.6 % — RevPAR (all hotels) $ 84.97 $ 84.73 $ 94.26 $ 91.97 RevPAR growth (all hotels) 0.3 % — 2.5 % — Coverage of HPT’s minimum returns and rents for hotels 0.86x 0.92x 1.10x 1.08x Coverage of HPT's minimum rents for travel centers 1.51x 1.58x 1.57x 1.74x

(1) Reconciliations of net income (loss) 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 (loss) 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 years ended December 31, 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:

“During the fourth quarter of 2016, RevPAR at our hotels was negatively impacted by hotel room supply growth, lack of city-wide events and continued weakness in the energy sector, which resulted in lower business economic activity and demand for hotel stays in those geographic areas where certain of our hotels are located. However, for the full year, HPT's comparable RevPAR growth of 3.6% exceeded the industry average and aggregate coverage of our annual hotel minimum returns and rents and travel center minimum rents for 2016 were 1.10 times and 1.57 times, respectively. Subsequent to year end, we raised approximately $594 million of net proceeds from offerings of our senior notes and used a portion of the net proceeds to redeem our higher cost preferred shares.”

Results for the Quarter and Year Ended December 31, 2016 and Recent Activities:

  • Net Income (Loss) Available for Common Shareholders: Net income available for common shareholders for the quarter ended December 31, 2016 was $58.0 million, or $0.35 per diluted share, compared to a net loss available for common shareholders of $24.7 million, or $0.16 per diluted share, for the quarter ended December 31, 2015. Net income available for common shareholders for the quarter ended December 31, 2016 includes the reversal of $3.9 million, or $0.02 per diluted share, of previously accrued business management incentive fee expense. Net loss available for common shareholders for the quarter ended December 31, 2015 includes $44.9 million, or $0.30 per diluted share, of business management incentive fee expense and a $36.8 million, or $0.24 per diluted share, non-cash loss on the distribution of The RMR Group Inc. (Nasdaq: RMR) common stock HPT made to its shareholders. The weighted average number of diluted common shares outstanding was 164.1 million and 151.4 million for the quarters ended December 31, 2016 and 2015, respectively. Net income available for common shareholders for the year ended December 31, 2016 was $202.4 million, or $1.30 per diluted share, compared to net income available for common shareholders of $145.8 million, or $0.97 per diluted share, for the year ended December 31, 2015. Net income available for common shareholders for the year ended December 31, 2016 includes $52.4 million, or $0.34 per diluted share, of business management incentive fee expense. Net income available for common shareholders for the year ended December 31, 2015 includes $62.3 million, or $0.41 per diluted share, of business management incentive fee expense, a $36.8 million, or $0.24 per diluted share, non-cash loss on the distribution of RMR common stock HPT made to its shareholders 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 156.1 million and 151.0 million for the years ended December 31, 2016 and 2015, respectively.
  • Adjusted EBITDA: Adjusted EBITDA for the quarter ended December 31, 2016 compared to the same period in 2015 increased 10.7% to $137.0 million. Adjusted EBITDA for the year ended December 31, 2016 compared to 2015 increased 11.2% to $750.8 million.
  • Normalized FFO Available for Common Shareholders: Normalized FFO available for common shareholders for the quarter ended December 31, 2016 were $93.4 million, or $0.57 per diluted share, compared to Normalized FFO available for common shareholders of $81.1 million, or $0.54 per diluted share, for the quarter ended December 31, 2015. Normalized FFO available for common shareholders includes $52.4 million, or $0.34 per diluted share, and $62.3 million, or $0.41 per diluted share, of business management incentive fee expense for the quarters ended December 31, 2016 and 2015, respectively. Normalized FFO available for common shareholders for the year ended December 31, 2016 were $561.4 million, or $3.60 per diluted share, compared to Normalized FFO available for common shareholders of $503.7 million, or $3.34 per diluted share, for the year ended December 31, 2015. Normalized FFO available for common shareholders includes $52.4 million, or $0.34 per diluted share, and $62.3 million, or $0.41 per diluted share, of business management incentive fee expense for the years ended December 31, 2016 and 2015, respectively.
  • Hotel RevPAR (comparable hotels): For the quarter ended December 31, 2016 compared to the same period in 2015 for HPT’s 302 hotels that were owned continuously since October 1, 2015: average daily rate, or ADR, increased 1.9% to $120.91; occupancy decreased 0.9 percentage points to 70.1%; and revenue per available room, or RevPAR, increased 0.6% to $84.76. For the year ended December 31, 2016 compared to 2015 for HPT’s 291 hotels that were owned continuously since January 1, 2015: ADR increased 3.2% to $124.94; occupancy increased 0.3 percentage points to 76.2%; and RevPAR increased 3.6% to $95.20.
  • Hotel RevPAR (all hotels): For the quarter ended December 31, 2016 compared to the same period in 2015 for HPT’s 306 hotels: ADR increased 1.7% to $121.39; occupancy decreased 1.0 percentage point to 70.0%; and RevPAR increased 0.3% to $84.97. For the year ended December 31, 2016 compared to 2015 for HPT’s 306 hotels: ADR increased 2.8% to $125.01; occupancy decreased 0.2 percentage points to 75.4%; and RevPAR increased 2.5% to $94.26.
  • Coverage of Minimum Returns and Rents: For the quarter ended December 31, 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 decreased to 0.86x from 0.92x for the quarter ended December 31, 2015. For the year ended December 31, 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 1.10x from 1.08x for the year ended December 31, 2015. For the quarter ended December 31, 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 1.51x from 1.58x for the quarter ended December 31, 2015. For the year ended December 31, 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 1.57x from 1.74x for the year ended December 31, 2015. As of December 31, 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: In November 2016, HPT entered into an agreement to acquire a full service hotel with 121 rooms located in Seattle, WA for a purchase price of $71.6 million, excluding acquisition related costs. HPT currently expects to complete this acquisition during the first quarter of 2017. HPT plans to add this hotel to its management agreement with InterContinental Hotels Group, plc (LON: IHG; NYSE: IHG (ADRs)), or InterContinental. In December 2016, HPT acquired a full service hotel with 236 rooms located in Milpitas, CA for $46.0 million, excluding acquisition related costs. HPT added this hotel to its management agreement with Sonesta International Hotels Corporation, or Sonesta. Also in December 2016, HPT terminated a previously announced agreement to acquire a full service hotel with 101 rooms located in Addison, TX for a purchase price of $9.0 million. In February 2017, HPT acquired a full service hotel with 483 rooms located in Chicago, IL for a purchase price of $85.5 million, excluding acquisition related costs. HPT added this Kimpton branded hotel to its management agreement with InterContinental.
  • Recent Financing Activities: In January 2017, HPT issued $600.0 million aggregate principal amount of senior notes in underwritten public offerings, which included $200.0 million aggregate principal amount of 4.500% unsecured senior notes due 2023 and $400.0 million aggregate principal amount of 4.950% unsecured senior notes due 2027. The proceeds from these offerings of $594.2 million after discounts and offering expenses were used to repay amounts outstanding under HPT's revolving credit facility, to redeem, in February 2017, all of its 11.6 million outstanding 7.125% Series D cumulative redeemable preferred shares for $25.00 per share (an aggregate of $290.0 million) plus accrued and unpaid dividends and for general business purposes, including acquisitions.

