Hospitality Properties Trust Reports Operating Results (10-Q)
Hospitality Properties Trust has a market cap of $2.97 billion; its shares were traded at around $24.08 with a P/E ratio of 7.92 and P/S ratio of 2.86. The dividend yield of Hospitality Properties Trust stocks is 7.48%. Hospitality Properties Trust had an annual average earning growth of 2.2% over the past 10 years.HPT is in the portfolios of David Dreman of Dreman Value Management, Richard Pzena of Pzena Investment Management LLC, Jeremy Grantham of GMO LLC, Steven Cohen of SAC Capital Advisors.
Highlight of Business Operations: As noted above, TA is our largest tenant. TA is our former subsidiary and we are its largest shareholder. RMR provides management services to both us and TA. We lease our 185 travel centers to TA under two lease agreements, which we refer to as our TA No. 1 and TA No. 2 agreements. See the table on page 29 for more information about the terms of these agreements. We recognized rental income of $47,815 and $141,751 for the three and nine months ended September 30, 2010, respectively, and $42,553 and $127,301 for the three and nine months ended September 30, 2009, respectively, under our lease agreements with TA.
We have no employees. Instead, services that might be provided to us by employees are provided to us by RMR. RMR is owned by our Managing Trustees. RMR provides both business and property management services to us under a business management agreement and a property management agreement, each as amended in January 2010. In connection with these agreements with RMR, we recognized expenses of $8,378 and $24,786, and $8,320 and $24,626 for the three and nine months ended September 30, 2010 and 2009, respectively. These amounts are included in general and administrative expenses in our condensed consolidated statements of income.
As of September 30, 2010, we have invested approximately $5,209 in Affiliates Insurance, an Indiana licensed insurance company organized by RMR and other companies to which RMR provides management services. We own 14.29% of Affiliates Insurance. All of our trustees are also directors of Affiliates Insurance and RMR provides certain management services to Affiliates Insurance. During the three and nine months ended September 30, 2010, we recognized earnings of $34 and a loss of $17, respectively, related to this investment. During the three and nine months ended September 30, 2009, we recognized a loss of $23 and $132, respectively, related to this investment. In June 2010, we, RMR and other companies to which RMR provides management services purchased property insurance pursuant to an insurance program arranged by Affiliates Insurance. Our annual premium for this property insurance of $4,816 was paid in June 2010. We are currently investigating the possibilities to expand our insurance relationships with Affiliates Insurance to include property insurance for additional properties and other types of insurance.
At September 30, 2010, we had one mortgage note secured by one hotel, with a principal balance of $3,407 and a fixed interest rate of 8.3% that matures on July 1, 2011. This note, which requires monthly principal and interest payments of $32 through maturity pursuant to an amortization schedule, is expected to have a principal balance of $3,326 at maturity and contains a provision that allows us to make repayment at a premium to face value.
Our revolving credit facility bears interest at floating rates and matures in October 2011. At September 30, 2010, we had $123,000 outstanding and $627,000 available to draw under our revolving credit facility. We may make repayments under this agreement at any time without penalty. We borrow in U.S. dollars and borrowings under these agreements are subject to interest at LIBOR plus a spread (0.81% as of September 30, 2010). Accordingly, we are vulnerable to changes in U.S. dollar short term interest rates, specifically LIBOR. A change in interest rates would not affect the value of this floating rate debt but would affect our operating results. For example, the interest rate payable on our outstanding indebtedness of $123,000 under our revolving credit facility was 0.81% per annum at September 30, 2010. The following table presents the impact a 10% change in interest rates would have on our weighted average floating rate interest expense as of September 30, 2010:
During the nine months ended September 30, 2010, the payments we received under our management contract with Marriott for 34 hotels that requires minimum annual payments to us of approximately $44.2 million (which we have historically referred to as our Marriott No. 3 contract) and under our lease with Crestline for 19 hotels managed by Marriott that requires minimum annual rent payments to us of approximately $28.5 million (which we have historically referred to as our Marriott No. 4 contract) were $11.3 million and $8.5 million, respectively, less than the minimum amounts contractually required. We applied the available security deposits to cover these deficiencies. Also, during the period between September 30, 2010 and November 7, 2010, we received payments for the Marriott No. 3 and Marriott No. 4 contracts which were less than the contractual minimums required by $0.7 million and $0.2 million, respectively, and we applied the security deposits we hold to cover these amounts. At November 7, 2010, the remaining balances of the security deposits which we hold for the Marriott No. 3 and Marriott No. 4 contracts were $15.0 million and $11.2 million, respectively.
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