UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported):
May 30, 2012
HOSPITALITY PROPERTIES TRUST
(Exact Name of Registrant as Specified in Its Charter)
Maryland
(State or Other Jurisdiction of Incorporation)
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1-11527
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04-3262075
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(Commission File Number)
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(IRS Employer Identification No.)
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Two Newton Place, 255 Washington Street,
Suite 300, Newton, Massachusetts
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02458-1634
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(Address of Principal Executive Offices)
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(Zip Code)
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617-964-8389
(Registrant’s Telephone Number, Including Area Code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
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Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
In this Current Report, the terms “we”, “us” and “our” refer to Hospitality Properties Trust and its subsidiaries, unless otherwise noted.
Our public filings with the Securities and Exchange Commission, or SEC, referred to in this Current Report are available at the SEC’s website at www.sec.gov.
Item 1.01. Entry into a Material Definitive Agreement.
On May 31, 2012, our taxable REIT subsidiary entered into a long term hotel management agreement, or the Harbor Court Management Agreement, with Sonesta International Hotels Corporation, or SIHC, for the Harbor Court Baltimore, a hotel currently owned by us and formerly managed by a subsidiary of InterContinental Hotels Group, Inc., or IHG, under its “InterContinental” brand. Under the terms of the Harbor Court Management Agreement, the Harbor Court Baltimore is being rebranded as a Royal Sonesta hotel.
The terms of the Harbor Court Management Agreement are substantially the same as those contained in our existing management agreements with SIHC for the Royal Sonesta Hotel Boston, in Cambridge, Massachusetts, or the Cambridge Hotel, and the Sonesta Hilton Head Resort in Hilton Head, South Carolina, or the Hilton Head Resort. The Harbor Court Baltimore was added to the group of hotels that are subject to our April 23, 2012 Pooling Agreement with SIHC, or the Pooling Agreement, which currently also includes the Cambridge Hotel and the Hilton Head Resort. The principal terms of our existing management agreement for the Cambridge Hotel are described in
our Quarterly Report on Form 10-Q for the quarter ended March 31, 2012, or our Quarterly Report,
filed with the SEC
(including in Note 12 to our Condensed Consolidated Financial Statements included therein and the section thereof captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Management Agreements, Leases and Operating Statistics”);
the principal terms of our existing management agreement for the Hilton Head Resort and the Pooling Agreement are described in
Item 1.01 of our Current Report on Form 8-K dated April 27, 2012, or our April 2012 Current Report, filed with the SEC, which descriptions of the Cambridge Hotel management agreement, the Hilton Head Resort management agreement and the Pooling Agreement are incorporated by reference herein.
Our entering into the Harbor Court Management Agreement and the pooling of that agreement under the Pooling Agreement and the terms thereof were approved by our Independent Trustees.
The foregoing descriptions of the Harbor Court Management Agreement and the Pooling Agreement are not complete and are subject to and qualified in their entirety by reference to the Harbor Court Management Agreement which is substantially in the form of the management agreement filed as Exhibit 10.1 to our April 2012 Current Report and to the copy of the Pooling Agreement which is filed as Exhibit 10.2 to our April 2012 Current Report, which are incorporated herein by reference.
Information Regarding Certain Relationships and Related Person Transactions
The stockholders of SIHC are Mr. Barry Portnoy and Mr. Adam Portnoy, who are our Managing Trustees, and they also serve as directors of SIHC. Mr. Barry Portnoy is Chairman, majority owner and an employee of our manager, Reit Management & Research LLC, or RMR, and
Mr. Ada
m Portnoy, the son of Mr. Barry Portnoy, is an owner, President, Chief Executive Officer and a director of RMR. Each of our executive officers is also an officer of RMR, including Mr. Ethan Bornstein, who is the son-in-law of Mr. Barry Portnoy and the brother-in-law of Mr. Adam Portnoy. None of our Independent Trustees are directors of SIHC, but all of our Independent Trustees also serve as independent directors or independent trustees of other public companies to which RMR provides management services. Mr. Barry Portnoy serves as a managing director or managing trustee of those companies, and Mr. Adam Portnoy serves as a managing trustee of a majority of those companies. RMR provides both business and property management services to us under a business management agreement and a property management agreement and provides management services to other companies, including our largest tenant, TravelCenters of America LLC, or TA, and SIHC.
