SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2016
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-11527
HOSPITALITY PROPERTIES TRUST
(Exact Name of Registrant as Specified in Its Charter)
Maryland |
|
04-3262075 |
(State or Other Jurisdiction of Incorporation or Organization) |
|
(IRS Employer Identification No.) |
Two Newton Place, 255 Washington Street, Suite 300, Newton, Massachusetts |
|
02458 |
(Address of Principal Executive Offices) |
|
(Zip Code) |
617-964-8389
(Registrant’s Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒ |
|
Accelerated filer ☐ |
|
|
|
Non-accelerated filer ☐ |
|
Smaller reporting company ☐ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Number of registrant’s common shares of beneficial interest, $.01 par value per share, outstanding as of August 9, 2016: 151,559,788
HOSPITALITY PROPERTIES TRUST
FORM 10-Q
June 30, 2016
References in this Quarterly Report on Form 10-Q to “HPT”, “we”, “us” or “our” include Hospitality Properties Trust and its consolidated subsidiaries unless otherwise expressly stated or the context indicates otherwise.
2
HOSPITALITY PROPERTIES TRUST
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(dollars in thousands, except share data)
|
|
June 30, |
|
December 31, |
|
||
|
|
2016 |
|
2015 |
|
||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate properties: |
|
|
|
|
|
|
|
Land |
|
$ |
1,547,774 |
|
$ |
1,529,004 |
|
Buildings, improvements and equipment |
|
|
6,993,371 |
|
|
6,740,423 |
|
Total real estate properties, gross |
|
|
8,541,145 |
|
|
8,269,427 |
|
Accumulated depreciation |
|
|
(2,361,264) |
|
|
(2,218,499) |
|
Total real estate properties, net |
|
|
6,179,881 |
|
|
6,050,928 |
|
Cash and cash equivalents |
|
|
20,347 |
|
|
13,682 |
|
Restricted cash (FF&E reserve escrow) |
|
|
61,419 |
|
|
51,211 |
|
Due from related persons |
|
|
58,991 |
|
|
50,987 |
|
Other assets, net |
|
|
288,697 |
|
|
227,989 |
|
Total assets |
|
$ |
6,609,335 |
|
$ |
6,394,797 |
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured revolving credit facility |
|
$ |
232,000 |
|
$ |
465,000 |
|
Unsecured term loan, net |
|
|
398,088 |
|
|
397,756 |
|
Senior unsecured notes, net |
|
|
2,862,800 |
|
|
2,403,439 |
|
Convertible senior unsecured notes |
|
|
8,478 |
|
|
8,478 |
|
Security deposits |
|
|
77,269 |
|
|
53,579 |
|
Accounts payable and other liabilities |
|
|
190,304 |
|
|
179,783 |
|
Due to related persons |
|
|
40,724 |
|
|
69,514 |
|
Dividends payable |
|
|
5,166 |
|
|
5,166 |
|
Total liabilities |
|
|
3,814,829 |
|
|
3,582,715 |
|
|
|
|
|
|
|
|
|
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; 11,600,000 shares issued and outstanding, aggregate liquidation preference of $290,000 |
|
|
280,107 |
|
|
280,107 |
|
Common shares of beneficial interest, $.01 par value; 200,000,000 shares authorized; 151,559,788 and 151,547,288 shares issued and outstanding, respectively |
|
|
1,516 |
|
|
1,515 |
|
Additional paid in capital |
|
|
4,166,301 |
|
|
4,165,911 |
|
Cumulative net income |
|
|
2,989,769 |
|
|
2,881,657 |
|
Cumulative other comprehensive income (loss) |
|
|
21,793 |
|
|
(15,523) |
|
Cumulative preferred distributions |
|
|
(331,645) |
|
|
(321,313) |
|
Cumulative common distributions |
|
|
(4,333,335) |
|
|
(4,180,272) |
|
Total shareholders’ equity |
|
|
2,794,506 |
|
|
2,812,082 |
|
Total liabilities and shareholders’ equity |
|
$ |
6,609,335 |
|
$ |
6,394,797 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
HOSPITALITY PROPERTIES TRUST
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(in thousands, except per share data)
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|||||||||
|
|
2016 |
|
2015 |
|
2016 |
|
2015 |
|
||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotel operating revenues |
|
$ |
471,910 |
|
$ |
436,977 |
|
$ |
868,413 |
|
$ |
806,573 |
|
Rental income |
|
|
77,293 |
|
|
69,063 |
|
|
153,552 |
|
|
133,814 |
|
FF&E reserve income |
|
|
1,096 |
|
|
1,026 |
|
|
2,452 |
|
|
2,191 |
|
Total revenues |
|
|
550,299 |
|
|
507,066 |
|
|
1,024,417 |
|
|
942,578 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotel operating expenses |
|
|
324,922 |
|
|
304,428 |
|
|
601,227 |
|
|
562,086 |
|
Depreciation and amortization |
|
|
88,782 |
|
|
80,582 |
|
|
176,053 |
|
|
159,551 |
|
General and administrative |
|
|
37,365 |
|
|
12,685 |
|
|
53,388 |
|
|
33,989 |
|
Acquisition related costs |
|
|
117 |
|
|
797 |
|
|
729 |
|
|
1,135 |
|
Total expenses |
|
|
451,186 |
|
|
398,492 |
