Hospitality Properties Trust (NYSE: HPT) today announced its financial
results for the quarter ended March 31, 2013.
Results for the Quarter Ended March 31, 2013:
Normalized funds from operations, or Normalized FFO, for the quarter
ended March 31, 2013 were $92.6 million, or $0.74 per share, compared to
Normalized FFO for the quarter ended March 31, 2012 of $96.4 million, or
$0.78 per share.
Net income available for common shareholders was $19.4 million, or $0.15
per share, for the quarter ended March 31, 2013, compared to $28.8
million, or $0.23 per share, for the quarter ended March 31, 2012.
The weighted average number of common shares outstanding was 125.4
million and 123.5 million for the quarters ended March 31, 2013 and
2012, respectively.
A reconciliation of net income available for common shareholders
determined according to U.S. generally accepted accounting principles,
or GAAP, to funds from operations, or FFO, and Normalized FFO for the
quarters ended March 31, 2013 and 2012 appears later in this press
release.
Hotel Portfolio Performance:
For the quarter ended March 31, 2013 compared to the same period in 2012
for HPT’s 285 comparable hotels: average daily rate, or ADR, increased
3.8% to $103.06; occupancy increased 2.1 percentage points to 66.4%; and
revenue per available room, or RevPAR, increased 7.2% to $68.43.
During the quarter ended March 31, 2013, HPT had 38 comparable hotels
under renovation for all or part of the quarter. For the quarter ended
March 31, 2013 compared to the same period in 2012 for HPT’s 247
comparable hotels not under renovation: ADR increased 3.4% to $101.92;
occupancy increased 4.3 percentage points to 68.2%; and RevPAR increased
10.3% to $69.51.
Tenants and Managers:
As of March 31, 2013, HPT had 10 operating agreements with seven hotel
operating companies for 289 hotels with 43,404 rooms which represent 66%
of HPT’s annual minimum returns and rents.
-
During the three months ended March 31, 2013, 122 hotels owned by HPT
were operated by Marriott International, Inc. (NYSE: MAR), or
Marriott, under three contracts: (i) During the three months ended
March 31, 2013, the payments HPT received under its management
contract with Marriott covering 68 hotels and requiring minimum
returns to HPT of $103.2 million per year were $1.7 million less than
the minimum amounts contractually required. During the three months
ended March 31, 2013, Marriott provided $0.7 million of guaranty
payments to HPT. At March 31, 2013, there was $25.3 million remaining
under Marriott’s guaranty to cover future payment shortfalls for up to
90% of the minimum returns due to HPT. (ii) HPT’s lease with a
subsidiary of Host Hotels & Resorts, Inc. (NYSE: HST) for 53 hotels
expired on December 31, 2012. As of January 1, 2013, HPT leased these
53 hotels to one of its taxable REIT subsidiaries and continued the
existing hotel brand and management agreements with Marriott. There is
no guarantee or security deposit for this contract. During the three
months ended March 31, 2013, HPT realized returns from these hotels of
$13.7 million. (iii) HPT leases a resort hotel on Kauai, HI to
Marriott. The contractual rent due HPT for this hotel for the three
months ended March 31, 2013 of $2.5 million was received.
-
During the three months ended March 31, 2013, the payments HPT
received under its management contract with subsidiaries of
InterContinental Hotels Group, plc (LON: IHG; NYSE: IHG (ADRs))
covering 91 hotels and requiring minimum returns to HPT of $135.2
million per year were $5.9 million less than the minimum amounts
contractually required. HPT applied the available security deposit to
cover these shortfalls. At March 31, 2013, the available security
deposit which HPT held to cover future payment shortfalls was $20.5
million.
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HPT’s remaining 76 hotels are operated under six contracts: one
management contract with a subsidiary of Hyatt Hotels Corporation
(NYSE: H), or Hyatt (22 hotels); one management contract with a
subsidiary of Wyndham Worldwide Corporation (NYSE: WYN), or Wyndham
(21 hotels); two management agreements with subsidiaries of Sonesta
International Hotels Corporation, or Sonesta (21 hotels); one
management contract with a subsidiary of Carlson Hotels Worldwide, or
Carlson (11 hotels); and one lease with a subsidiary of Morgans Hotel
Group Co. (NASDAQ: MHGC), or Morgans (1 hotel). Minimum returns and
rents due HPT are partially guaranteed under the Hyatt, Wyndham and
Carlson contracts.