We, RMR, TA and five other companies to which RMR provides management services each currently own 12.5% of Affiliates Insurance Company, or AIC, an Indiana insurance company. All of our Trustees, all of the trustees and
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directors of the other publicly held AIC shareholders and nearly all of the directors of RMR currently serve on the board of directors of AIC. RMR provides management and administrative services to AIC pursuant to a management and administrative services agreement with AIC. We and the other shareholders of AIC participate in a property insurance program designed and reinsured in part by AIC.
For further information about these and other such relationships and related person transactions, please see our Annual Report on Form 10-K for the year ended December 31, 2011, as amended, or our Annual Report, our Proxy Statement for our 2012 Annual Meeting of Shareholders dated February 29, 2012, or our Proxy Statement, our Quarterly Report, and our other filings with the SEC, including Note 8 to our Consolidated Financial Statements included in our Annual Report, the sections captioned “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations— Related Person Transactions” and “Warning Concerning Forward Looking Statements” of our Annual Report, the section captioned “Related Person Transactions and Company Review of Such Transactions” and the information regarding our Trustees and executive officers in our Proxy Statement, Note 11 to our Condensed Consolidated Financial Statements included in our Quarterly Report and the section captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Related Person Transactions” and “Warning Concerning Forward Looking Statements” of our Quarterly Report. Also, please see the section captioned “Risk Factors” in our Annual Report for a description of risks that may arise from these transactions and relationships. In addition, copies of certain of our agreements with these parties, including our business management agreement and property management agreement with RMR, various agreements we have with TA and SIHC and our shareholder agreement with AIC and its shareholders, are also publicly available as exhibits to our public filings with the SEC.
Item 8.01. Other Events.
As previously reported, in June 2011 we realigned certain of our agreements with Marriott International, Inc., and its applicable subsidiaries, or Marriott, into management agreements and a related pooling agreement currently covering 71 “Marriott” branded hotels which we refer to collectively as our Marriott No. 234 Agreement. As a part of that realignment, we and Marriott identified 21 of these 71 hotels which would be offered for sale. Also as previously reported, in February 2012 we entered into an agreement to sell one of the 21 hotels, in St. Louis, Missouri, or the St. Louis hotel, and in March 2012, we withdrew the remaining 20 hotels from sale consideration and were in discussions with Marriott about retaining those hotels in the Marriott No. 234 Agreement.
On May 30, 2012, we entered into agreements with Marriott, or the May 2012 Marriott Agreements, that provide that:
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18 of those 20 remaining hotels will be retained in the Marriott No. 234 Agreement;
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we may elect to retain the other two of the 20 hotels in the Marriott No. 234 Agreement or to remove those hotels from the Marriott No. 234 Agreement and rebrand them;
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our obligation to fund escrowed FF&E reserves for the hotels under the Marriott No. 234 Agreement will be eliminated during 2012, reduced in 2013 and 2014 and then increased in 2015 through the remaining contract term; and
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the duration of the current limited guarantee provided by Marriott covering 90% of the minimum returns due to us under the Marriott No. 234 Agreement (up to a total guaranteed amount of $40 million, of which approximately $30.9 million remained available as of December 31, 2011) was extended by two years to December 31, 2019.
The current aggregate owner’s priority for the 18 hotels that we have decided to retain ownership of under Marriott management is approximately $18 million per year. Because we will be retaining these hotels, we currently expect to provide approximately $43 million to renovate them to current “Marriott” brand standards. As such amounts are paid, the owner’s priority due to us under the Marriott No. 234 Agreement will increase by 9% per year of the amounts we fund.
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We currently expect to complete the sale of the St. Louis hotel in the third quarter of 2012 for net proceeds of approximately $29 million (which amount is net of brokerage commissions and a renovation discount we and the buyer agreed upon). This transaction is subject to customary closing conditions. Some of these conditions may not be satisfied and, as a result, this sale may be delayed or may not occur.
For more information about our agreements with Marriott, please see our Annual Report, our Quarterly Report and our other filings with the SEC, including the sections captioned “Business—Principal Management Agreement or Lease Features,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Our Managers and Tenants” and “—Property Management Agreements, Leases and Operating Statistics” in our Annual Report, Note 5 to our Consolidated Financial Statements included in our Annual Report, and the sections captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Our Managers and Tenants” and “—Management Agreements, Leases and Operating Statistics” in our Quarterly Report. We have filed with the SEC a copy of the pooling agreement and the form of the management agreements comprising the Marriott No. 234 Agreement as Exhibits 10.1 and 10.2, respectively, to our Current Report on Form 8-K dated June 11, 2012, which copy and form
are incorporated herein by reference.
