Hospitality Properties Trust (NYSE: HPT) is a real estate investment trust that owns over 289 hotel properties throughout United States. The company does not manage its own hotels but makes money by leasing them to third parties. A large portion of these rental fees are guaranteed, providing HPT with a stable source of income independent of short term economic conditions and shocks to the travel industry.
As of December 31, 2009, the Company owned 289 hotels with 42,880 rooms or suites, and 185 travel centers. Its properties are located in 44 states in the United States, Canada and Puerto Rico. As of December 31, 2009, its hotels were operated as Courtyard by Marriott, Candlewood Suites, Staybridge Suites, Residence Inn by Marriott, Crowne Plaza Hotels & Resorts, Hyatt Place, InterContinental Hotels & Resorts, Marriott Hotels and Resorts, Radisson Hotels & Resorts, TownePlace Suites by Marriott, Country Inns & Suites by Carlson, Holiday Inn Hotels & Resorts, SpringHill Suites by Marriott, or Park Plaza Hotels & Resorts.
In 2007, HPT diverged from its hotel roots with its purchase of TravelCenters of America LLC (TA) . TA provides professional truck drivers with fuel, snacks and other amenities. The addition of TA increases the company’s exposure to fuel prices.
HPT generates revenue from leasing out its properties. It also receives revenue for every room that a customer stays in. Its contracts typically stipulate a lease rate, and plus a fixed amount per occupied room. A smaller third sub-category is the money earned through the percentage clause in the lease agreements. When hotels have occupancy rates above a certain percentage, HPT receives bonus payments.
Due to an increase in the number of travelers and stagnation in the construction of new rooms, HPT as been able to increase the average prices of an overnight stay by 30% in the past five years. This factor partially accounts for the increase in revenue over the past five years.
Another factor explaining the positive trend is the long-term effect of the terrorist attacks of September 11, 2001 on the travel industry. Following the attacks, fewer hotel rooms came online due to grim economic projections, and HPT and fellow competitors in the lodgings industry are reaping the benefits of reduced supply in a recovering travel industry.
HPT does most of its business in the southern and western parts of the country. Most of its holdings in the West are in California which along with Texas is the most heavily invested in states by HPT. This leaves the company vulnerable to both hurricanes, Katrina for example, and earthquakes. Consumer confidence would be weakened and those popular vacation destinations would suffer from tourists heading elsewhere. Since HPT has such a high concentration of properties in these areas it would suffer losses. However, since many of HPT's hotels are located in close proximity to other hotels such catastrophes would not strengthen a competitor, but rather damage the industry as a whole in that locale.
Second Quarter 2010 Results
Hospitality Properties Trust reported funds from operations, or FFO, for the quarter ended June 30, 2010, of $100.0 million, or $0.81 per share, compared to FFO for the quarter ended June 30, 2009, of $91.6 million, or $0.96 per share. FFO for the quarter ended June 30, 2010, excludes a $6.7 million, or $0.05 per share, loss on extinguishment of debt and a $16.4 million, or $0.13 per share, loss on asset impairment. FFO for the quarter ended June 30, 2009, excludes a $13.3 million, or $0.14 per share, gain on extinguishment of debt.
Net income available for common shareholders was $15.7 million, or $0.13 per share, for the quarter ended June 30, 2010, compared to $43.6 million, or $0.46 per share, for the same quarter last year. Net income available for common shareholders for the quarter ended June 30, 2010 included the $6.7 million loss on extinguishment of debt and the $16.4 million loss on asset impairment. Net income available for common shareholders for the quarter ended June 30, 2009, included the $13.3 million gain on extinguishment of debt.
Courtyard by Marriott hotels are designed to attract both business and leisure travelers. A typical Courtyard by Marriott hotel has 80-150 guest rooms. Most Courtyard by Marriott hotels are situated on well landscaped grounds and typically are built with a courtyard containing a patio, pool and socializing area that may be enclosed depending upon location. These hotels generally have a market offering around-the-clock snacks and beverages, a restaurant, lounge, meeting rooms, business services, a fitness center, guest laundry and a pool. The guest rooms are similar in size and furnishings to guest rooms in full service Marriott hotels. In addition, many of the same amenities as would be available in full service Marriott hotels are available in Courtyard by Marriott hotels, except that restaurants may be open only for breakfast or serve limited menus, room service may not be available and meeting and function rooms are limited in size and number. According to Marriott International, Inc. (Marriott), as of December 31, 2009, 858 Courtyard by Marriott hotels were open and operating in the United States and internationally.