|
|
831,397 |
|
|
756,761 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
99,113 |
|
|
108,574 |
|
|
193,020 |
|
|
185,817 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend income |
|
|
749 |
|
|
- |
|
|
749 |
|
|
- |
|
Interest income |
|
|
40 |
|
|
10 |
|
|
138 |
|
|
21 |
|
Interest expense (including amortization of debt issuance costs and debt discounts of $2,127 and $1,458 and $3,993 and $2,916, respectively) |
|
|
(41,698) |
|
|
(35,836) |
|
|
(83,284) |
|
|
(71,290) |
|
Loss on early extinguishment of debt |
|
|
- |
|
|
- |
|
|
(70) |
|
|
- |
|
Income before income taxes, equity in earnings of an investee and gain on sale of real estate |
|
|
58,204 |
|
|
72,748 |
|
|
110,553 |
|
|
114,548 |
|
Income tax expense |
|
|
(2,160) |
|
|
(640) |
|
|
(2,535) |
|
|
(931) |
|
Equity in earnings of an investee |
|
|
17 |
|
|
23 |
|
|
94 |
|
|
95 |
|
Income before gain on sale of real estate |
|
|
56,061 |
|
|
72,131 |
|
|
108,112 |
|
|
113,712 |
|
Gain on sale of real estate |
|
|
- |
|
|
11,015 |
|
|
- |
|
|
11,015 |
|
Net income |
|
|
56,061 |
|
|
83,146 |
|
|
108,112 |
|
|
124,727 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) on investment securities |
|
|
19,676 |
|
|
(8,858) |
|
|
37,221 |
|
|
7,626 |
|
Equity interest in investee’s unrealized gains (losses) |
|
|
43 |
|
|
(64) |
|
|
95 |
|
|
(19) |
|
Other comprehensive income (loss) |
|
|
19,719 |
|
|
(8,922) |
|
|
37,316 |
|
|
7,607 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
75,780 |
|
$ |
74,224 |
|
$ |
145,428 |
|
$ |
132,334 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
56,061 |
|
$ |
83,146 |
|
$ |
108,112 |
|
$ |
124,727 |
|
Preferred distributions |
|
|
(5,166) |
|
|
(5,166) |
|
|
(10,332) |
|
|
(10,332) |
|
Net income available for common shareholders |
|
$ |
50,895 |
|
$ |
77,980 |
|
$ |
97,780 |
|
$ |
114,395 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding (basic) |
|
|
151,408 |
|
|
150,260 |
|
|
151,405 |
|
|
150,028 |
|
Weighted average common shares outstanding (diluted) |
|
|
151,442 |
|
|
150,292 |
|
|
151,428 |
|
|
150,594 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available for common shareholders per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted |
|
$ |
0.34 |
|
$ |
0.52 |
|
$ |
0.65 |
|
$ |
0.76 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
HOSPITALITY PROPERTIES TRUST
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
|
|
For the Six Months Ended June 30, |
|
||||
|
|
2016 |
|
2015 |
|
||
|
|
|
|
|
|
|
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
Net income |
|
$ |
108,112 |
|
$ |
124,727 |
|
Adjustments to reconcile net income to cash provided by operating activities: |
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
176,053 |
|
|
159,551 |
|
Amortization of debt issuance costs and debt discounts as interest |
|
|
3,993 |
|
|
2,916 |
|
Straight line rental income |
|
|
(7,445) |
|
|
(2,056) |
|
Security deposits received or replenished |
|
|
23,690 |
|
|
9,064 |
|
FF&E reserve income and deposits |
|
|
(37,491) |
|
|
(33,664) |
|
Loss on early extinguishment of debt |
|
|
70 |
|
|
- |
|
Equity in earnings of an investee |
|
|
(94) |
|
|
(95) |
|
Gain on sale of real estate |
|
|
- |
|
|
(11,015) |
|
Other non-cash (income) expense, net |
|
|
(1,793) |
|
|
1,749 |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
Due from related persons |
|
|
(775) |
|
|
(1,411) |
|
Other assets |
|
|
(11,792) |
|
|
(9,539) |
|
Accounts payable and other liabilities |
|
|
9,923 |
|
|
2,538 |
|
Due to related persons |
|
|
(30,956) |
|
|
9,292 |
|
Net cash provided by operating activities |
|
|
231,495 |
|
|
252,057 |
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
Real estate acquisitions and deposits |
|
|
(196,856) |
|
|
(247,631) |
|
Real estate improvements |
|
|
(86,929) |
|
|
(120,174) |
|
FF&E reserve escrow fundings |
|
|
(1,156) |
|
|
(4,711) |
|
Investment in The RMR Group Inc. |
|
|
- |
|
|
(15,196) |
|
Net cash used in investing activities |
|
|
(284,941) |
|
|
(387,712) |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
Proceeds from issuance of senior unsecured notes, net of discounts |
|
|
737,612 |
|
|
- |
|
Repayment of senior unsecured notes |
|
|
(275,000) |
|
|
- |
|
Borrowings under unsecured revolving credit facility |
|
|
410,000 |
|
|
381,000 |
|
Repayments of unsecured revolving credit facility |
|
|
(643,000) |
|
|
(80,000) |
|
Debt issuance costs |
|
|
(6,106) |
|
|
(5) |
|
Distributions to preferred shareholders |