The foregoing descriptions
of the May 2012 Marriott Agreements are not complete and are subject to and qualified in their entirety by reference to copies of certain of the May 2012 Marriott Agreements filed as Exhibit 10.1 and Exhibit 10.2 to this Current Report, which copies are incorporated herein by reference.
A copy of our press release that we issued on May 31, 2012, announcing that we entered into
the
May 2012 Marriott Agreements is attached hereto as Exhibit 99.1.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits
10.1
Letter Agreement, dated May 30, 2012, between Marriott International Inc., HPTMI Properties Trust and other parties referencing T-234 Initial Exit Hotels.
10.2
Letter Agreement, dated May 30, 2012, between Marriott International Inc., HPT TRS MRP, Inc. and other parties referencing T-234 FF&E Reserve Contributions.
99.1 Press Release dated May 31, 2012.
WARNING CONCERNING FORWARD LOOKING STATEMENTS
THIS CURRENT REPORT CONTAINS STATEMENTS WHICH CONSTITUTE FORWARD LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND OTHER SECURITIES LAWS. ALSO, WHENEVER WE USE WORDS SUCH AS “BELIEVE”, “EXPECT”, “ANTICIPATE”, “INTEND”, “PLAN”, “ESTIMATE” OR SIMILAR EXPRESSIONS, WE ARE MAKING FORWARD LOOKING STATEMENTS. THESE FORWARD LOOKING STATEMENTS ARE BASED UPON OUR PRESENT INTENT, BELIEFS OR EXPECTATIONS, BUT FORWARD LOOKING STATEMENTS AND THEIR IMPLICATIONS ARE NOT GUARANTEED TO OCCUR AND MAY NOT OCCUR. OUR ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE CONTAINED IN OR IMPLIED BY OUR FORWARD LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS. FOR EXAMPLE:
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THIS CURRENT REPORT STATES THAT WE HAVE AGREED TO SELL ONE HOTEL AND THAT WE CURRENTLY EXPECT TO COMPLETE THE SALE IN THE THIRD QUARTER OF 2012 FOR NET PROCEEDS OF APPROXIMATELY $29 MILLION. THIS SALE IS SUBJECT TO CUSTOMARY CLOSING CONDITIONS. SOME OF THESE CONDITIONS MAY NOT BE SATISFIED AND THIS SALE MAY NOT OCCUR OR MAY BE DELAYED.
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THIS CURRENT REPORT STATES THAT MARRIOTT HAS AGREED TO EXTEND THE DURATION OF ITS LIMITED GUARANTEE OF OWNER’S PRIORITY AMOUNTS DUE TO US THROUGH 2019. AN IMPLICATION OF THIS STATEMENT MAY BE THAT OUR OWNER’S PRIORITY AMOUNTS WILL BE PAID THROUGH 2019. THE OWNER’S PRIORITY AMOUNTS DUE TO US ARE PAID FROM THE OPERATING CASH FLOW OF THESE MARRIOTT MANAGED HOTELS AFTER PAYING HOTEL LEVEL OPERATING EXPENSES AND AFTER FUNDING FF&E RESERVES. IF THE FINANCIAL RESULTS OF THESE MANAGED HOTELS ARE NOT SUFFICIENT TO PAY THE OWNER’S PRIORITY AMOUNTS DUE TO US, THESE AMOUNTS MAY NOT BE PAID. MARRIOTT’S GUARANTEE IS LIMITED BY BOTH AMOUNT AND TIME. MARRIOTT’S GUARANTEE DESCRIBED IN THIS CURRENT REPORT APPLIES TO AMOUNTS DUE TO US FROM OPERATIONS OF ALL 71 OF THE HOTELS INCLUDED IN THE MARRIOTT NO. 234 AGREEMENT. MARRIOTT HAS GUARANTEED ONLY 90% OF THE OWNER’S PRIORITY AMOUNTS DUE TO US, THE MAXIMUM AMOUNT OF MARRIOTT’S PAYMENTS UNDER ITS GUARANTEE IS $40 MILLION, AND APPROXIMATELY $9.1 MILLION OF THIS AMOUNT HAD BEEN PAID TO US THROUGH DECEMBER 31, 2011. ACCORDINGLY, FOR AMOUNTS IN EXCESS OF 90% OF OWNER’S PRIORITY AMOUNTS DUE US, FOR AMOUNTS IN EXCESS OF THE APPROXIMATELY $30.9 MILLION REMAINING AVAILABLE UNDER THIS LIMITED GUARANTEE AS OF DECEMBER 31, 2011 AND FOR AMOUNTS DUE TO US AFTER 2019, THERE IS NO MARRIOTT GUARANTEE. FOR THESE REASONS THERE CAN BE NO ASSURANCE THAT OWNER’S PRIORITY AMOUNTS DUE TO US THROUGH 2019 OR THEREAFTER WILL BE PAID IN FULL, AT THE 90% LEVEL TO WHICH MARRIOTT’S LIMITED GUARANTEE APPLIES, OR AT ALL.