Candlewood Suites hotels are mid priced extended stay hotels, which offer studio and one bedroom suites designed for business and leisure travelers expecting to stay five or more nights. Each Candlewood Suites suite contains a fully equipped kitchen, a combination living and work area and a sleeping area. The kitchen typically includes a full size microwave, full size refrigerator, stove, dishwasher and coffee maker. The living area generally contains a convertible sofa or recliner, television, combination videocassette and digital versatile disc (DVD) player and compact disc player. The work area includes a large desk and executive chair, free high speed Internet access, two phone lines, voice mail and free local calls. Most Candlewood Suites suites contain a king size bed. Other amenities generally offered at each Candlewood Suites hotel include a fitness center, guest laundry facilities and a Candlewood Cupboard area where guests can purchase light meals, snacks and other refreshments around-the-clock. As of December 31, 2009, there were 254 Candlewood Suites hotels open and operating in the United States and internationally.
Staybridge Suites are upscale extended stay hotels generally offer residential style studio and one or two bedroom suites for business, governmental, relocations and family travelers. Each suite typically offers a fully equipped kitchen and a work area with an oversized desk, multi-feature telephones, an ergonomically designed chair and high speed Internet access. Other amenities usually include a free breakfast buffet, evening receptions, an on site convenience store, complimentary guest laundry, fitness center and around-the-clock business center. As of December 31, 2009, there were 182 Staybridge Suites hotels open and operating in the United States and internationally.
Residence Inn by Marriott hotels are designed to provide business, governmental and family travelers with all the comforts of home while on long-term trips. Residence Inn by Marriott hotels generally have between 80 and 130 studio, one bedroom and two bedroom suites. Most Residence Inn by Marriott hotels are designed as residential style buildings with landscaped walkways, courtyards and recreational areas. Residence Inn by Marriott hotels does not have restaurants. All offer complimentary continental breakfast and a complimentary evening hospitality hour. In addition, each suite contains a fully equipped kitchen and many have fireplaces. Most Residence Inn by Marriott hotels also have swimming pools, exercise rooms, business centers, a Sport Court and guest laundry. As of December 2009, 608 Residence Inn by Marriott hotels were open and operating in the United States, Mexico and Canada. Crowne Plaza Hotels & Resorts is upscale brand targeted at the business and leisure guest seeking upscale accommodations at a reasonable price. Crowne Plaza Hotels & Resorts have a particular focus on small to medium sized meeting accommodations and related services. Its Crowne Plaza Hotels & Resorts contain between 295 and 613 rooms and between 5,000 and 25,000 square feet of meeting and banquet space. With its variety of services and amenities, including fully-appointed guest rooms with ample work space, full complement of business services, concierge services, dining choices, fitness facilities and meeting capabilities, Crowne Plaza Hotels & Resorts attempts to exceed guest expectations by providing the right room, the right technology and the right service. As of December 31, 2009, there were 366 Crowne Plaza Hotels & Resorts open and operating worldwide.
Hyatt Place hotels are all suite upscale hotels offering casual hospitality in a designed, high tech and contemporary environment. Its Hyatt Place hotels contain between 98 and 134 rooms. Hyatt Place suites typically include upgraded bedding, a wet bar, granite counters, a sectional sofa, complimentary Wi-Fi Internet and a media center with a 42 inch high definition plasma television. A signature feature of Hyatt Place is the Gallery, where guests can enjoy complimentary continental breakfast and access to the around-the-clock guest kitchen that offers a range of food selections for purchase. Hyatt Place guests include individual and small group business travelers, as well as families. Hyatt Place properties are well suited to serve small corporate/executive meetings. As of December 31, 2009, there were 145 Hyatt Place hotels open and operating in the United States.
InterContinental Hotels & Resorts are luxury hotels. Its InterContinental Hotels & Resorts contain between 189 and 485 rooms. InterContinental Hotels & Resorts offer service for business and leisure guests seeking a luxury hotel experience. Amenities include a range of personal and business services in addition to restaurants, cocktail lounges, pools, saunas, meeting space and health/fitness centers. As of December 31, 2009, there were 166 InterContinental Hotels & Resorts hotels open worldwide.