|
|
(10,332) |
|
|
(10,332) |
|
Distributions to common shareholders |
|
|
(153,063) |
|
|
(148,447) |
|
Net cash provided by financing activities |
|
|
60,111 |
|
|
142,216 |
|
Increase in cash and cash equivalents |
|
|
6,665 |
|
|
6,561 |
|
Cash and cash equivalents at beginning of period |
|
|
13,682 |
|
|
11,834 |
|
Cash and cash equivalents at end of period |
|
$ |
20,347 |
|
$ |
18,395 |
|
|
|
|
|
|
|
|
|
Supplemental cash flow information: |
|
|
|
|
|
|
|
Cash paid for interest |
|
$ |
65,889 |
|
$ |
68,196 |
|
Cash paid for income taxes |
|
|
1,988 |
|
|
2,137 |
|
Non-cash investing activities: |
|
|
|
|
|
|
|
Hotel managers’ deposits in FF&E reserve |
|
$ |
35,145 |
|
$ |
31,091 |
|
Hotel managers’ purchases with FF&E reserve |
|
|
(26,093) |
|
|
(30,678) |
|
Investment in The RMR Group Inc. paid in common shares |
|
|
- |
|
|
43,285 |
|
Real estate acquisitions |
|
|
- |
|
|
(45,042) |
|
Sales of real estate |
|
|
- |
|
|
45,042 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
HOSPITALITY PROPERTIES TRUST
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
(Unaudited)
The accompanying condensed consolidated financial statements of Hospitality Properties Trust and its subsidiaries, or HPT, we, our or us, are unaudited. Certain information and disclosures required by U.S. generally accepted accounting principles, or GAAP, for complete financial statements have been condensed or omitted. We believe the disclosures made are adequate to make the information presented not misleading. However, the accompanying condensed consolidated financial statements should be read in conjunction with the financial statements and notes contained in our Annual Report on Form 10-K for the year ended December 31, 2015, or our 2015 Annual Report. In the opinion of our management, all adjustments, which include only normal recurring adjustments considered necessary for a fair presentation, have been included in these condensed consolidated financial statements. These condensed consolidated financial statements include the accounts of HPT and our subsidiaries, all of which are 100% owned directly or indirectly by HPT. All intercompany transactions and balances with or among our consolidated subsidiaries have been eliminated. Our operating results for interim periods and those of our managers and tenants are not necessarily indicative of the results that may be expected for the full year. Reclassifications have been made to the prior years’ condensed consolidated financial statements to conform to the current year’s presentation.
The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect reported amounts. Actual results could differ from those estimates. Significant estimates in our condensed consolidated financial statements include the allowance for doubtful accounts, purchase price allocations, useful lives of fixed assets, impairment of real estate and the valuation of intangible assets.
We have determined that each of our taxable REIT subsidiaries, or TRSs, is a variable interest entity, or VIE, as defined under the Consolidation Topic of the Financial Accounting Standards Board, or FASB, Accounting Standards CodificationTM. We have concluded that we must consolidate each of our TRSs because we are the entity with the power to direct the activities that most significantly impact the VIEs’ economic performance and we have the obligation to absorb losses or the right to receive benefits from each VIE that could be significant to the VIE, and are, therefore, the primary beneficiary of each VIE. The assets of our TRSs were $38,678 and $26,559 as of June 30, 2016 and December 31, 2015, respectively, and consist primarily of amounts due from, and working capital advances to, certain of their hotel managers. The liabilities of our TRSs were $91,378 and $68,921 as of June 30, 2016 and December 31, 2015, respectively, and consist primarily of security deposits they hold from and amounts payable to certain of their hotel managers. The assets of our TRSs are available to satisfy our TRSs’ obligations and we have guaranteed certain obligations of our TRSs.
Note 2. New Accounting Pronouncements
On January 1, 2016, we adopted the FASB Accounting Standards Update, or ASU, No. 2015-02, Consolidation. Among other things, this update changed how an entity determines the primary beneficiary of a VIE. The implementation of this update did not have an impact on our condensed consolidated financial statements.
