NEWTON, Mass.--(BUSINESS WIRE)--Hospitality Properties Trust (Nasdaq: HPT) today announced its financial results for the quarter and year ended December 31, 2018:

John Murray, President and Chief Executive Officer of HPT, made the following statement:

“HPT’s fourth quarter 2018 comparable hotel RevPAR declined 1.7% compared to the prior year period due to occupancy decreases associated with thirty-seven hotel renovations, non-recurring business related to the hurricanes in Texas and Florida in the prior year period that negatively impacted our Wyndham and IHG portfolios in particular and competition from supply growth. For hotels not impacted by renovations or hurricanes, comparable RevPAR increased 2.0%. Looking ahead to 2019, we expect renovations will occur at fewer of our hotels compared to 2018.

Our TA properties' total gross margin increased by $23.6 million, or 8.1%, for the fourth quarter 2018, versus the same period last year driven by a 32.5% increase in fuel margin and a 1.9% increase in non-fuel margin. Travel center minimum rent coverage was 1.63 times for the year ended 2018.

In January 2019, HPT completed the sale of 20 travel centers to TA for $308.2 million for a significant gain. We used the proceeds to repay amounts outstanding on our revolving credit facility and for general business purposes, including to acquire the Kimpton® Hotel Palomar in Washington, D.C. for $141.5 million in February 2019."

Results for the Quarter and Year Ended December 31, 2018 and Recent Activities:

• Net Income (Loss) Available for Common Shareholders: Net loss available for common shareholders for the quarter ended December 31, 2018 was $108.9 million, or $0.66 per diluted share, compared to net income available for common shareholders of $31.5 million, or $0.19 per diluted share, for the quarter ended December 31, 2017. Net loss available for common shareholders for the quarter ended December 31, 2018 includes $106.1 million, or $0.65 per diluted share, of unrealized losses on equity securities and $53.6 million, or $0.33 per diluted share, of business management incentive fee expense. Net income available for common shareholders for the quarter ended December 31, 2017 includes $36.3 million, or $0.22 per diluted share, of business management incentive fee expense and a $5.4 million, or $0.03 per diluted share, tax benefit related to the federal tax legislation referred to as the Tax Cuts and Jobs Act, or the Tax Act. The weighted average number of diluted common shares outstanding was 164.3 million and 164.2 million for the quarters ended December 31, 2018 and 2017, respectively.

  Net income available for common shareholders for the year ended December 31, 2018 was $185.7 million, or $1.13 per diluted share, compared to net income available for common shareholders of $203.8 million, or $1.24 per diluted share, for the year ended December 31, 2017. Net income available for common shareholders for the year ended December 31, 2018 includes $53.6 million, or $0.33 per diluted share, of business management incentive fee expense and $16.7 million, or $0.10 per diluted share, of unrealized losses on equity securities. Net income available for common shareholders for the year ended December 31, 2017 includes $74.6 million, or $0.45 per diluted share, of business management incentive fee expense, a $9.3 million, or $0.06 per diluted share, gain on sale of real estate, a $5.4 million, or $0.03 per diluted share, tax benefit related to the Tax Act, and was reduced by $9.9 million, or $0.06 per diluted share, for the amount by which the liquidation preference for HPT's 7.125% Series D cumulative redeemable preferred shares that were redeemed during the year exceeded the carrying value of those preferred shares as of the date of the redemption. The weighted average number of diluted common shares outstanding was 164.3 million and 164.2 million for the years ended December 31, 2018 and 2017, respectively.

• Adjusted EBITDA: Adjusted EBITDA for the quarter ended December 31, 2018 compared to the same period in 2017 increased 10.7% to $149.8 million.

  Adjusted EBITDA for the year ended December 31, 2018 compared to the same period in 2017 increased 4.1% to $805.3 million.

