Hospitality Properties Trust's Q4 FFO up 21.5% year-over-year to US$104.5M, full-year FFO increases to $400M compared with US$358.2M a year prior

Lorena Madrigal

NEWTON, Massachusetts , February 18, 2011 (Business Wire) – Hospitality Properties Trust (NYSE:HPT - News) today announced its financial results for the quarter and twelve months ended December 31, 2010.

Results for the Quarter Ended December 31, 2010:

Funds from operations, or FFO, for the quarter ended December 31, 2010, were $104.5 million, or $0.85 per share, compared to FFO for the quarter ended December 31, 2009, of $86.0 million, or $0.70 per share.

Net income (loss) available for common shareholders was ($100.4) million, or ($0.81) per share, for the quarter ended December 31, 2010, compared to $25.5 million, or $0.21 per share, for the same quarter last year. Net loss available for common shareholders for the quarter ended December 31, 2010, includes a $147.3 million, or $1.19 per share, net loss on asset impairment.

The weighted average number of common shares outstanding was 123.4 million for the quarters ended December 31, 2010 and 2009.

A reconciliation of net income (loss) determined according to generally accepted accounting principles, or GAAP, to FFO for the quarters ended December 31, 2010 and 2009 appears later in this press release.

Results for the Year Ended December 31, 2010:

FFO for the twelve months ended December 31, 2010, were $400.0 million, or $3.24 per share, compared to FFO for the twelve months ended December 31, 2009, of $358.2 million, or $3.32 per share.

Net income (loss) available for common shareholders was ($8.5) million, or ($0.07) per share, for the twelve months ended December 31, 2010, compared to $163.5 million, or $1.51 per share, for the same period last year. Net loss available for common shareholders for the twelve months ended December 31, 2010, includes a $6.7 million, or $0.05 per share, loss on extinguishment of debt and a $163.7 million, or $1.33 per share, net loss on asset impairment. Net income available for common shareholders for the twelve months ended December 31, 2009, included a $51.1 million, or $0.47 per share, gain on extinguishment of debt.

The weighted average number of common shares outstanding was 123.4 million and 108.0 million for the twelve months ended December 31, 2010 and 2009, respectively.

A reconciliation of net income (loss) determined according to GAAP to FFO for the years ended December 31, 2010 and 2009 appears later in this press release.

Hotel Portfolio Performance:

For the quarter ended December 31, 2010 compared to the same period in 2009: average daily rate, or ADR, decreased 1.1% to $90.03; occupancy increased 4.0 percentage points to 66.0%; and, as a result, revenue per available room, or RevPAR, increased by 5.3% to $59.42.

For the twelve months ended December 31, 2010 compared to the same period in 2009: ADR decreased 4.8% to $90.36; occupancy increased 5.3 percentage points to 69.3%; and, as a result, RevPAR increased by 3.1% to $62.62.

Hotel Tenants and Managers:

During the twelve months ended December 31, 2010, all payments due to HPT under its hotel leases and management contracts were paid when due except for certain payments from Marriott International, Inc., or Marriott, and Barceló Crestline Corporation, or Crestline.

During the twelve months ended December 31, 2010, the payments HPT received under its management contract with Marriott (Marriott No. 3 contract) covering 34 hotels and requiring minimum returns to HPT of $44.2 million per year, and under its lease with Crestline (Marriott No. 4 contract) covering 19 hotels managed by Marriott and requiring minimum rent to HPT of $28.5 million per year, were $16.9 million and $11.6 million, respectively, less than the minimum amounts contractually required. HPT applied available security deposits to cover these shortfalls. Also, during the period between December 31, 2010 and February 17, 2011, HPT did not receive payments to cure shortfalls for the minimum returns due under the Marriott No. 3 and the minimum rent due under the Marriott No. 4 contract of $3.6 million and $1.8 million, respectively, and HPT applied the security deposits it holds to cover these amounts. At February 17, 2011, the remaining balances of the security deposits for the Marriott Nos. 3 and 4 contracts held by HPT were $6.5 million and $6.5 million, respectively. At this time, HPT expects that Marriott will continue to pay HPT the net cash flows from operations of the hotels covered by the defaulted contracts. In the absence of agreements modifying the contract terms between HPT and Marriott or Crestline, HPT currently expects the security deposits it holds from Marriott and Crestline may be fully utilized to cover cash shortfalls in payments HPT expects to receive under these contracts during 2011. HPT has entered into negotiations with Marriott to modify the agreements covering these hotels and the management agreement covering its 18 Residence Inn hotels (Marriott No. 2 contract). Although HPT intends to pursue these negotiations, there can be no assurance that any agreement will be reached.