-
For the three months ended March 31, 2013, the aggregate coverage
ratio of (x) total hotel cash flow available to pay HPT’s minimum
returns and rents due from hotels to (y) HPT’s minimum returns and
rents due from hotels was 0.68x. During the three months ended March
31, 2013, the majority of coverage shortfalls were paid from
guarantees and security deposits from HPT’s hotel operators pursuant
to the terms of its hotel operating agreements. As of March 31, 2013,
approximately 73% of HPT’s aggregate annual minimum returns and rents
from its hotels were secured by guarantees and security deposits from
HPT’s managers and tenants pursuant to the terms of its hotel
operating agreements.
As of March 31, 2013, HPT had two leases with TravelCenters of America
LLC, or TA, for 185 travel centers located along the U.S. Interstate
Highway system which represent 34% of HPT’s annual minimum returns and
rents. As of March 31, 2013, all payments due to HPT from TA under these
leases were current. For the three months ended March 31, 2013, the
aggregate coverage ratio of (x) total travel center cash flow available
to pay HPT’s minimum rent due from travel centers to (y) HPT’s minimum
rent due from travel centers was 1.31x.
Recent Investment Activities:
On January 17, 2013, HPT entered an agreement to acquire a 426 room full
service hotel located in the Atlanta, GA metropolitan market for $29.7
million, excluding closing costs. HPT plans to convert this hotel to the
Sonesta Gwinnett Place and add it to its management agreement with
Sonesta that currently covers 20 hotels. This acquisition is currently
expected to close on or about May 17, 2013.
On February 27, 2013, HPT announced that it had entered a letter of
intent and exclusive negotiating period for an investment of
approximately $375.0 million in 10 hotels currently operated by NH
Hoteles, S.A. (BME: NHH) (NYSE: NHHEY (ADRs)), or NH Hoteles. On April
24, 2013, HPT was notified by NH Hoteles that it was unable to obtain
the necessary bank approvals to allow NH Hoteles to complete the
transaction outlined in the letter of intent. HPT has entered into
discussions with NH Hoteles about possible modifications or alternatives
to the proposed transaction originally announced, but at this time the
outcome of any such discussions is uncertain and no transaction may
occur.
Recent Financing Activities:
In March 2013, HPT issued 16,100,000 common shares in a public offering
at a price of $25.55 per share and raised net proceeds of approximately
$393.5 million (after deducting offering expenses and underwriters’
discounts). The net proceeds from this offering were used to repay
amounts outstanding under HPT’s revolving credit facility and for
general business purposes.
Conference Call:
On Tuesday, May 7, 2013, at 1:00 p.m. Eastern Time, John Murray,
President and Chief Operating Officer, and Mark Kleifges, Treasurer and
Chief Financial Officer, will host a conference call to discuss the
results for the quarter ended March 31, 2013. The conference call
telephone number is (800) 230-1951. Participants calling from outside
the United States and Canada should dial (612) 332-0342. No passcode is
necessary to access the call from either number. Participants should
dial in about 15 minutes prior to the scheduled start of the call. A
replay of the conference call will be available beginning on Tuesday,
May 7, 2013 and will run through Tuesday, May 14, 2013. To hear the
replay, dial (320) 365-3844. The replay passcode is 290594.
A live audio webcast of the conference call will also be available in a
listen only mode on our website, which is located at www.hptreit.com.
Participants wanting to access the webcast should visit our website
about five minutes before the call. The archived webcast will be
available for replay on HPT’s website for about one week after the call. The
transcription, recording and retransmission in any way of HPT’s first
quarter conference call is strictly prohibited without the prior written
consent of HPT.
Supplemental Data:
A copy of HPT’s First Quarter 2013 Supplemental Operating and Financial
Data is available for download at HPT’s website, www.hptreit.com. HPT’s
website is not incorporated as part of this press release.
Hospitality Properties Trust is a real estate investment trust, or REIT,
which as of March 31, 2013, owned or leased 289 hotels and 185 travel
centers located in 44 states, Puerto Rico and Canada. HPT is
headquartered in Newton, MA.