On January 1, 2016, we adopted FASB ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs, which requires debt issuance costs to be presented in the balance sheets as a direct deduction from the associated debt liability, and ASU No. 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements – Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting, which addresses the presentation of debt issuance costs related to line of credit arrangements. The implementation of these updates resulted in the reclassification of certain of our capitalized debt issuance costs as an offset to the associated debt liability in our condensed consolidated balance sheets. The classification of capitalized debt issuance costs related to our unsecured revolving credit facility remains unchanged in accordance with ASU No. 2015-15. As of December 31, 2015, debt issuance costs related to our unsecured term loan and senior unsecured notes of $2,244 and $10,556, respectively, were reclassified from assets to an offset to the associated debt liability in our condensed consolidated balance sheets.
On January 1, 2016, we adopted FASB ASU No. 2015-16, Simplifying the Accounting for Measurement-Period Adjustments, which eliminates the requirement for an acquirer in a business combination to account for measurement period adjustments retrospectively. Instead, acquirers must recognize measurement period adjustments during the period in which
6
HOSPITALITY PROPERTIES TRUST
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
(Unaudited)
they determine the amounts, including the effect on earnings of any amounts they would have recorded in previous periods if the accounting had been completed at the acquisition date. The implementation of this update did not have an impact on our condensed consolidated financial statements.
In January 2016, the FASB issued ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, which changes how entities measure certain equity investments and present changes in the fair value of financial liabilities measured under the fair value option that are attributable to their own credit. This update is effective for interim and annual periods beginning after December 15, 2017, with early adoption permitted subject to certain conditions. Currently, changes in fair value of these investments are recorded through other comprehensive income. Under this ASU, these changes will be recorded through earnings. We are continuing to evaluate this guidance, but we expect the implementation of this guidance will affect how changes in the fair value of available for sale equity investments we hold are presented in our condensed consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases, which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). ASU No. 2016-02 requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase of the leased asset by the lessee. This classification will determine whether the lease expense is recognized based on an effective interest method or on a straight line basis over the term of the lease. A lessee is also required to record a right of use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales type leases, direct financing leases and operating leases. ASU No. 2016-02 is effective for reporting periods beginning after December 15, 2018, with early adoption permitted. We are currently assessing the potential impact the adoption of ASU No. 2016-02 will have on our condensed consolidated financial statements.
In March 2016, the FASB issued ASU No. 2016-09, Compensation – Stock Compensation, which identifies areas for simplification involving several aspects of accounting for share based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, an option to recognize gross stock compensation expense with actual forfeitures recognized as they occur, as well as certain classifications on the statement of cash flows. ASU No. 2016-09 is effective for reporting periods beginning after December 15, 2016. We are currently assessing the potential impact that the adoption of ASU No. 2016-09 will have on our condensed consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires that entities use a new forward looking “expected loss” model that generally will result in the earlier recognition of allowance for credit losses. The measurement of expected credit losses is based upon historical experience, current conditions and reasonable and supportable forecasts that affect the collectability of the reported amount. ASU No. 2016-13 will become effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. We are currently assessing the potential impact that adoption of ASU No. 2016-13 will have on our condensed consolidated financial statements.
Note 3. Revenue Recognition
We report hotel operating revenues for managed hotels in our condensed consolidated statements of comprehensive income. We generally recognize hotel operating revenues, consisting primarily of room and food and beverage sales, when goods and services are provided.
We recognize rental income from operating leases on a straight line basis over the term of the lease agreements except for one lease in which there is uncertainty regarding the collection of scheduled future rent increases. Rental income includes $3,693 and $7,445 for the three and six months ended June 30, 2016, respectively, and $1,511 and $2,056 for the three and six months ended June 30, 2015, respectively, of adjustments necessary to record scheduled rent increases under certain of our leases, the deferred rent obligations payable to us under our leases with TravelCenters of America LLC, or TA,
7
HOSPITALITY PROPERTIES TRUST
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
(Unaudited)
and the estimated future payments to us under our TA leases for the cost of removing underground storage tanks on a straight line basis. See Note 10 for further information regarding our TA leases. Due from related persons includes $36,351 and $29,122 and other assets, includes $2,056 and $1,841 of straight line rent receivables at June 30, 2016 and December 31, 2015, respectively.
We determine percentage rent due to us under our leases annually and recognize it when all contingencies have been met and the rent is earned. We had deferred estimated percentage rent of $279 and $529 for the three and six months ended June 30, 2016, respectively. We had no deferred estimated percentage rent for the three and six months ended June 30, 2015. In connection with our June 2015 lease modification with TA, we recorded $2,048 of percentage rent during the three months ended June 30, 2015 because the amount was no longer contingent. See Note 10 for further information regarding our TA leases.