Tenants and Managers: As of December 31, 2016, HPT had nine operating agreements with seven hotel operating companies for 306 hotels with 46,583 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 December 31, 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 December 31, 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 December 31, 2016, HPT realized returns under its Marriott No. 1 agreement of $16.7 million. HPT’s Marriott No. 234 agreement includes 68 hotels and requires annual minimum returns to HPT of $106.4 million as of December 31, 2016 (approximately $26.6 million per quarter). During the three months ended December 31, 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 December 31, 2016, HPT reduced the available security deposit by $1.0 million to cover shortfalls in hotel cash flows available to pay the returns due for the period. At December 31, 2016, the available security deposit from Marriott for the Marriott No. 234 agreement was $16.5 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 December 31, 2016 of $2.5 million was paid to HPT.
  • InterContinental Agreement: As of December 31, 2016, 94 of HPT’s hotels were operated by subsidiaries of InterContinental under one agreement requiring annual minimum returns and rents to HPT of $161.8 million (approximately $40.4 million per quarter). During the three months ended December 31, 2016, HPT realized returns and rents under its InterContinental agreement of $39.6 million. HPT’s InterContinental agreement is partially secured by a security deposit. During the three months ended December 31, 2016, the available security deposit was replenished by $1.8 million from a share of hotel cash flows in excess of the minimum returns and rents due to HPT for the period. At December 31, 2016, the available InterContinental security deposit which HPT held to pay future payment shortfalls was $72.7 million.
  • Morgans Agreement: As of December 31, 2016, HPT had a lease for one hotel with a subsidiary of Morgans Hotel Group Co., or Morgans, requiring annual minimum rent to HPT of $7.6 million as of December 31, 2016 (approximately $1.9 million per quarter). In December 2016, HPT advised Morgans that the closing of its merger with SBE Entertainment Group, LLC, or SBE, without HPT's consent was in violation of the Morgans agreement, and HPT filed an action in California for unlawful detainer against Morgans and SBE. HPT is currently in discussions with Morgans and SBE regarding this matter and is pursuing remedies, which may include terminating the Morgans agreement. As of February 28, 2017, all rent payments due to HPT under the lease were current.
  • Other Hotel Agreements: As of December 31, 2016, HPT’s remaining 89 hotels were operated under four agreements: one management agreement with Sonesta (34 hotels), requiring annual minimum returns of $90.2 million as of December 31, 2016 (approximately $22.6 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 $28.4 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 December 31, 2016 (approximately $5.5 million per quarter); and one management agreement with a subsidiary of Carlson Hotels Worldwide (11 hotels), requiring annual minimum returns of $12.9 million as of December 31, 2016 (approximately $3.2 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 December 31, 2016 were paid to HPT.
  • Travel Center Agreements: As of December 31, 2016, HPT’s 198 travel centers located along the U.S. Interstate Highway system were leased to TravelCenters of America LLC (Nasdaq: TA), or TA, under five lease agreements, which required aggregate annual minimum rents of $274.1 million (approximately $68.5 million per quarter). As of December 31, 2016, all payments due to HPT from TA under these leases were current.

To view full financial release and corresponding tables please visit: http://s2.q4cdn.com/208827006/files/doc_financials/2016/q4/HPT-4Q16-Supplemental-FINAL_030117.pdf