The Company’s Marriott Hotels and Resorts contain between 356 and 601 rooms. The guest rooms offer luxury linens, a smart workspace with an ergonomic chair and multi-feature telephones. Its Marriott Hotels and Resorts have between 20,000 to 29,000 square feet of meeting and banquet space. Amenities include a range of personal and business services, in addition to a choice of restaurants, cocktail lounges, concierge floors, pools, saunas and health/fitness centers. As of December 31, 2009, there were 545 Marriott Hotels and Resorts open worldwide.
Radisson Hotels & Resorts is a full service hotel brand. Its Radisson Hotels & Resorts hotels contain between 159 and 381 rooms. Amenities and services often include Sleep Number beds, large desks, free high speed Internet access, a restaurant, room service and a pre-arrival online check in system. The meeting facilities at its Radisson Hotels & Resorts generally can accommodate groups of between 10 and 600 people in a flexible meeting room design with audiovisual equipment. Most of its Radisson Hotels & Resorts hotels also have a lobby lounge, a swimming pool and a fitness center. As of December 31, 2009, there were 422 Radisson Hotels & Resorts open and operating worldwide.
TownePlace Suites by Marriott are mid-priced extended stay hotels offering studio and one or two bedroom suites for business and leisure travelers. Each suite usually offers a fully equipped kitchen, a bedroom and separate living and work areas, including the new in-room HomeOffice Suite. Other amenities offered typically include voice mail, free high speed Internet access, guest laundry facilities, around-the-clock hour staffing, late night snack and beverage offerings and a fitness center. As of December 31, 2009, there were 184 TownePlace Suites by Marriott open worldwide.
Country Inns & Suites by Carlson is a mid-priced select service lodging chain catering to both business and leisure travel. Its Country Inns & Suites by Carlson hotels contain between 84 and 180 rooms. Amenities and services at these hotels generally include large desks, free breakfast, weekday morning paper and high speed Internet access. The meeting facilities at its Country Inns & Suites by Carlson hotels generally can accommodate groups of between 10 and 200 people in a flexible meeting room design with audiovisual equipment. Most of its Country Inns & Suites by Carlson hotels also feature a lobby with a fireplace, a swimming pool, exercise facilities, fax and copy service, coin-op laundry service and a restaurant and lounge. As of December 31, 2009, there were 494 Country Inns & Suites by Carlson open and operating worldwide.
Holiday Inn Hotels & Resorts offers business and leisure guests all the services and amenities of a full service hotel in a contemporary style at a reasonable price. The Company’s one Holiday Inn Hotel and its two Holiday Inn Select hotels contain between 190 and 264 rooms. Amenities and services generally available at these hotels include a large work desk, phone with voicemail, free high speed Internet access, a business center with Internet access, copy and fax service, in room coffee and tea service and designer bath amenities. The meeting facilities at its Holiday Inn Hotels generally can accommodate groups of between 18 and 280 people in a flexible meeting room design with audiovisual equipment and catering options. These hotels typically also offer a swimming pool, fitness center, guest self-service laundry, a lobby lounge, room service and restaurant. As of December 31, 2009, there were 1,319 Holiday Inn Hotels open and operating worldwide as of December 2009.
SpringHill Suites by Marriott are all suites hotels designed to attract value conscious business and family travelers. Guest suites can be up to 25% larger than standard hotel rooms. Each suite usually has separate sleeping, living and work areas, a mini-refrigerator, a microwave and coffee service. Other amenities offered include a pull out sofa bed, complimentary hot breakfast buffet, complimentary newspaper, two phone lines, free high speed Internet access and voice mail, guest laundry, lobby computer, access to a around-the-clock market offering snacks and beverages and a fitness center. As of December 31, 2009, there were 256 SpringHill Suites by Marriott open.