We own all the FF&E reserve escrows for our hotels. We report deposits by our third party tenants into the escrow accounts as FF&E reserve income. We do not report the amounts which are escrowed as FF&E reserves for our managed hotels as FF&E reserve income.
Note 4. Weighted Average Common Shares
The following table provides a reconciliation of the weighted average number of common shares used in the calculation of basic and diluted earnings per share:
|
|
For the Three Months Ended June 30, |
|
For the Six Months Ended June 30, |
||||
|
|
2016 |
|
2015 |
|
2016 |
|
2015 |
|
|
(in thousands) |
||||||
Weighted average common shares for basic earnings per share |
|
151,408 |
|
150,260 |
|
151,405 |
|
150,028 |
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
Contingently issuable common shares |
|
- |
|
- |
|
- |
|
542 |
Unvested share awards |
|
34 |
|
32 |
|
23 |
|
24 |
Weighted average common shares for diluted earnings per share |
|
151,442 |
|
150,292 |
|
151,428 |
|
150,594 |
Note 5. Shareholders’ Equity
Distributions
On each of January 15, 2016, April 15, 2016 and July 15, 2016, we paid a $0.4453 per share distribution, or $5,166, to our Series D preferred shareholders.
On February 23, 2016, we paid a regular quarterly distribution to common shareholders of record on January 22, 2016 of $0.50 per share, or $75,774. On May 19, 2016, we paid a regular quarterly distribution to common shareholders of record on April 25, 2016 of $0.51 per share, or $77,289. On July 12, 2016, we declared a regular quarterly distribution payable to common shareholders of record on July 22, 2016 of $0.51 per share, or $77,295. We expect to pay this amount on or about August 18, 2016.
Share Issuance
On May 25, 2016, we granted 2,500 of our common shares, valued at $25.50 per share, the closing price of our common shares on the New York Stock Exchange on that day, to each of our five Trustees as part of their annual compensation.
8
HOSPITALITY PROPERTIES TRUST
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
(Unaudited)
Cumulative Other Comprehensive Income (Loss)
Cumulative other comprehensive income (loss) represents the unrealized gain (loss) on our available for sale equity investments and our share of the comprehensive income (loss) of Affiliates Insurance Company, or AIC. See Notes 10 and 12 for further information regarding these investments.
Note 6. Indebtedness
Our principal debt obligations at June 30, 2016 were: (1) our $232,000 of outstanding borrowings under our $1,000,000 unsecured revolving credit facility; (2) our $400,000 unsecured term loan; (3) an aggregate outstanding principal amount of $2,900,000 of public issuances of unsecured senior notes; and (4) our public issuance of $8,478 outstanding principal amount of convertible senior unsecured notes.
Our $1,000,000 revolving credit facility is available for general business purposes, including acquisitions. The maturity date of our revolving credit facility is July 15, 2018 and, subject to our payment of an extension fee and meeting other conditions, we have the option to extend the stated maturity date of our revolving credit facility by one year to July 15, 2019. We can borrow, repay and reborrow funds available under our revolving credit facility until maturity, and no principal repayment is due until maturity. We are required to pay interest on borrowings under our revolving credit facility at an annual rate of LIBOR plus a premium, which was 110 basis points as of June 30, 2016. We also pay a facility fee on the total amount of lending commitments, which was 20 basis points per annum at June 30, 2016 under our revolving credit facility. Both the interest rate premium and the facility fee are subject to adjustment based upon changes to our credit ratings. As of June 30, 2016, the annual interest rate for the amount outstanding under our revolving credit facility was 1.56%. The weighted average annual interest rate for borrowings under our revolving credit facility was 1.54% for both the three and six months ended June 30, 2016 and 1.28% for both the three and six months ended June 30, 2015. As of June 30, 2016 and August 8, 2016, we had $232,000 and $167,000 outstanding under our revolving credit facility, respectively.
Our $400,000 term loan, which matures on April 15, 2019, is prepayable without penalty at any time. We are required to pay interest on the amounts under our term loan at a rate of LIBOR plus a premium, which was 120 basis points as of June 30, 2016. The interest rate premium is subject to adjustment based on changes to our credit ratings. As of June 30, 2016, the annual interest rate for the amount outstanding under our term loan was 1.66%. The weighted average annual interest rate for borrowings under our term loan was 1.64% and 1.63% for the three and six months ended June 30, 2016, respectively, and 1.38% for both the three and six months ended June 30, 2015.