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THIS CURRENT REPORT STATES THAT THE AGGREGATE OWNER’S PRIORITY AMOUNTS DUE TO US FOR THE 18 HOTELS WHICH WILL BE RETAINED IN THE MARRIOTT NO. 234 AGREEMENT IS APPROXIMATELY $18 MILLION PER YEAR AND THAT THIS AMOUNT WILL INCREASE AS CAPITAL IS INVESTED BY US BY 9% PER YEAR OF THE AMOUNTS FUNDED BY US. AN IMPLICATION OF THESE STATEMENTS MAY BE THAT WE WILL BE PAID APPROXIMATELY $18 MILLION PER YEAR PLUS 9% PER YEAR OF ANY ADDITIONAL CAPITAL INVESTED IN THESE HOTELS. AS NOTED ABOVE, THE PAYMENT OF OWNER’S PRIORITY AMOUNTS DUE TO US IS SUBJECT TO THERE BEING SUFFICIENT CASH FLOWS AT THESE HOTELS AND AT THE OTHER HOTELS INCLUDED IN THE MARRIOTT NO. 234 AGREEMENT TO MAKE SUCH PAYMENTS, AND THE CASH FLOW REALIZED AT THESE HOTELS DEPENDS UPON VARIOUS FACTORS, INCLUDING SOME WHICH ARE BEYOND OUR CONTROL. ACCORDINGLY THERE CAN BE NO ASSURANCE THAT THE OWNER’S PRIORITY AMOUNTS DUE TO US WILL BE PAID IN FULL, AT THE 90% LEVEL TO WHICH MARRIOTT’S LIMITED GUARANTEE APPLIES, OR AT ALL.
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THIS CURRENT REPORT STATES THAT WE CURRENTLY EXPECT TO PROVIDE APPROXIMATELY $43 MILLION TO RENOVATE THE 18 HOTELS WHICH WILL BE RETAINED IN THE MARRIOTT NO. 234 AGREEMENT TO CURRENT “MARRIOTT” BRAND STANDARDS. AN IMPLICATION OF THIS STATEMENT MAY BE THAT THE RENOVATION OF THESE HOTELS TO CURRENT “MARRIOTT” BRAND STANDARDS CAN BE COMPLETED FOR APPROXIMATELY $43 MILLION. THE COST OF HOTEL RENOVATIONS IS DIFFICULT TO ESTIMATE. AFTER A RENOVATION PROJECT IS BEGUN, UNANTICIPATED PROBLEMS AND COSTS MAY BE ENCOUNTERED. WE CAN PROVIDE NO ASSURANCE THAT THESE RENOVATIONS CAN BE COMPLETED FOR APPROXIMATELY $43 MILLION; WE MAY NEED TO FURTHER INCREASE OUR INVESTMENT IN THESE HOTELS.
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THIS CURRENT REPORT STATES THAT OUR INDEPENDENT TRUSTEES APPROVED OUR ENTERING INTO THE HARBOR COURT MANAGEMENT AGREEMENT AND THE POOLING OF THAT AGREEMENT UNDER THE POOLING AGREEMENT AND THE TERMS THEREOF. THE IMPLICATION OF THIS STATEMENT MAY BE THAT THE TERMS OF THESE AGREEMENTS ARE AS FAVORABLE TO US AS WE COULD OBTAIN FOR SIMILAR ARRANGEMENTS FROM UNRELATED THIRD PARTIES. HOWEVER, DESPITE THESE PROCEDURAL SAFEGUARDS, WE COULD STILL BE SUBJECTED TO CLAIMS CHALLENGING OUR ENTRY INTO THESE
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TRANSACTIONS BECAUSE OF THE MULTIPLE RELATIONSHIPS AMONG US, SIHC AND RMR AND THEIR RELATED PERSONS AND ENTITIES, AND DEFENDING SUCH CLAIMS COULD BE EXPENSIVE AND DISTRACTING TO MANAGEMENT REGARDLESS OF THE MERITS OF SUCH CLAIMS.
