Hospitality Properties Trust (NYSE: HPT) today announced that it has suspended its regular quarterly distributions to common shareholders for the remainder of 2009.
The suspension of common share distributions is the result of current conditions in the capital markets. HPT currently expects that it will realize substantial net income for financial reporting purposes in 2009, and HPT expects that its distributions to its common shareholders in 2009 will be at least equal to the minimum amounts required in order for HPT to remain a real estate investment trust, or REIT, for federal tax purposes. However, the severe current limitations on the availability of capital to meet HPT’s obligations which are senior to the interests of HPT common shareholders, including debt maturities in 2010-12, have caused HPT to suspend payment of common share distributions at this time.
At present all of HPT’s tenants and managers are current in their financial obligations to HPT, except Marriott International, Inc. (NYSE: MAR) has paid less than the minimum return due HPT for one of its contracts for HPT owned hotels. HPT owns 125 hotels which are operated by Marriott under five separate agreements. The minimum rents and returns due HPT for these 125 hotels is approximately $161.6 million/year, or approximately $12.4 million each four week period (Marriott pays HPT each four week fiscal reporting period on or before the first business day of each period). One of HPT’s five contracts for HPT hotels operated by Marriott involves a combination of 34 Marriott branded hotels which are leased to an HPT taxable REIT subsidiary and managed by Marriott. The minimum return payment due HPT for these 34 hotels for the four week period beginning March 28, 2009, was $3,389,601; but Marriott paid HPT only $2,552,000 on March 27, 2009 creating a shortfall of $837,601. HPT notified Marriott of this shortfall on March 30, 2009, and Marriott has failed to pay the shortfall amount within the 10 day cure period permitted by HPT’s contract with Marriott. HPT has a cash security deposit of approximately $36.2 million which secures Marriott’s obligations to HPT under this 34 hotel contract. HPT has had discussions with Marriott concerning Marriott’s failure to pay the $837,601 due on March 27, 2009, and those discussions may continue. At this time, HPT expects to apply $837,601 of the security deposit HPT holds to cover the shortfall in the payment HPT received from Marriott, and HPT is considering what other available actions it may take, if any. Accordingly, HPT expects that its financial reporting under GAAP will reflect the payment of the full minimum return due for this contract.
The obligations due HPT for the 91 additional hotels operated by Marriott under four contracts are current at this time. These four contracts are leases with Host Hotels and Resorts (NYSE: HST) (2 contracts), with Barceló-Crestline (1 contract) and directly with Marriott (1 contract), and Marriott is the manager of these hotels pursuant to management contracts with HPT’s tenants. Obligations due HPT under each of these four contracts are secured by security deposits and/or guarantees which are separate from, and in addition to, the security deposit which HPT has with respect to the contract where there was a $837,601 shortfall in the minimum return due HPT. Obligations due HPT from InterContinental Hotels Group, plc (131 hotels for $153.7 million/year minimum returns), Global Hyatt Corporation (22 hotels for $21.8 million/year minimum returns), Carlson Hotels Worldwide (11 hotels for $12.9 million/year minimum returns) and TravelCenters of America LLC. (185 travel centers for minimum rent of $170.1 million/year, net of $60 million rent deferral) are all also current at this time.
During the fourth quarter of 2009, HPT expects to re-evaluate capital market conditions and HPT’s own earnings and other circumstances in order to determine what amount of common shares distributions will be paid in 2009. At that time, HPT also will consider and announce how much of its 2009 common share distributions will be paid in cash and whether some or all of its 2009 common share distributions will be paid by offering shareholders an option to receive cash or up to 90% of the 2009 distributions in common shares, as permitted by recently announced Internal Revenue Service guidance. The determination of HPT’s 2009 common share distributions may also be affected by differences between HPT’s income for financial reporting purposes and for federal income tax purposes.
Simultaneously with the foregoing announcement, HPT announced that it will pay its regular quarterly distributions on its outstanding Series C Cumulative Redeemable Preferred Shares of $0.4375/share. These preferred shares distributions will be paid on or about May 15, 2009, to shareholders of record on May 1, 2009. HPT currently expects to continue to pay regular quarterly distributions to its preferred shareholders in cash at current rates.
Hospitality Properties trust is a real estate investment trust which is headquartered in Newton, MA. HPT owns 289 hotels located throughout the United States and in Puerto Rico and Ontario, Canada, as well as 185 travel centers located primarily along the U.S. Interstate Highway System.
