Hospitality Properties Trust (HPT) filed Quarterly Report for the period ended 2009-03-31.
Hospitality Properties Trust is a real estate investment trust. The company owns and leases hotels to unaffiliated hotel operators. The company's principal strategy is to expand its investments in hotels and to set minimum rents which produce income in excess of the company's cost of raising capital. The company seeks to provide capital to unaffiliated hotel operators who wish to divest their properties while remaining in the hotel business as tenants and in doing so ensure stability of cash flow through dependable and diversified revenue sources. Hospitality Properties Trust has a market cap of $1.26 billion; its shares were traded at around $13.43 with a P/E ratio of 3.2 and P/S ratio of 1. Hospitality Properties Trust had an annual average earning growth of 3.5% over the past 10 years.
Highlight of Business Operations:
Our tenants and managers- During the quarter ended March 31, 2009, all payments due under our hotel leases and management contracts were paid when due or within cure periods permitted under these contracts, except the payment due on March 27, 2009 from Marriott International, Inc., or Marriott, for the contract that concerns Marriotts management of 34 hotels (which we have historically referred to as our Marriott No. 3 contract) and requires minimum payment to us of approximately $44,200/year. Marriotts payment to us for this management agreement was deficient in the amount of approximately $838. We sent Marriott a notice regarding this deficiency and Marriott failed to pay the deficiency amount within the applicable cure period. On April 9, 2009, we applied $838 of the $36,203 security deposit we had for this contract to cover the deficiency.
On April 24, 2009, we did not receive payments due under the Marriott No. 3 contract or under our lease for 19 hotels with Barcelo Crestline Corporation, or Crestline (which we have historically referred to as our Marriott No. 4 contract). The hotels leased to Crestline are managed by Marriott and the minimum payments due us are approximately $28,508/year. At March 31, 2009, we held a $28,508 security deposit for this contract. We sent Marriott and Crestline default notices under these contracts and both Marriott and Crestline failed to pay their deficiency amounts within the applicable cure periods. On May 7, 2009, we applied $3,409 and $2,193 against the security deposits we hold for the Marriott and Crestline contracts, respectively, to cover the deficiencies. We are currently involved in discussions with Marriott concerning these defaults. At this time, we expect that Marriott will pay us the net cash flows from operations of the hotels included in the defaulted contracts and that these payments may constitute a large majority of the minimum payments due us under the defaulted contracts during 2009. Moreover, we believe the security deposits we hold from Marriott and from Crestline for these contracts are in amounts which exceed the 2009 shortfall of the payments we expect to receive compared to the minimum payments due to us under these contracts. Other than applying the security deposits to pay the differences between the net cash flows received from operations of these hotels and the contractual minimum payments, we have not yet determined what additional action, if any, we may take as a result of these defaults.
· During the three months ended March 31, 2009, we funded $5,022 for improvements to hotels included in our four Marriott portfolio agreements using cash on hand and borrowings under our revolving credit facility. We currently expect to fund between $10,000 to $15,000 for improvements to these Marriott hotels during the remainder of 2009 with funds from our existing cash balances or borrowings under our revolving credit facility. As we fund these improvements, the minimum rents and returns payable to us increase.
· Pursuant to an April 2005 agreement we entered with a subsidiary of Global Hyatt Corporation, or Hyatt, for management of 22 AmeriSuites® hotels, we agreed to provide funding to Hyatt for rebranding of these hotels to the Hyatt PlaceTM brand and for other improvements. To the extent our fundings exceed $8,000, the minimum return payable by Hyatt to us increases as these funds are advanced. As of March 31, 2009, we have funded $74,600. We made no fundings during the three months ended March 31, 2009, but we expect to fund an additional approximately $2,800 during the remainder of 2009, using funds from our existing cash balances or borrowings under our revolving credit facility.
FF&E escrow deposits are not required under our travel center leases with TA. However, TA is required to maintain the leased travel centers, including structural and non-structural components. On May 12, 2008, we entered into an amendment to our lease with TA for 145 travel centers. The historical lease provided for our purchase from TA of an aggregate of $125,000 of specified capital improvements to the leased travel centers during the first five years of the lease term, and that these purchases were limited to $25,000 per year. The amendment provided that TA may accelerate our purchase of the specified capital improvements. In the event that TA sells us capital improvements before the time contractually required by the original lease terms, our purchase commitment amount is discounted to reflect the accelerated disbursement of funds by us according to a present value formula established in the amended lease. During the three months ended March 31, 2009, we purchased $2,838 of additional improvements, and, as of March 31, 2009, we have funded $105,232 and our remaining purchase commitment under this lease is $13,526. Under both our leases with TA, TA may request that we fund additional amounts for capital improvements to the leased facilities in return for annual minimum rent increases; we made no fundings under these lease provisions during the three months ended March 31, 2009.
Our term debt maturities (other than our revolving credit facility) as of March 31, 2009, as adjusted for our April and May 2009 repurchase of senior notes discussed above, were as follows: $50,000 in 2010, $100,829 in 2012, $287,000 in 2013, $280,000 in 2015, $275,000 in 2016, $300,000 in 2017, $350,000 in 2018, and $453,670 in 2027. Our 3.8% convertible senior notes ($453,670 due in 2027) are convertible if certain conditions are met (including certain changes in control) into cash equal to the principal amount of the notes and, to the extent the market price of our common shares exceeds the exchange price of $50.50 per share, subject to adjustment, either cash or our common shares at our option with a value based on such excess amount. Holders of our convertible senior notes may require us to repurchase all or a portion of the notes on March 20, 2012, March 15, 2017 and March 15, 2022, or upon the occurrence of certain change in control events.
David Dreman of Dreman Value Management.