THE INFORMATION CONTAINED IN OUR FILINGS WITH THE SEC, INCLUDING UNDER “RISK FACTORS” IN OUR PERIODIC REPORTS, OR INCORPORATED THEREIN, IDENTIFIES OTHER IMPORTANT FACTORS THAT COULD CAUSE OUR ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE STATED IN OUR FORWARD LOOKING STATEMENTS.
YOU SHOULD NOT PLACE UNDUE RELIANCE UPON OUR FORWARD LOOKING STATEMENTS.
EXCEPT AS REQUIRED BY LAW, WE DO NOT INTEND TO UPDATE OR CHANGE ANY FORWARD LOOKING STATEMENTS AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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HOSPITALITY PROPERTIES TRUST
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By:
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/s/ Mark L. Kleifges
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Name:
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Mark L. Kleifges
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Title:
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Treasurer and Chief Financial Officer
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Dated: June 5, 2012
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Exhibit 10.1
MARRIOTT INTERNATIONAL, INC.
10400 Fernwood Road
Bethesda, Maryland 20817
May 30, 2012
HPTMI Properties Trust
c/o Hospitality Properties Trust
Two Newton Place
255 Washington Street, Suite 300
Newton, Massachusetts02458-1634
Attn: John G. Murray, President
Re:
T-234 Initial Exit Hotels
Dear Mr. Murray:
Reference is made to that certain HPT portfolio of properties (collectively, the “Portfolio Properties”) known commonly as the T-234 Portfolio (the “T-234 Portfolio”). Effective as of January 1, 2011, HPT TRS MRP, Inc. (“TRS”) entered into Amended and Restated Management Agreements (collectively, the “Management Agreements”) with certain affiliates and subsidiaries of Marriott International, Inc. (collectively with Marriott International, Inc., “MI”), and TRS, Hospitality Properties Trust and certain of its affiliates and subsidiaries (collectively with TRS,”HPT”) and MI, as applicable, entered into certain other agreements and documents relating to the management of the Portfolio Properties (collectively with the Management Agreements, the “Portfolio Documents”). Terms used but not defined herein shall have the meanings ascribed to such terms in the Portfolio Documents.
Notwithstanding any term or provision in the Portfolio Documents to the contrary, HPT and MI understand and agree as follows:
1.
Initial Exit Hotels
. HPT and MI acknowledge and agree that, except as expressly set forth in Sections 2 and 3 of this letter, (A) the Initial Exit Hotels have not been sold, and (B) HPT has not elected to treat any Unsold Initial Exit Hotel as a Retained Hotel pursuant to Section 7(b) of the Exit Hotel Agreement. As a result of the foregoing, except as set forth in Sections 2 and 3 below, the Initial Exit Hotels shall be subject to completion of the renovations set forth in the PIP for each applicable Initial Exit Hotel, in accordance with Section 7(a) of the Exit Hotel Agreement and the terms and requirements set forth in the Renovation-Related Agreements.
2.
St. Louis Airport Hotel
. As of the date hereof, HPT, as seller, is a party to that certain Hotel Purchase and Sale Agreement dated February 10, 2012 (as amended, the “Sale Agreement”) with Lodging/Hospitality Management Corporation, its
successors, designees or assigns, as purchaser (the “Purchaser”). Pursuant to a side letter agreement between HPT and MI dated February 9, 2012 (the “St. Louis Side Letter”), MI has approved the sale of the St. Louis Airport Hotel on or before June 30, 2012, subject to the terms of the St. Louis Side Letter and the Portfolio Documents (the “Sale”). MI hereby agrees to extend the outside sale date for the St. Louis Airport Hotel from June 30, 2012 to July 31, 2012.
A.