• Normalized FFO Available for Common Shareholders: Normalized FFO available for common shareholders for the quarter ended December 31, 2018 were $100.0 million, or $0.61 per diluted share, compared to Normalized FFO available for common shareholders of $87.9 million, or $0.54 per diluted share, for the quarter ended December 31, 2017. Normalized FFO available for common shareholders includes $53.6 million, or $0.33 per diluted share, and $74.6 million, or $0.45 per diluted share, of business management incentive fee expense for the quarters ended December 31, 2018 and 2017, respectively.

  Normalized FFO available for common shareholders for the year ended December 31, 2018 were $605.7 million, or $3.69 per diluted share, compared to Normalized FFO available for common shareholders of $585.7 million, or $3.57 per diluted share, for the year ended December 31, 2017. Normalized FFO available for common shareholders includes $53.6 million, or $0.33 per diluted share, and $74.6 million, or $0.45 per diluted share, of business management incentive fee expense for the years ended December 31, 2018 and 2017, respectively.

• Hotel RevPAR (comparable hotels): For the quarter ended December 31, 2018 compared to the same period in 2017 for HPT’s 323 hotels that were owned continuously since October 1, 2017: average daily rate, or ADR, increased 0.8% to $126.45; occupancy decreased 1.7 percentage points to 68.2%; and revenue per available room, or RevPAR, decreased 1.7% to $86.24.

  For the year ended December 31, 2018 compared to the same period in 2017 for HPT’s 303 hotels that were owned continuously since January 1, 2017: ADR increased 1.7% to $128.64; occupancy decreased 0.9 percentage points to 74.8%; and RevPAR increased 0.5% to $96.22.

• Hotel RevPAR (all hotels): For the quarter ended December 31, 2018 compared to the same period in 2017 for HPT’s 326 hotels that were owned as of December 31, 2018: ADR increased 0.8% to $126.87; occupancy decreased 1.6 percentage points to 68.2%; and RevPAR decreased 1.5% to $86.53.

  For the year ended December 31, 2018 compared to the same period in 2017 for HPT’s 326 hotels that were owned as of December 31, 2018: ADR increased 1.7% to $129.80; occupancy decreased 1.8 percentage points to 73.3%; and RevPAR decreased 0.8% to $95.14.

• Coverage of Minimum Returns and Rents: For the quarter ended December 31, 2018, the aggregate coverage ratio of (x) total hotel revenues minus all hotel expenses and FF&E reserve escrows which are not subordinated to minimum returns or rents due to HPT to (y) HPT’s minimum returns or rents due from hotels decreased to 0.77x from 0.90x for the quarter ended December 31, 2017.

  For the year ended December 31, 2018, the aggregate coverage ratio of (x) total hotel revenues minus all hotel expenses and FF&E reserve escrows which are not subordinated to minimum returns or rents due to HPT to (y) HPT’s minimum returns or rents due from hotels decreased to 0.97x from 1.06x for the year ended December 31, 2017.

  For the quarter ended December 31, 2018, the aggregate coverage ratio of (x) total travel center revenues less travel center expenses to (y) HPT’s minimum rent due from leased travel centers increased to 1.59x from 1.46x for the quarter ended December 31, 2017.
  For the year ended December 31, 2018, the aggregate coverage ratio of (x) total travel center revenues less travel center expenses to (y) HPT’s minimum rent due from leased travel centers increased to 1.63x from 1.50x for the year ended December 31, 2017.

  As of December 31, 2018, approximately 74% of HPT’s aggregate annual minimum returns and rents were secured by guarantees or security deposits from HPT’s managers and tenants pursuant to the terms of HPT’s operating agreements.

• Recent Property Acquisition Activities: In October 2018, HPT acquired a hotel with 164 suites located in Scottsdale, AZ for a purchase price of $35.9 million, excluding acquisition related costs. HPT rebranded this hotel to the Sonesta Suites® brand and added it to its management agreement with Sonesta International Hotels Corporation, or Sonesta.

  In February 2019, HPT acquired the 335 room Hotel Palomar located in Washington, D.C. for a purchase price of $141.5 million, excluding acquisition related costs. HPT added this Kimpton® branded hotel to its management agreement with InterContinental Hotels Group, plc (LON: IHG; NYSE: IHG (ADRs)), or IHG.

