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Hospitality Properties Trust Reports Operating Results (10-Q/A)

August 09, 2012 | About:

Hospitality Properties Trust (NASDAQ:HPT) filed Amended Quarterly Report for the period ended 2012-06-30.

Hospitality Properties Trust has a market cap of $3.03 billion; its shares were traded at around $23.42 with a P/E ratio of 7.6 and P/S ratio of 2.5. The dividend yield of Hospitality Properties Trust stocks is 7.4%. Hospitality Properties Trust had an annual average earning growth of 0.5% over the past 10 years.

Highlight of Business Operations:

TA is our largest tenant and has two leases with us, the TA No. 1 lease and the TA No. 2 lease, pursuant to which TA currently leases 185 travel centers from us. The TA No. 1 lease is for 145 travel centers that TA operates under the TravelCenters of America or TA brand names. The TA No. 2 lease is for 40 travel centers that TA operates under the Petro brand name. The TA No. 1 lease expires on December 31, 2022. The TA No. 2 lease expires on June 30, 2024, and may be extended by TA for up to two additional periods of 15 years each. Both of these leases require TA to: (1) make payments to us of minimum rents; (2) pay us percentage rent equal to 3% of non-fuel revenue and 0.3% of fuel revenues over threshold amounts established in 2011 and to be established in 2012 (with the first $2,500 of percentage rents under the TA No. 2 lease previously waived by us), respectively; and (3) maintain the leased travel centers, including structural and non-structural components. In addition to minimum and percentage rent, TA is obligated to pay us ground rent of approximately $5,126 per year under the TA No. 1 lease. Previously deferred rent due from TA of $107,085 and $42,915 is due in December 2022 and June 2024, respectively. We have not recognized any of the deferred rent as rental income or as rents receivable due to uncertainties regarding future collection.

three months ended June 30, 2012 and 2011, respectively, and $121 and $83 for the six months ended June 30, 2012 and 2011, respectively, related to this investment. We and the other shareholders of AIC have purchased property insurance providing $500,000 of coverage pursuant to an insurance program arranged by AIC and with respect to which AIC is a reinsurer of certain coverage amounts. This program was modified and extended in June 2012 for a one year term and we paid a premium, including taxes and fees, of $5,256 in connection with that renewal, which amount may be adjusted from time to time in response to our acquisition and disposition of properties that are included in that program. We are also currently investigating the possibilities to expand our insurance relationships with AIC to include other types of insurance. We may invest additional amounts in AIC in the future if the expansion of this insurance business requires additional capital, but we are not obligated to do so. By participating in this insurance business with RMR and the other companies to which RMR provides management services, we expect that we may benefit financially by possibly reducing our insurance expenses or by realizing our pro-rata share of any profits of this insurance business.

of our invested capital, as defined, if gross revenues of the hotels, after payment of hotel operating expenses and base fees to Sonesta, are sufficient to do so. Under the terms of this agreement, we may earn additional returns of 80% of cash flow after payment of our minimum returns and reimbursement of operating losses or working capital advances, if any. We are required to fund operating losses or working capital shortfalls, but may recover these amounts from future cash flows, if any. As described above, we have notified InterContinental that we plan to remove and rebrand a total of 17 hotels to Sonesta brands and management. During the second quarter of 2012, we entered into hotel management agreements with Sonesta for four of these hotels and added them to our Sonesta No. 1 agreement. Since June 30, 2012, we have entered into an additional 13 hotel management agreements with Sonesta for the conversion of 13 hotels to Sonesta brands and management. Seven of these hotels have already been converted to Sonesta brands and management and added to our Sonesta No. 1 agreement. The terms of these management agreements are substantially the same as our Cambridge Hotel management agreement, except that in the case of limited service hotels where the base management fee payable to Sonesta is 5% of gross revenues (compared to 3% of gross revenues for other Sonesta branded hotels) and our working capital advance per room requirements are less. In addition, in April 2012, we entered into a pooling agreement with Sonesta as further described in Note 11. Under the terms of the pooling agreement, results from the hotels included in our Sonesta No. 1 agreement are combined for purposes of calculating gross revenues, payment of hotel operating expenses, payment of fees and distributions and the calculation of minimum returns due to us. Our annual minimum return under the Sonesta No. 1 agreement, which includes five hotels as of June 30, 2012, was $19,523. Also as described above, we have notified Marriott that we plan to remove and rebrand two hotels to the Sonesta brand and management. We currently expect the conversion of the remaining six InterContinental hotels and two Marriott hotels to be completed during the third quarter of 2012 and expect to add these hotels to our Sonesta No. 1 agreement. The annual minimum returns for these 15 hotels (13 InterContinental and two Marriott) to be, or already rebranded as Sonesta brands are expected to approximate the reductions in the annual minimum returns due under the InterContinental and Marriott No. 234 agreements when they are removed. We currently expect to fund between $130,000 and $150,000 for rebranding, renovations and other improvements to the 19 hotels we have or expect to rebrand as Sonesta hotels. As these amounts are funded, the annual minimum returns due to us under the Sonesta No. 1 agreement will increase.

Various percentages of total sales at some of our hotels are escrowed as FF&E reserves to fund future capital improvements. During the six months ended June 30, 2012, our hotel managers and hotel tenants contributed $16,275 to these accounts and $64,458 was spent from the FF&E reserve escrow accounts and from separate payments by us to renovate and refurbish our hotels. As of June 30, 2012, there was $47,467 on deposit in these escrow accounts, which was held directly by us and is reflected on our Condensed Consolidated Balance Sheets as restricted cash.

· The New Orleans Hotel under our Sonesta No. 2 agreement is subject to a lease. The annual rent payable by us under the lease is calculated as 75% of the sum of the net profit of the hotel, as defined, less capital expenditures made during the lease year. During the six months ended June 30, 2012, we funded $3,295 of capital expenditures from hotel net profits. The amounts of additional improvement funding from this hotels net profits during the remainder of 2012 is currently being discussed with the hotel owner.

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About the author:

Charlie Tian, Ph.D. - Founder of GuruFocus. You can now order his book Invest Like a Guru on Amazon.

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