Our credit agreement for our revolving credit facility and term loan also includes a feature under which maximum aggregate borrowings may be increased up to $2,300,000 on a combined basis in certain circumstances. Our credit agreement for our revolving credit facility and term loan and our notes indentures and their supplements provide for acceleration of payment of all amounts outstanding upon the occurrence and continuation of certain events of default, such as, in the case of our credit agreement, a change of control of us, which includes The RMR Group LLC, or RMR LLC, ceasing to act as our business manager. Our credit agreement for our revolving credit facility and term loan and our senior notes indentures and their supplements also contain a number of covenants, including covenants that restrict our ability to incur debts or to make distributions under certain circumstances and generally require us to maintain certain financial ratios. We believe we were in compliance with the terms and conditions of our credit agreement for our revolving credit facility and term loan and our senior notes indentures and their supplements at June 30, 2016.
On February 3, 2016, we issued $750,000 aggregate principal amount of senior notes in public offerings, which included $400,000 aggregate principal amount of 4.25% senior notes due 2021 and $350,000 aggregate principal amount 5.25% senior notes due 2026. Net proceeds from these offerings were $731,506 after original issue discounts and offering expenses.
On March 11, 2016, we redeemed at par all of our outstanding 6.30% senior notes due 2016 for $275,000 and unpaid interest (an aggregate of $279,139). As a result of the redemption, we recorded a loss on early extinguishment of debt of $70 in the six months ended June 30, 2016, which represented the unamortized discounts and issuance costs of these notes.
9
HOSPITALITY PROPERTIES TRUST
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
(Unaudited)
Note 7. Real Estate Properties
At June 30, 2016, we owned 305 hotels and 197 travel centers, which are operated under 14 agreements.
During the six months ended June 30, 2016, we funded $88,085 for improvements to certain of our properties which, pursuant to the terms of our management and lease agreements with our hotel managers and tenants, resulted in increases in our contractual annual minimum returns and rents of $6,805. See Notes 10 and 11 for further information about our management and lease agreements and our fundings of improvements to certain of our properties.
During the six months ended June 30, 2016, we acquired three hotels and four travel centers. Our allocation of the purchase price of these acquisitions based on the estimated fair value of the acquired assets is presented in the table below. The allocations of purchase prices are based on preliminary estimates and may change upon completion of third party appraisals.
Acquisition Date |
|
Location |
|
Purchase Price (1) |
|
Land |
|
Land Improvements |
|
Building and Improvements |
|
Furniture, Fixtures and Equipment |
2/1/2016 |
|
Various (2) (3) |
$ |
12,000 |
$ |
1,953 |
$ |
654 |
$ |
8,153 |
$ |
1,240 |
3/16/2016 |
|
Portland, OR (2) (4) |
|
114,000 |
|
5,657 |
|
3 |
|
100,535 |
|
7,805 |
3/31/2016 |
|
Hillsboro, TX (5) |
|
19,683 |
|
4,834 |
|
4,196 |
|
10,653 |
|
- |
6/22/2016 |
|
Various (6) |
|
23,876 |
|
3,170 |
|
9,280 |
|
11,426 |
|
- |
6/30/2016 |
|
Wilmington, IL (7) |
|
22,297 |
|
6,523 |
|
3,364 |
|
12,410 |
|
- |
|
|
|
$ |
191,856 |
$ |
22,137 |
$ |
17,497 |
$ |
143,177 |
$ |
9,045 |
(1) |
Excludes acquisition related costs. |
(2) |
We accounted for these transactions as business combinations. The pro forma impact of including the results of operations of these acquisitions from the beginning of the year is not material to our condensed consolidated financial statements. |
(3) |
On February 1, 2016, we acquired two extended stay hotels with 262 suites located in Cleveland and Westlake, OH for an aggregate purchase price of $12,000. We converted these hotels to the Sonesta ES Suites® brand and entered management agreements for these hotels with Sonesta International Hotels Corporation, or Sonesta. See Notes 10 and 11 for further information regarding our Sonesta agreements. |
(4) |
On March 16, 2016, we acquired the Kimpton Hotel Monaco, a full service lifestyle hotel with 221 rooms located in Portland, OR, for a purchase price of $114,000. We added this hotel to our agreement with InterContinental Hotels Group, plc, or InterContinental. See Note 11 for further information regarding our InterContinental agreement. |
(5) |
On March 31, 2016, we acquired a newly developed travel center located in Hillsboro, TX for $19,683. We added this TA branded travel center to our TA No. 4 lease. See Notes 10 and 11 for further information regarding this transaction and our TA leases. We accounted for this transaction as an asset acquisition. |
(6) |
On June 22, 2016, we acquired two travel centers located in Remington, IN and Brazil, IN for an aggregate purchase price of $23,876. We added these Petro Stopping Centers® branded travel centers to our TA No. 1 and No. 3 leases, respectively. See Notes 10 and 11 for further information regarding these transactions and our TA leases. We accounted for these transactions as asset acquisitions. |
(7) |
On June 30, 2016, we acquired a newly developed travel center located in Wilmington, IL for $22,297. We added this Petro Stopping Centers® branded travel center to our TA No. 2 lease. See Notes 10 and 11 for further information regarding this transaction and our TA leases. We accounted for this transaction as an asset acquisition. |
On July 29, 2016, we entered into an agreement to acquire a full service hotel with 236 rooms located in Milpitas, CA for a purchase price of $52,000, excluding acquisition related costs. We currently expect to complete this acquisition during the fourth quarter of 2016. This acquisition is subject to completion of diligence and other closing conditions; accordingly, we can provide no assurance that we will acquire this property or that its acquisition will not be delayed or the terms of the acquisition will not change. Upon acquisition of this hotel, we intend to rebrand this hotel as a Sonesta hotel, to enter into a hotel management agreement with Sonesta for this property on terms consistent with our other Sonesta hotel
10
HOSPITALITY PROPERTIES TRUST
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
(Unaudited)
management agreements and to add that management agreement to our Sonesta agreement. See Notes 10 and 11 for further information regarding our Sonesta agreement.