• Transaction with TravelCenters of America: As previously announced, on January 16, 2019, HPT entered agreements with TravelCenters of America LLC (Nasdaq: TA), or TA, to sell 20 travel centers to TA that HPT owned and leased to TA, and to amend their leases.

  HPT completed the sale of 20 travel centers in 15 states to TA for $308.2 million in January 2019. HPT expects to realize a gain of approximately $160.0 million from these sales in the first quarter of 2019. HPT used the proceeds from these sales to repay borrowings under its revolving credit facility and for general business purposes, including hotel acquisitions. The aggregate annual minimum rents due from TA for the remaining 179 travel centers HPT leases to TA was $246.1 million upon completion of the sales.

  Under the terms of the amended leases, HPT will receive an aggregate of $70.5 million of previously deferred rents in 16 equal quarterly installments beginning on April 1, 2019. Timing of the repayment was accelerated from the previously staggered due dates between June 2024 and December 2030 in exchange for the deferred rent amounts being discounted, HPT will receive additional potential percentage rent beginning in 2020 equal to 0.5% of the excess of nonfuel revenues over nonfuel revenues in 2019 at the leased travel centers. This percentage rent is in addition to any percentage rent amounts HPT is already receiving from TA. In addition, the lease term under each of the five TA leases was extended three years.

Tenants and Managers: As of December 31, 2018, HPT had eight operating agreements with six hotel operating companies for 326 hotels with 50,543 rooms, which represented 67% of HPT’s total annual minimum returns and rents, and five lease agreements with TA for 199 travel centers, which represented 33% of HPT’s total annual minimum returns and rents.