WARNING REGARDING FORWARD LOOKING STATEMENTS
THE FOREGOING PRESS RELEASE CONTAINS FORWARD LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND OTHER SECURITIES LAWS. THESE FORWARD LOOKING STATEMENTS ARE BASED UPON HPT’S CURRENT BELIEFS AND EXPECTATIONS. HOWEVER, THESE FORWARD LOOKING STATEMENTS AND THEIR IMPLICATIONS ARE NOT GUARANTEED TO OCCUR AND THEY MAY NOT OCCUR FOR VARIOUS REASONS, SOME OF WHICH ARE BEYOND HPT’S CONTROL. FOR EXAMPLE:
- THIS PRESS RELEASE STATES THAT HPT HAS SUSPENDED ITS REGULAR QUARTERLY DISTRIBUTIONS TO COMMON SHAREHOLDERS FOR THE REMAINDER OF 2009. AN IMPLICATION OF THIS STATEMENT MAY BE THAT HPT WILL RESUME ITS REGULAR QUARTERLY DISTRIBUTIONS AFTER 2009. IN FACT, HPT MAY NOT RESUME PAYING REGULAR QUARTERLY DISTRIBUTIONS AFTER 2009. CAPITAL MARKET CONDITIONS MAY NOT IMPROVE OR HPT’S OWN FINANCIAL CIRCUMSTANCES MAY CHANGE SO THAT HPT BECOMES UNABLE OR UNWILLING TO RESUME REGULAR QUARTERLY DISTRIBUTIONS TO COMMON SHAREHOLDERS. ALSO, HPT’S HISTORICAL RATE OF COMMON SHARE DISTRIBUTIONS MAY BE CHANGED BECAUSE OF CHANGES IN HPT’S EARNINGS OR OTHER CIRCUMSTANCES.
- THIS PRESS RELEASE STATES THAT HPT EXPECTS THAT IT WILL REALIZE SUBSTANTIAL INCOME FOR FINANCIAL REPORTING PURPOSES AND THAT HPT’S DISTRIBUTIONS TO ITS COMMON SHAREHOLDERS IN 2009 WILL BE AT LEAST EQUAL TO THE MINIMUM AMOUNTS REQUIRED IN ORDER FOR HPT TO REMAIN A REIT FOR FEDERAL TAX PURPOSES. AN IMPLICATION OF THIS STATEMENT MAY BE THAT HPT WILL PAY SUBSTANTIAL DISTRIBUTIONS TO COMMON SHAREHOLDERS IN 2009. THESE FORWARD LOOKING STATEMENTS ARE BASED UPON HPT’S ASSUMPTIONS ABOUT CONTINUING PAYMENTS FROM HPT’S TENANTS AND MANAGERS. AS EXPLAINED BELOW, THESE ASSUMPTIONS MAY PROVE INACCURATE; AND HPT’S TENANTS AND MANAGERS MAY NOT PAY ALL OF THE AMOUNTS DUE TO HPT. MOREOVER, APPLICABLE TAX LAWS MAY PERMIT HPT TO REMAIN A REIT AND PAY DISTRIBUTIONS LESS THAN IT HAS HISTORICALLY PAID OR EVEN LESS THAN ITS 2009 INCOME FOR FINANCIAL REPORTING PURPOSES. RECENT LAWS, SUCH AS THE DEFERRAL OF CAPITAL GAINS PERMITTED BY THE 2009 ECONOMIC STIMULUS LAW, AND RECENT INTERNAL REVENUE SERVICE ACTIONS, SUCH AS THE ANNOUNCEMENT WHICH PERMITS REIT QUALIFYING DIVIDENDS TO BE PAID UP TO 90% IN SHARES, MAY PERMIT REITS LIKE HPT TO RETAIN THEIR REIT TAX STATUS WITHOUT PAYING SUBSTANTIAL DISTRIBUTIONS. MOREOVER, THE AMOUNT OF 2009 DISTRIBUTIONS WHICH HPT MAY BE REQUIRED TO PAY IN ORDER TO RETAIN ITS REIT TAX STATUS IS CONSIDERABLY LESS THAN THE TOTAL OF ITS HISTORICAL RATE OF QUARTERLY DISTRIBUTIONS FOR THE REMAINDER OF 2009 WOULD HAVE BEEN. FOR THESE REASONS AND OTHERS, HPT DOES NOT INTEND TO PROVIDE ANY ASSURANCE REGARDING THE AMOUNT OF ANY FURTHER DISTRIBUTIONS WHICH HPT MAY PAY TO ITS COMMON SHAREHOLDERS IN 2009, IF ANY.