WARNING CONCERNING FORWARD LOOKING STATEMENTS
THIS PRESS RELEASE CONTAINS STATEMENTS THAT CONSTITUTE FORWARD LOOKING
STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995 AND OTHER SECURITIES LAWS. ALSO, WHENEVER HPT USES
WORDS SUCH AS “BELIEVE”, “EXPECT”, “ANTICIPATE”, “INTEND”, “PLAN”,
“ESTIMATE” OR SIMILAR EXPRESSIONS, HPT IS MAKING FORWARD LOOKING
STATEMENTS. THESE FORWARD LOOKING STATEMENTS ARE BASED UPON HPT’S
PRESENT INTENT, BELIEFS OR EXPECTATIONS, BUT FORWARD LOOKING STATEMENTS
ARE NOT GUARANTEED TO OCCUR AND MAY NOT OCCUR. ACTUAL RESULTS MAY DIFFER
MATERIALLY FROM THOSE CONTAINED IN OR IMPLIED BY THESE FORWARD LOOKING
STATEMENTS AS A RESULT OF VARIOUS FACTORS. FOR EXAMPLE:
-
THIS PRESS RELEASE STATES THAT $25.3 MILLION REMAINED, AS OF MARCH 31,
2013, TO PARTIALLY FUND MINIMUM PAYMENT SHORTFALLS UNDER THE TERMS OF
A LIMITED GUARANTY PROVIDED BY MARRIOTT. THIS STATEMENT MAY IMPLY THAT
MARRIOTT WILL BE ABLE OR WILLING TO FULFILL ITS OBLIGATION UNDER THIS
GUARANTY OR THAT FUTURE SHORTFALLS WILL NOT EXHAUST THE GUARANTY CAP.
HOWEVER, THIS GUARANTY EXPIRES ON DECEMBER 31, 2019, AND HPT CAN
PROVIDE NO ASSURANCE WITH REGARD TO MARRIOTT’S FUTURE ACTIONS OR THE
FUTURE PERFORMANCE OF HPT’S HOTELS TO WHICH THE MARRIOTT LIMITED
GUARANTY APPLIES.
-
THIS PRESS RELEASE STATES THAT HPT IS HOLDING AND HAS APPLIED A
SECURITY DEPOSIT TO COVER THE SHORTFALL OF THE PAYMENTS IT HAS
RECEIVED UNDER ITS INTERCONTINENTAL AGREEMENT COMPARED TO THE MINIMUM
PAYMENTS DUE TO HPT UNDER THIS AGREEMENT, AND THAT THE REMAINING
AVAILABLE SECURITY DEPOSIT TO COVER FUTURE PAYMENT SHORTFALLS WAS
$20.5 MILLION AS OF MARCH 31, 2013. THE SECURITY DEPOSIT WHICH HPT IS
HOLDING IS LIMITED IN AMOUNT. THERE CAN BE NO ASSURANCE REGARDING THE
AMOUNT OF PAYMENTS HPT MAY RECEIVE IN THE FUTURE UNDER THIS AGREEMENT,
AND FUTURE SHORTFALLS MAY EXCEED THE AMOUNT OF THE SECURITY DEPOSIT
HPT HOLDS. MOREOVER, THE SECURITY DEPOSIT IS NOT ESCROWED OR OTHERWISE
SEGREGATED FROM HPT’S OTHER ASSETS AND LIABILITIES; ACCORDINGLY, WHEN
HPT APPLIES THIS SECURITY DEPOSIT TO COVER MINIMUM PAYMENTS DUE, HPT
WILL RECORD INCOME BUT IT WILL NOT RECEIVE ANY ADDITIONAL CASH.
-
THIS PRESS RELEASE STATES THAT AS OF MARCH 31, 2013, APPROXIMATELY 73%
OF HPT’S AGGREGATE ANNUAL MINIMUM RETURNS AND RENTS FOR ITS HOTELS
WERE SECURED BY GUARANTEES AND SECURITY DEPOSITS FROM HPT’S MANAGERS
AND TENANTS. THIS MAY IMPLY THAT THESE MINIMUM RETURNS AND RENTS WILL
BE PAID. IN FACT, THESE GUARANTEES AND SECURITY DEPOSITS ARE LIMITED
IN AMOUNT AND DURATION AND GUARANTEES ARE SUBJECT TO THE GUARANTORS’
ABILITY AND WILLINGNESS TO PAY. FURTHER, AS NOTED ELSEWHERE,
APPLICATION OF SECURITY DEPOSITS TO COVER SHORTFALLS WILL RESULT IN
HPT RECORDING INCOME, BUT WILL NOT RESULT IN HPT RECEIVING ADDITIONAL
CASH.