As of December 31, 2010, the remaining availability under the $125.0 million guarantee securing the obligations of InterContinental Hotels Group PLC, or InterContinental, under its four operating agreements with HPT had been reduced to $6.7 million. In January 2011, the guarantee was fully exhausted. On February 1, 2011, the payments HPT received under its four operating agreements with InterContinental, which require minimum returns/rents of $153.7 million per year, were $8.1 million less than the minimum amounts contractually required. HPT applied the available security deposit to cover these shortfalls. At February 17, 2011, the remaining balance of the security deposit for these InterContinental agreements held by HPT was $28.8 million. At this time, HPT expects that InterContinental will continue to pay HPT the net cash flows from operations of the hotels included in the defaulted contracts. In the absence of an agreement or other action modifying the contract terms between HPT and InterContinental, HPT currently expects the security deposit it holds from InterContinental may approximate the 2011 shortfall of the payments it expects to receive compared to the minimum payments due to HPT under these contracts. HPT has also entered into negotiations with InterContinental to modify its four operating agreements covering 131 hotels. During these negotiations, HPT entered into an agreement with InterContinental on January 25, 2011, providing that the security deposit held by HPT will secure InterContinental’s obligations under all four operating agreements. Prior to this January 25 agreement, the security deposit secured InterContinental’s obligations under three of the agreements. Although HPT intends to pursue further negotiations with InterContinental, there can be no assurance that any further agreement will be reached.

In connection with its ongoing negotiations with both Marriott and InterContinental regarding modified agreements, HPT is considering selling 53 hotels. As a result, in performing its periodic evaluation of real estate assets for impairment during the fourth quarter of 2010, HPT recorded a loss on asset impairment to reduce the carrying value of 45 of these 53 hotels to their estimated fair value. As previously noted, discussions with Marriott and InterContinental are ongoing, and there can be no assurance that any modified agreements will be reached or that HPT will decide to sell any or all of these 53 hotels.

Travel Center Leases:

As previously announced, on January 31, 2011, HPT entered into an amendment agreement with TravelCenters of America LLC, or TA, which modified the terms of its two leases with TA. The amended terms are as follows:

* HPT’s lease for 145 travel centers (which it has historically referred to as TA No. 1) was modified effective January 1, 2011, so that the minimum rent is reduced from $165.1 million per year to $135.1 million per year. The rent will increase to $140.1 million per year, effective February 1, 2012, plus increases beginning in 2012 based upon percentages of increases in gross revenues which exceed a threshold amount.
* HPT’s lease for 40 travel centers (which it has historically referred to as TA No. 2) was modified, effective January 1, 2011, so that the minimum rent is reduced from $66.2 million per year to $54.2 million per year, plus increases starting in 2013 based upon percentages of increases in gross revenues that exceed a threshold amount; and the first $2.5 million of percentage rent shall be waived provided the settlement of certain litigation pending against HPT, TA and others is approved.
* The $150.0 million of previously deferred rent due from TA to HPT is further deferred, without interest, so that $107.1 million will be due in December 2022 and $42.9 million will be due in June 2024. These deferred rent amounts will become due and interest may accrue in certain circumstances set forth in the amendment agreement, including a change in control of TA.

All TA obligations to HPT under these modified agreements are current.

Common Dividend:

On January 14, 2011, HPT announced a regular quarterly common dividend of $0.45 per share ($1.80 per share per year) payable to shareholders of record on January 28, 2011; this dividend will be paid on or about February 23, 2011.

Conference Call:

On Friday, February 18, 2011, at 1:00 p.m. Eastern Time, John Murray, President, and Mark Kleifges, Treasurer and Chief Financial Officer, will host a conference call to discuss the results for the quarter and twelve months ended December 31, 2010. The conference call telephone number is (800) 230-1074. Participants calling from outside the United States and Canada should dial (612) 234-9960. 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, February 25, 2011. To hear the replay, dial (800) 475-6701. The replay pass code is 179292.

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