- THIS PRESS RELEASE STATES THAT HPT INTENDS TO APPLY $837,601 FROM THE SECURITY DEPOSIT IT HOLDS TO COVER THE SHORTFALL IN THE PAYMENT HPT RECEIVED FROM MARRIOTT AND THAT HPT EXPECTS THAT ITS FINANCIAL REPORTING WILL REFLECT THE FULL MINIMUM RETURN DUE FROM MARRIOTT. THE IMPLICATION OF THESE STATEMENTS MAY BE THAT HPT WILL NOT SUFFER ANY ADVERSE CONSEQUENCES AS A RESULT OF MARRIOTT’S FAILURE TO PAY THE MINIMUM RETURNS DUE HPT SO LONG AS SECURITY DEPOSIT AMOUNTS REMAIN AVAILABLE TO SATISFY THESE OBLIGATIONS. IN FACT, THE SECURITY DEPOSITS WHICH HPT HOLDS ARE NOT IN SEGREGATED CASH ACCOUNTS OR OTHERWISE SEPARATE FROM HPT’S OTHER ASSETS AND LIABILITIES. ACCORDINGLY, ALTHOUGH HPT MAY RECORD RECEIPT OF INCOME BY REDUCING ITS SECURITY DEPOSIT LIABILITY, HPT WILL NOT RECEIVE ANY CASH PAYMENT. BECAUSE HPT WILL NOT RECEIVE A CASH PAYMENT AND BECAUSE THE AMOUNT OF THE SECURITY DEPOSIT AVAILABLE FOR FUTURE USE IS REDUCED WHEN HPT APPLIES A SECURITY DEPOSIT TO COVER A PAYMENT SHORTFALL, MARRIOTT’S FAILURE TO PAY MINIMUM RETURNS DUE HPT MAY HAVE ADVERSE CONSEQUENCES TO HPT.
THIS PRESS RELEASE STATES THAT THE AMOUNTS DUE HPT UNDER FOUR CONTRACTS AFFECTING 91 HOTELS OWNED BY HPT THAT ARE OPERATED BY MARRIOTT ARE CURRENT AND THAT THESE LEASE CONTRACTS ARE SECURED BY DEPOSITS AND/OR GUARANTEES WHICH ARE SEPARATE AND IN ADDITION TO THE SECURITY DEPOSIT HPT HAS WITH RESPECT TO THE CONTRACT FOR 34 HOTELS WHERE THERE WAS A $837,601 SHORTFALL IN THE PAYMENT DUE HPT. THE IMPLICATIONS OF THESE STATEMENTS MAY BE THAT AMOUNTS DUE HPT UNDER THESE FOUR CONTRACTS FOR 91 HOTELS OPERATED BY MARRIOTT WILL REMAIN CURRENT. IN FACT, OPERATING FINANCIAL RESULTS AT THESE 91 HOTELS HAVE EXPERIENCED MATERIAL DECLINES DURING THE CURRENT GENERAL ECONOMIC RECESSION, AND HPT CAN PROVIDE NO ASSURANCE THAT THE TENANTS UNDER THESE FOUR CONTRACTS WILL CONTINUE TO PAY THE RENTS DUE HPT.