-
THIS PRESS RELEASE STATES THAT HPT HAS ENTERED AN AGREEMENT TO ACQUIRE
A HOTEL IN THE ATLANTA, GA METROPOLITAN MARKET. THIS TRANSACTION IS
SUBJECT TO VARIOUS TERMS AND CONDITIONS TYPICAL OF COMMERCIAL REAL
ESTATE TRANSACTIONS. THESE TERMS AND CONDITIONS MAY NOT BE MET. AS A
RESULT, THIS TRANSACTION MAY NOT OCCUR OR MAY BE DELAYED OR ITS TERMS
MAY CHANGE.
-
THIS PRESS RELEASE STATES THAT HPT HAS ENTERED INTO DISCUSSIONS WITH
NH HOTELES ABOUT POSSIBLE MODIFICATIONS OR ALTERNATIVES TO THE
PROPOSED TRANSACTION HPT PREVIOUSLY ANNOUNCED. THERE CAN BE NO
ASSURANCE THAT HPT WILL BE ABLE TO SATISFACTORILY MODIFY OR ALTER THE
PREVIOUSLY PROPOSED TRANSACTION OR WHETHER ANY ALTERNATIVE TRANSACTION
WILL BE AGREED TO OR COMPLETED WITH NH HOTELES.
THE INFORMATION CONTAINED IN HPT’S FILINGS WITH THE SECURITIES AND
EXCHANGE COMMISSION, OR SEC, INCLUDING UNDER THE CAPTION “RISK FACTORS”
IN HPT’S PERIODIC REPORTS, OR INCORPORATED THEREIN, IDENTIFIES OTHER
IMPORTANT FACTORS THAT COULD CAUSE DIFFERENCES FROM HPT’S FORWARD
LOOKING STATEMENTS. HPT’S FILINGS WITH THE SEC ARE AVAILABLE ON THE
SEC’S WEBSITE AT WWW.SEC.GOV.
YOU SHOULD NOT PLACE UNDUE RELIANCE UPON HPT’S FORWARD LOOKING
STATEMENTS.
EXCEPT AS REQUIRED BY LAW, HPT DOES NOT INTEND TO UPDATE OR CHANGE ANY
FORWARD LOOKING STATEMENTS AS A RESULT OF NEW INFORMATION, FUTURE EVENTS
OR OTHERWISE.
Hospitality Properties Trust
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CONDENSED CONSOLIDATED STATEMENTS OF INCOME, FUNDS FROM OPERATIONS
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AND NORMALIZED FUNDS FROM OPERATIONS
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(in thousands, except per share data)
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(Unaudited)
|
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Three Months Ended March 31,
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2013
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2012
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Revenues:
|
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|
|
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Hotel operating revenues (1) |
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$
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291,651
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$
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224,985
|
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Rental income (1) |
|
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62,212
|
|
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73,260
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|
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FF&E reserve income (2) |
|
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603
|
|
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3,175
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Total revenues
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|
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354,466
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|
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301,420
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Expenses:
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Hotel operating expenses (1) |
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206,649
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150,021
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Depreciation and amortization
|
|
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72,280
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|
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61,363
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|
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General and administrative
|
|
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12,144
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|
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10,522
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|
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Acquisition related costs (3) |
|
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276
|
|
|
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1,060
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|
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Loss on asset impairment (4) |
|
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-
|
|
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889
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Total expenses
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291,349
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223,855
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Operating income
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63,117
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77,565
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|
|
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|
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Interest income
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19
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66
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Interest expense (including amortization of deferred
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financing costs and debt discounts of $1,512
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and $1,578, respectively)
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(35,188
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)
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(34,092
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)
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Equity in earnings of an investee
|
|
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76
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45
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Income before income taxes
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28,024
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43,584
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Income tax expense
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(518
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)
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(636
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)
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Net income
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27,506
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42,948
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Excess of liquidation preference over carrying value
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of preferred shares redeemed (5) |
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-
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(2,944
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)
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Preferred distributions