• Marriott Agreements: As of December 31, 2018, 122 of HPT’s hotels were operated by subsidiaries of Marriott International, Inc. (Nasdaq: MAR), or Marriott, under three agreements. HPT’s Marriott No. 1 agreement includes 53 hotels, and provides for annual minimum return payments to HPT of $70.1 million as of December 31, 2018 (approximately $17.5 million per quarter). During the three months ended December 31, 2018, HPT realized returns under its Marriott No. 1 agreement of $16.7 million. Because there is no guarantee or security deposit for this agreement, the minimum returns HPT receives under this agreement are limited to available hotel cash flows after payment of operating expenses and funding of a FF&E reserve. HPT’s Marriott No. 234 agreement includes 68 hotels and requires annual minimum returns to HPT of $107.4 million as of December 31, 2018 (approximately $26.8 million per quarter). During the three months ended December 31, 2018, HPT realized returns under its Marriott No. 234 agreement of $26.8 million. HPT’s Marriott No. 234 agreement is partially secured by a security deposit and a limited guaranty from Marriott; during the three months ended December 31, 2018, HPT reduced the available security deposit by $0.9 million to cover shortfalls in hotel cash flows available to pay the minimum returns due to HPT during the period. As of December 31, 2018, the available security deposit from Marriott for the Marriott No. 234 agreement was $32.7 million and there was $30.7 million available under Marriott’s guaranty for up to 90% of the minimum returns due to HPT to cover future payment shortfalls if and after the available security deposit is depleted. HPT's Marriott No. 5 agreement includes one resort hotel in Kauai, HI which is leased to Marriott on a full recourse basis. The contractual rent due to HPT for this hotel for the three months ended December 31, 2018 of $2.6 million was paid to HPT.
• IHG Agreement: As of December 31, 2018, 100 of HPT’s hotels were operated by subsidiaries of IHG, under one agreement requiring annual minimum returns and rents to HPT of $193.7 million as of December 31, 2018 (approximately $48.4 million per quarter). During the three months ended December 31, 2018, HPT realized returns and rents under its IHG agreement of $39.3 million. HPT's IHG agreement is partially secured by a security deposit. As of December 31, 2018, the available IHG security deposit which HPT held to pay future payment shortfalls remained at the contractually capped amount of $100.0 million. In connection with the February acquisition of the Hotel Palomar described above, IHG will provide HPT $5.0 million to supplement the existing security deposit.
• Sonesta Agreement: As of December 31, 2018, 51 of HPT’s hotels were operated under a management agreement with Sonesta, requiring annual minimum returns of $127.1 million as of December 31, 2018 (approximately $31.8 million per quarter). During the three months ended December 31, 2018, HPT realized returns under its Sonesta agreement of $16.5 million. Because there is no guarantee or security deposit for this agreement, the minimum returns HPT receives under this agreement are limited to available hotel cash flows after payment of operating expenses including management and related fees.
• Wyndham Agreement: As of December 31, 2018, 22 of HPT’s hotels were operated under a management agreement with a subsidiary of Wyndham Hotels & Resorts, Inc. (NYSE: WH), or Wyndham, requiring annual minimum returns of $27.8 million as of December 31, 2018 (approximately $6.9 million per quarter). The guaranty provided by Wyndham with respect to the management agreement was limited to $35.7 million and has been depleted since 2017. HPT's agreement with the Wyndham subsidiary provides that if the hotels' cash flows available after payment of hotel operating expenses are less than the minimum returns due to HPT and if the guaranty is depleted, to avoid default Wyndham is required to pay HPT the greater of the available hotel cash flows after payment of hotel operating expenses and 85% of the contractual minimum amount due. During the three months ended December 31, 2018, HPT realized returns under its Wyndham agreement of $5.9 million, which represents 85% of the minimum returns due for the period. HPT also leases 48 vacation units in one of the hotels to a subsidiary of Wyndham Destinations, Inc. (NYSE: WYND), or Destinations, which requires annual minimum rent of $1.5 million (approximately $0.4 million per quarter). The guaranty provided by Destinations with respect to the lease is unlimited. The contractual rent due to HPT under the lease for Destinations' 48 vacation units during the three months ended December 31, 2018 was paid to HPT.
• Hyatt Agreement: As of December 31, 2018, 22 of HPT’s hotels were operated under a management agreement with a subsidiary of Hyatt Hotels Corporation (NYSE: H), or Hyatt, requiring annual minimum returns of $22.0 million as of December 31, 2018 (approximately $5.5 million per quarter). During the three months ended December 31, 2018, HPT realized returns under its Hyatt agreement of $5.5 million. HPT’s Hyatt agreement is partially secured by a limited guaranty from Hyatt. During the three months ended December 31, 2018, the hotels under this agreement generated cash flows that were less than the minimum returns due to HPT, and Hyatt made $1.6 million of guaranty payments to cover the shortfall. As of December 31, 2018, there was $21.9 million available under Hyatt's guaranty.
• Radisson Agreement: As of December 31, 2018, nine of HPT’s hotels were operated under a management agreement with a subsidiary of Radisson Hospitality, Inc., or Radisson, requiring annual minimum returns of $18.9 million as of December 31, 2018 (approximately $4.7 million per quarter). During the three months ended December 31, 2018, HPT realized returns under its Radisson agreement of $4.7 million. HPT’s Radisson agreement is partially secured by a limited guaranty from Radisson. During the three months ended December 31, 2018, the hotels under this agreement generated cash flows that were less than the minimum returns due to HPT, and Radisson made $1.0 million of guaranty payments to cover the shortfall. As of December 31, 2018, there was $42.6 million available under Radisson's guaranty.
• Travel Center Agreements: As of December 31, 2018, HPT’s 199 travel centers located along the U.S. Interstate Highway system were leased to TA under five lease agreements, which require aggregate annual minimum rents of $289.2 million (approximately $72.3 million per quarter). As of December 31, 2018, all payments due to HPT from TA under these leases were current. See above regarding transactions we completed with TA in January 2019.

Hospitality Properties Trust is a real estate investment trust, or REIT, which owns a diverse portfolio of hotels and travel centers located in 45 states, the District of Columbia, Puerto Rico and Canada. HPT’s properties are operated under long term management or lease agreements. HPT is managed by the operating subsidiary of The RMR Group Inc. (Nasdaq: RMR), an alternative asset management company that is headquartered in Newton, Massachusetts.