THIS PRESS RELEASE STATES THAT ALL OF THE FINANCIAL OBLIGATIONS DUE HPT FOR HPT’S HOTELS OPERATED BY INTERCONTINENTAL HOTEL GROUP, PLC, GLOBAL HYATT CORPORATION AND CARLSON HOTELS WORLDWIDE AND FOR HPT’S TRAVEL CENTERS LEASED TO TRAVELCENTERS OF AMERICA LLC ARE CURRENT AT THIS TIME. AN IMPLICATION OF THIS STATEMENT MAY BE THAT THESE TENANTS AND MANAGERS WILL REMAIN CURRENT IN THEIR OBLIGATIONS TO HPT. IN FACT, HPT’S TENANTS AND MANAGERS MAY BE UNABLE OR UNWILLING TO PAY THE AMOUNTS DUE HPT. HPT’S LARGEST TENANT, TRAVELCENTERS OF AMERICA LLC, OR TA, HAS HISTORICALLY EXPERIENCED LOSSES AND HPT ENTERED A RENT DEFERRAL AGREEMENT WITH TA IN AUGUST 2008; HPT BELIEVES TA’S FINANCIAL CIRCUMSTANCES HAVE IMPROVED SINCE THAT AGREEMENT WAS ENTERED, BUT NO ASSURANCE IS INTENDED OR CAN BE PROVIDED THAT TA’S CIRCUMSTANCES WILL NOT DETERIORATE, ESPECIALLY IF THE PRICE OF PETROLEUM PRODUCTS MATERIALLY INCREASES. THE HOTELS THAT HPT OWNS THAT ARE OPERATED BY BRAND OWNERS OTHER THAN MARRIOTT ARE EXPERIENCING MATERIAL DECLINES IN FINANCIAL RESULTS DURING THE CURRENT GENERAL ECONOMIC RECESSION AND HPT CAN PROVIDE NO ASSURANCES THAT THESE HOTEL OPERATORS WILL CONTINUE TO PAY THEIR OBLIGATIONS TO HPT, ESPECIALLY IF OPERATING CONDITIONS IN THE HOTEL INDUSTRY DO NOT IMPROVE OR BECOME WORSE.
- THIS PRESS RELEASE STATES THAT DURING THE FOURTH QUARTER OF 2009 HPT WILL RE-EVALUATE CAPITAL MARKET CONDITIONS AND ITS OWN EARNINGS AND OTHER CIRCUMSTANCES, DETERMINE THE AMOUNT OF ITS 2009 COMMON SHARES DISTRIBUTIONS AND THEN CONSIDER AND ANNOUNCE WHETHER IT WILL PAY DISTRIBUTIONS IN CASH OR IF IT WILL PAY UP TO 90% OF ANY DISTRIBUTIONS IN ITS SHARES. CAPITAL MARKET CONDITIONS ARE BEYOND HPT’S CONTROL. AS NOTED ABOVE, SOME OR ALL OF HPT’S TENANTS AND MANAGERS MAY BE UNABLE OR UNWILLING TO CONTINUE PAYING SOME OR ALL OF THE AMOUNTS DUE TO HPT DURING 2009. ACCORDINGLY, DESPITE THE IMPLICATIONS IN THIS PRESS RELEASE THAT HPT WILL PAY SUBSTANTIAL DISTRIBUTIONS TO COMMON SHAREHOLDERS DURING THE FOURTH QUARTER OF 2009, THERE CAN BE NO ASSURANCE THAT, IN FACT, ANY DISTRIBUTIONS WILL BE PAID TO COMMON SHAREHOLDERS, OR THE AMOUNT THAT WILL BE PAID IN CASH.
- THIS PRESS RELEASE STATES THAT HPT EXPECTS TO CONTINUE TO PAY REGULAR QUARTERLY DISTRIBUTIONS TO ITS PREFERRED SHAREHOLDERS IN CASH AT CURRENT RATES. IN FACT, HPT MAY NOT CONTINUE TO PAY DISTRIBUTIONS TO ITS PREFERRED SHAREHOLDERS IN CASH AT CURRENT RATES. IF CAPITAL MARKET CONDITIONS BECOME WORSE OR IF ADDITIONAL HPT TENANTS AND MANAGERS DO NOT CONTINUE TO PAY AMOUNTS DUE TO HPT, HPT MAY DETERMINE TO STOP OR DEFER PAYING ITS PREFERRED DISTRIBUTIONS. ALTHOUGH HPT DOES NOT NOW ANTICIPATE CIRCUMSTANCES WILL OCCUR WHICH WOULD CAUSE HPT TO STOP PAYING ITS PREFERRED DISTRIBUTIONS, THE OCCURRENCE OF SUCH CIRCUMSTANCES WILL BE LARGELY BEYOND HPT’S CONTROL.
- FOR THESE REASONS, AMONG OTHERS, INVESTORS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE UPON THE FORWARD LOOKING STATEMENTS IN THIS PRESS RELEASE.
A Maryland Real Estate Investment Trust with transferable shares of beneficial interest listed on the New York Stock Exchange.
No shareholder, Trustee or officer is personally liable for any act or obligation of the Trust.
Hospitality Properties Trust
Timothy A. Bonang, 617-796-8232
Director of Investor Relations
Carlynn Finn, 617-796-8232
Manager of Investor Relations