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(8,097
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)
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(11,188
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)
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Net income available for common shareholders
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$
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19,409
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$
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28,816
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Calculation of Funds from Operations (FFO) and Normalized FFO:
(6) |
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Net income available for common shareholders
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$
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19,409
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$
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28,816
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Add:
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Depreciation and amortization
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72,280
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|
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61,363
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Loss on asset impairment (4) |
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-
|
|
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889
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FFO
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91,689
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91,068
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Add:
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Deferred percentage rent (7) |
|
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610
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1,309
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|
|
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Acquisition related costs (3) |
|
|
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276
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|
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1,060
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Excess of liquidation preference over carrying value
|
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of preferred shares redeemed (5) |
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-
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2,944
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Normalized FFO
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$
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92,575
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$
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96,381
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Weighted average common shares outstanding
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125,426
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123,523
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Per common share amounts:
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Net income available for common shareholders
|
|
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$
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0.15
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$
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0.23
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|
|
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FFO (6) |
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$
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0.73
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$
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0.74
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Normalized FFO (6) |
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$
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0.74
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$
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0.78
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(1) At March 31, 2013, HPT owned or leased 289 hotels; 285 of these
hotels are leased by HPT to its taxable REIT subsidiaries, or TRSs, and
managed by hotel operating companies, one hotel is leased by one of its
TRSs from a third party and managed by a hotel operating company and
three hotels are leased to hotel operating companies. At March 31, 2013,
HPT also owned 185 travel centers that are leased to a travel center
operating company under two lease agreements. HPT’s Condensed
Consolidated Statements of Income include hotel operating revenues and
expenses of managed hotels and rental income from its leased hotels and
travel centers. Certain of HPT’s managed hotels had net operating
results that were, in the aggregate, $33,459 and $28,655, less than the
minimum returns due to HPT in the three months ended March 31, 2013 and
2012, respectively. When the managers of these hotels are required to
fund the shortfalls under the terms of our operating agreements or their
guarantees, HPT reflects such fundings (including security deposit
applications) in its Condensed Consolidated Statements of Income as a
reduction of hotel operating expenses. The reduction to hotel operating
expenses was $14,908 and $24,594 in the three months ended March 31,
2013 and 2012, respectively. HPT had $18,551 and $4,061 of shortfalls at
certain of our managed hotel portfolios not funded by the managers of
these hotels under the terms of our operating agreements in the three
months ended March 31, 2013 and 2012, respectively, which represents the
unguaranteed portions of HPT’s minimum returns from Marriott and from
Sonesta.
(2) Various percentages of total sales at certain of HPT’s hotels are
escrowed as reserves for future renovations or refurbishment, or FF&E
reserve escrows. HPT owns all the FF&E reserve escrows for its hotels.
HPT reports deposits by its third party tenants into the escrow accounts
as FF&E reserve income. HPT does not report the amounts which are
escrowed as FF&E reserves for its managed hotels as FF&E reserve income.
(3) Represents costs associated with HPT’s hotel acquisition activities.
(4) HPT recorded a $889, or $0.01 per share, loss on asset impairment in
the three months ended March 31, 2012 in connection with its decision to
remove certain of its hotels from held for sale status.
(5) On February 13, 2012, HPT redeemed all of its outstanding Series B
Preferred Shares at their liquidation preference of $25 per share, plus
accumulated and unpaid distributions. The liquidation preference of the
redeemed shares exceeded HPT’s carrying amount for the redeemed shares
as of the date of redemption by $2,944, or $0.02 per share, and HPT
reduced net income available to common shareholders for the three months
ended March 31, 2012, by that excess amount.