Note 8. Income Taxes
We have elected to be taxed as a real estate investment trust, or REIT, under the Internal Revenue Code of 1986, as amended, and accordingly are generally not subject to federal and most state income taxation on our operating income provided we distribute our taxable income to our shareholders and meet certain organization and operating requirements. We are subject to income tax in Canada, Puerto Rico and certain states despite our qualification for taxation as a REIT. Also, we lease our managed hotels to our wholly owned TRSs that, unlike most of our other subsidiaries, file separate consolidated federal corporate income tax returns and are subject to federal, state and foreign income taxes. Our consolidated income tax provision (or benefit) included in our condensed consolidated statements of comprehensive income includes the income tax provision (or benefit) related to the operations of our TRSs and certain state and foreign income taxes incurred by us despite our qualification for taxation as a REIT.
During the three and six months ended June 30, 2016, we recognized income tax expense of $2,160 and $2,535, respectively, which includes $1,570 and $1,602, respectively, of foreign taxes, $39 and $92, respectively, of federal taxes and $551 and $841, respectively, of state taxes. During the three and six months ended June 30, 2015, we recognized income tax expense of $640, and $931, respectively, which includes $51 and $75, respectively, of foreign taxes and $589 and $856, respectively, of state taxes.
11
HOSPITALITY PROPERTIES TRUST
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
(Unaudited)
Note 9. Segment Information
We operate in two reportable business segments: hotel investments and travel center investments.
|
|
For the Three Months Ended June 30, 2016 |
|
||||||||||
|
|
Hotels |
|
Travel Centers |
|
Corporate |
|
Consolidated |
|
||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotel operating revenues |
|
$ |
471,910 |
|
$ |
- |
|
$ |
- |
|
$ |
471,910 |
|
Rental income |
|
|
8,326 |
|
|
68,967 |
|
|
- |
|
|
77,293 |
|
FF&E reserve income |
|
|
1,096 |
|
|
- |
|
|
- |
|
|
1,096 |
|
Total revenues |
|
|
481,332 |
|
|
68,967 |
|
|
- |
|
|
550,299 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotel operating expenses |
|
|
324,922 |
|
|
- |
|
|
- |
|
|
324,922 |
|
Depreciation and amortization |
|
|
56,004 |
|
|
32,778 |
|
|
- |
|
|
88,782 |
|
General and administrative |
|
|
- |
|
|
- |
|
|
37,365 |
|
|
37,365 |
|
Acquisition related costs |
|
|
117 |
|
|
- |
|
|
- |
|
|
117 |
|
Total expenses |
|
|
381,043 |
|
|
32,778 |
|
|
37,365 |
|
|
451,186 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
100,289 |
|
|
36,189 |
|
|
(37,365) |
|
|
99,113 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend income |
|
|
- |
|
|
- |
|
|
749 |
|
|
749 |
|
Interest income |
|
|
- |
|
|
- |
|
|
40 |
|
|
40 |
|
Interest expense |
|
|
- |
|
|
- |
|
|
(41,698) |
|
|
(41,698) |
|
Income (loss) before income taxes and equity in earnings of an investee |
|
|
100,289 |
|
|
36,189 |
|
|
(78,274) |
|
|
58,204 |
|
Income tax expense |
|
|
- |
|
|
- |
|
|
(2,160) |
|
|
(2,160) |
|
Equity in earnings of an investee |
|
|
- |
|
|
- |
|
|
17 |
|
|
17 |
|
Net income (loss) |
|
$ |
100,289 |
|
$ |
36,189 |
|
$ |
(80,417) |
|
$ |
56,061 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, 2016 |
|
||||||||||
|
|
Hotels |
|
Travel Centers |
|
Corporate |
|
Consolidated |
|
||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotel operating revenues |
|
$ |
868,413 |
|
$ |
- |
|
$ |
- |
|
$ |
868,413 |
|
Rental income |
|
|
16,468 |
|
|
137,084 |
|
|
- |
|
|
153,552 |
|
FF&E reserve income |