Park Plaza Hotels & Resorts is in the mid priced segment of the full service hotel category targeting both business and leisure guests. Amenities and services available at this hotel include well appointed guest rooms with large desks, free high speed Internet access, room service and a restaurant. The meeting facilities at its Park Plaza Hotel & Resort generally can accommodate groups of between 10 and 400 people in a flexible meeting room design with audiovisual equipment. Its Park Plaza Hotel & Resort hotel also has a lobby lounge, a swimming pool and a fitness center. As of December 31, 2009, there were 35 Park Plaza Hotels & Resorts open and operating.
HPT is a highly leveraged company with 2.6 billion dollars in debt or 48% of its total book capitalization . This debt is split into two key segments, fixed rate credit notes and a short-term revolving credit facility. Of the 2.6 billion in debt, 2.425 billion is in long-term fixed-rate credit notes. The notes are structured such that no principal payments are made until the maturation of the note, but interest is still collected. Short-term fluctuations in interest rates do not affect these loans but long-term trends in rates have a large impact on HPT, especially if market conditions force them to refinance at significantly higher rates than they had before. The remainder of HPT's debt is in its revolving credit facility in which they currently have a balance of $158 million, and they still have $592 million available to them. Short-term interest rates dictate how much HPT has to pay on these loans.
A terrorist attack, natural disaster, or other catastrophe will negatively affect consumer confidence lowering consumer demand for lodging and other travel goods. After September 11, 2001, consumer demand dropped precipitously, causing a slump that from which it took the travel industries several years to understand. of. The terrorist attacks affected HPT and the industry as a whole. Immediately after the attacks employment in the sector fell 58,000 and relative equity values for hotels and leisure facilities fell by 15%. Specifically HPT's holdings that year suffered a 6.8% decline in average daily rates and a 0.6% decline in occupancy, and RevPar was down 7.3%. HPT also waived clauses in its agreement with certain tenants that mandated a particular net worth in the aftermath of the attacks. The bottom line was not affected because the lease clauses insulate HPT from sudden market movements. International or domestic crises that have a long-term effect have a greater potential to negatively affect revenues and net income, and require HPT to rework some of their lease agreements to keep their tenants afloat and hotels running.
Higher oil prices force airlines and gas stations to charge higher prices, and makes vacations more expensive. Higher oil prices also affect the amount of disposable income that consumers have. If the commute to work that used to cost $40 a week a year ago now costs closer to $80 then that is $40 a week that is no longer being spent on leisure. This bodes poorly for elastic goods such as vacations that are easy to eliminate to cut costs.
More directly, HPT's foray into TravelCenter of America's adds increased exposure to oil prices. Fuel is one of the key items that these locations sell. While an increase in the price of gas can sometimes be passed on to the consumer, there may no longer be as many customers as before. The stops cater to professional truck drivers, so in the short run this number will not dramatically change, but with a prolonged spike in gas prices has the potential to reduce demand for HPT's services. With some operators spending up to 20% of their operating costs on fuel, an increase of even a couple of cents makes a significant dent in already dwindling profits. 2005 was a record year for truck company failures. With fuel prices nearly doubling since then trucking companies are still having financial difficulties. Goods still have to be shipped, and a cheaper more efficient alternative is rail freight. The spike in oil prices has forced trucking companies to raise prices making rail relatively cheaper and a more enticing substitute. Fewer truck drivers on the roads mean fewer customers for HPT's TravelCenters.
Following the September 11, 2001 terrorist attacks, hotel construction declined significantly and has remained depressed even as demand begin to revive in 2003 and 2004. As a result until 2007, the imbalance in supply and demand has allowed owners of hotel properties to raise their prices from 2002-2007. . HPT raised its prices 30% over the period. In 2007, however, construction of new rooms and hotels outpaced demand, and HP's occupancy rates fell.
Like HPT, many of its competitors own similarly branded hotels and run them in similar locations. One differentiation is that HPT directly runs fewer of its hotels than its rivals which cushions it from market fluctuations, but also does not allow it to participate fully in market upswings. The InterContinential Hotel Group is unique among HPT's rivals as it is part of a more global chain of hotels of which North America is a part.
HPT's closest competitors include the following:
|Company||Occupancy Rate||Net Income||Operating Margins|
|FelCor Lodging Trust (FCH)||70.4%||$16.98||12.33%|
|Host Hotels and Resorts (HST)||73.3%||$541.00||16.79%|
|Intercontinental Hotel Group (ICH)||N/A||$425.10||28.65%|