(6) HPT calculates FFO and Normalized FFO as shown above. FFO is
calculated on the basis defined by The National Association of Real
Estate Investment Trusts, or NAREIT, which is net income, calculated in
accordance with GAAP, excluding loss on impairment of real estate
assets, plus real estate depreciation and amortization, as well as other
adjustments currently not applicable to HPT. HPT’s calculation of
Normalized FFO differs from NAREIT's definition of FFO because it
includes estimated percentage rent in the period to which it estimates
that it relates rather than when it is recognized as income in
accordance with GAAP and exclude the excess of liquidation preference
over carrying value of preferred shares redeemed and acquisition related
costs. HPT considers FFO and Normalized FFO to be appropriate measures
of operating performance for a REIT, along with net income, net income
available for common shareholders, operating income and cash flow from
operating activities. HPT believes that FFO and Normalized FFO provide
useful information to investors because by excluding the effects of
certain historical amounts, such as depreciation expense, FFO and
Normalized FFO may facilitate a comparison of HPT’s operating
performance between periods and between HPT and other REITs. FFO and
Normalized FFO are among the factors considered by HPT’s Board of
Trustees when determining the amount of distributions to its
shareholders. Other factors include, but are not limited to,
requirements to maintain HPT’s status as a REIT, limitations in its
revolving credit facility and term loan agreements and public debt
covenants, the availability of debt and equity capital to HPT, HPT’s
expectation of its future capital requirements and operating
performance, and its expected needs and availability of cash to pay its
obligations. FFO and Normalized FFO do not represent cash generated by
operating activities in accordance with GAAP and should not be
considered as alternatives to net income, operating income, net income
available for common shareholders or cash flow from operating
activities, determined in accordance with GAAP, or as indicators of
HPT’s financial performance or liquidity, nor are these measures
necessarily indicative of sufficient cash flow to fund all of HPT’s
needs. HPT believes FFO and Normalized FFO may facilitate an
understanding of its consolidated historical operating results. These
measures should be considered in conjunction with net income, operating
income, net income available for common shareholders and cash flow from
operating activities as presented in HPT’s Condensed Consolidated
Statements of Income and Comprehensive Income and Condensed Consolidated
Statements of Cash Flows. Other REITs and real estate companies may
calculate FFO and Normalized FFO differently than HPT does.
(7) In calculating net income in accordance with GAAP, HPT recognizes
percentage rental income received for the first, second and third
quarters in the fourth quarter, which is when all contingencies have
been met and the income is earned. Although HPT defers recognition of
this revenue until the fourth quarter for purposes of calculating net
income, HPT includes these estimated amounts in the calculation of
Normalized FFO for each quarter of the year. The fourth quarter
Normalized FFO calculation excludes the amounts recognized during the
first three quarters.
Hospitality Properties Trust
|
CONDENSED CONSOLIDATED BALANCE SHEETS
|
(in thousands, except share data)
|
(Unaudited)
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March 31,
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December 31,
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2013
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2012
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ASSETS
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Real estate properties:
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Land
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$
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1,453,390
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$
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1,453,399
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Buildings, improvements and equipment
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5,498,521
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5,445,710
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6,951,911
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6,899,109
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Accumulated depreciation
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(1,601,342
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)
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(1,551,160
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)
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5,350,569
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5,347,949
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Cash and cash equivalents
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18,043
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20,049
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Restricted cash (FF&E reserve escrow)
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37,930
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40,744
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Other assets, net
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252,688
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226,383
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$
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5,659,230
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$
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5,635,125
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LIABILITIES AND SHAREHOLDERS’ EQUITY
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Unsecured revolving credit facility
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$
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10,000
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$
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320,000
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Unsecured term loan
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400,000
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400,000
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Senior notes, net of discounts
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1,994,372
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1,993,880
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Convertible senior notes, net of discounts
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8,478
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8,478
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Security deposits
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20,660
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26,577
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Accounts payable and other liabilities
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106,776
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132,032
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Due to related persons
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11,297
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13,696
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Dividends payable
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6,664
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6,664
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Total liabilities
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2,558,247
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2,901,327
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Commitments and contingencies
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Shareholders’ equity:
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Preferred shares of beneficial interest; no par value; 100,000,000
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shares authorized:
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Series C preferred shares; 7% cumulative redeemable; 6,700,000 shares
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issued and outstanding, aggregate liquidation preference $167,500
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161,873
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161,873
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Series D preferred shares; 7 1/8% cumulative redeemable; 11,600,000
shares
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issued and outstanding, aggregate liquidation preference $290,000
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280,107
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280,107
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Common shares of beneficial interest, $.01 par value;
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200,000,000 shares authorized; 139,737,424 and
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123,637,424 shares issued and outstanding, respectively
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1,397
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1,236
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Additional paid in capital
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3,851,456
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3,458,144
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Cumulative net income
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2,412,382
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2,384,876
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Cumulative other comprehensive income
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15,183
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2,770
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Cumulative preferred distributions
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(261,523
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)
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(253,426
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)
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Cumulative common distributions
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(3,359,892
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)
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(3,301,782
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)
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Total shareholders’ equity
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3,100,983
|
|
|
|
|
2,733,798
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$
|
5,659,230
|
|
|
|
$
|
5,635,125
|
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|
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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.