|
|
2,452 |
|
|
- |
|
|
- |
|
|
2,452 |
|
Total revenues |
|
|
887,333 |
|
|
137,084 |
|
|
- |
|
|
1,024,417 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotel operating expenses |
|
|
601,227 |
|
|
- |
|
|
- |
|
|
601,227 |
|
Depreciation and amortization |
|
|
111,088 |
|
|
64,965 |
|
|
- |
|
|
176,053 |
|
General and administrative |
|
|
- |
|
|
- |
|
|
53,388 |
|
|
53,388 |
|
Acquisition related costs |
|
|
613 |
|
|
- |
|
|
116 |
|
|
729 |
|
Total expenses |
|
|
712,928 |
|
|
64,965 |
|
|
53,504 |
|
|
831,397 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
174,405 |
|
|
72,119 |
|
|
(53,504) |
|
|
193,020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend income |
|
|
- |
|
|
- |
|
|
749 |
|
|
749 |
|
Interest income |
|
|
- |
|
|
- |
|
|
138 |
|
|
138 |
|
Interest expense |
|
|
- |
|
|
- |
|
|
(83,284) |
|
|
(83,284) |
|
Loss on early extinguishment of debt |
|
|
- |
|
|
- |
|
|
(70) |
|
|
(70) |
|
Income (loss) before income taxes and equity in earnings of an investee |
|
|
174,405 |
|
|
72,119 |
|
|
(135,971) |
|
|
110,553 |
|
Income tax expense |
|
|
- |
|
|
- |
|
|
(2,535) |
|
|
(2,535) |
|
Equity in earnings of an investee |
|
|
- |
|
|
- |
|
|
94 |
|
|
94 |
|
Net income (loss) |
|
$ |
174,405 |
|
$ |
72,119 |
|
$ |
(138,412) |
|
$ |
108,112 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2016 |
|
||||||||||
|
|
Hotels |
|
Travel Centers |
|
Corporate |
|
Consolidated |
|
||||
Total assets |
|
$ |
3,999,281 |
|
$ |
2,500,414 |
|
$ |
109,640 |
|
$ |
6,609,335 |
|
12
HOSPITALITY PROPERTIES TRUST
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
(Unaudited)
For the Three Months Ended June 30, 2015 |
|||||||||||||
Hotels |
Travel Centers |
Corporate |
Consolidated |
||||||||||
Revenues: |
|||||||||||||
Hotel operating revenues |
$ |
436,977 |
$ |
- |
$ |
- |
$ |
436,977 | |||||
Rental income |
8,179 | 60,884 |
- |
69,063 | |||||||||
FF&E reserve income |
1,026 |
- |
- |
1,026 | |||||||||
Total revenues |
446,182 | 60,884 |
- |
507,066 | |||||||||
Expenses: |
|||||||||||||
Hotel operating expenses |
304,428 |
- |
- |
304,428 | |||||||||
Depreciation and amortization |
52,924 | 27,658 |
- |
80,582 | |||||||||
General and administrative |
- |
- |
12,685 | 12,685 | |||||||||
Acquisition related costs |
797 |
- |
- |
797 | |||||||||
Total expenses |
358,149 | 27,658 | 12,685 | 398,492 | |||||||||
Operating income (loss) |
88,033 | 33,226 | (12,685) | 108,574 | |||||||||
Interest income |
- |
- |
10 | 10 | |||||||||
Interest expense |
- |
- |
(35,836) | (35,836) | |||||||||
Income (loss) before income taxes, equity in earnings of an investee and gain on sale of real estate |
88,033 | 33,226 | (48,511) | 72,748 | |||||||||
Income tax expense |
- |
- |
(640) | (640) | |||||||||
Equity in earnings of an investee |
- |
- |
23 | 23 | |||||||||
Income (loss) before gain on sale of real estate |
88,033 | 33,226 | (49,128) | 72,131 | |||||||||
Gain on sale of real estate |
- |
11,015 |
- |
11,015 | |||||||||
Net income (loss) |
$ |
88,033 |
$ |
44,241 |
$ |
(49,128) |
$ |
83,146 | |||||
For the Six Months Ended June 30, 2015 |
|||||||||||||
Hotels |
Travel Centers |
Corporate |
Consolidated |
||||||||||
Revenues: |
|||||||||||||
Hotel operating revenues |
$ |
806,573 |
$ |
- |
$ |
- |
$ |
806,573 | |||||
Rental income |
16,140 | 117,674 |
- |
133,814 | |||||||||
FF&E reserve income |
2,191 |
- |
- |
2,191 | |||||||||
Total revenues |
824,904 | 117,674 |
- |
942,578 | |||||||||
Expenses: |
|||||||||||||
Hotel operating expenses |
562,086 |
- |
- |
562,086 | |||||||||
Depreciation and amortization |
105,321 | 54,230 |
- |
159,551 | |||||||||
General and administrative |
- |
- |