If HPT consummates the Sale of the St. Louis Airport Hotel in accordance with the terms of the St. Louis Side Letter and the Sale Agreement, then (i) HPT and MI shall comply with the terms, conditions and requirements set forth in the St. Louis Side Letter and the Portfolio Documents, and any other documents executed and delivered by the applicable HPT and MI parties evidencing the St. Louis Airport Hotel Termination (hereafter defined); (ii) HPT and MI shall terminate the Portfolio Documents with respect to the St. Louis Airport Marriott as of the date of closing on the Sale, subject to any terms, conditions and requirements therein governing the termination of any such Portfolio Documents (the “St. Louis Airport Hotel Termination”); (iii) all reasonable costs and expenses incurred by MI in terminating the employees at the St. Louis Airport Hotel who are not hired by Purchaser or who are hired by Purchaser but subsequently terminated within ninety (90) days following the date of the Sale, such as severance pay, unemployment compensation, employment relocation, and other employee liability costs arising therefrom, shall be (a) at HPT’s sole cost and expense (and not a Deduction under the Existing Management Agreement), and, upon written request by MI, reimbursed by HPT to MI within ten (10) business days of MI’s written request therefor, and (b) treated as Closing Costs for the purposes of calculating the Net Sales Proceeds with respect to the St. Louis Airport Hotel pursuant to the Exit Hotel Agreement; and (iv) HPT will use commercially reasonable efforts to cause Buyer to comply with Section 13.1 of the Sale Agreement, and will seek appropriate remedies against Buyer for its failure to do so, among other things for the benefit of MI in order to reimburse MI for any losses that it may incur, including reasonable attorneys’ fees, in connection with Buyer’s failure to comply with Section 13.1 (and to the extent paid by HPT and reimbursed through recovery against Buyer, such reimbursement shall not be treated as a Closing Cost).
B.
If HPT fails to consummate the Sale of the St. Louis Airport Hotel on or before July 31, 2012, in accordance with the St. Louis Side Letter and the Sale Agreement, then for all purposes under the Portfolio Documents, the St. Louis Airport Hotel shall be deemed to be an Unsold Initial Exit Hotel and shall be subject to the completion of the renovations set forth in the PIP for the St. Louis Airport Hotel, in accordance with Section 7(a) of the Exit Hotel
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Agreement and the terms and requirements set forth in the Renovation-Related Agreements.
3.
RIBM Columbus Dublin and RIBM Flagstaff
. On or before June 30, 2012, upon written notice to MI (the “RIBM Retention Notice”), HPT shall elect whether or not to treat either or both of the Initial Exit Hotels known commonly as RIBM Columbus Dublin (Unit #57237) and RIBM Flagstaff (Unit #57429) (herein, the “RIBM Hotels,” and if timely elected to be retained by HPT, as applicable, the “RIBM Retained Hotel(s)”), as a “Retained Hotel” as contemplated in Section 7(b) of the Exit Hotel Agreement.
A.
If HPT timely elects to treat either or both of the RIBM Hotels as a “Retained Hotel,” then:
i.
As of the “RIBM Retention Effective Date” (as herein defined): (a) HPT will retain fee simple title to the RIBM Retained Hotel(s); (b)the retention shall be deemed a cash sale with respect to each RIBM Retained Hotel at a price of (1) $6,000,000 for the RIBM Columbus Dublin, and (2) $5,000,000 for the RIBM Flagstaff; (c) HPT and MI shall terminate the Portfolio Documents with respect to the RIBM Retained Hotel(s) as of the RIBM Retention Effective Date, subject to any terms, conditions and requirements therein governing the termination of any such Portfolio Documents (the “RIBM Hotel Termination”); and (d) the RIBM Retained Hotel(s), as applicable, shall cease to be operated as a Marriott-branded hotel(s) under the terms, conditions and requirements set forth in the Portfolio Documents, this letter and any other documents executed and delivered by the applicable HPT and MI parties evidencing the RIBM Hotel Termination. For the purposes hereof, the “RIBM Retention Effective Date” (which shall be the “Retention Effective Date” for the applicable RIBM Retained Hotel(s) for the purposes of the Portfolio Documents) shall be either set forth in the RIBM Retention Notice or in a subsequent written notice to MI, provided that the RIBM Retention Effective Date shall be (x) no earlier than forty-five (45) days following the date of the applicable notice in which HPT sets forth the RIBM Retention Effective Date, (y) the last day of a Portfolio Accounting Period, and (z) in no event, later than October 5, 2012 (i.e., the final day of the tenth (10
th
) Portfolio Accounting Period).
ii.
In connection with the RIBM Hotel Termination: (a) HPT shall offer comparable employment or cause an offer of comparable employment, effective as of the RIBM
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Retention Effective Date, to be made to all employees currently employed at the RIBM Retained Hotel(s), as applicable; (b) if any employees hired pursuant hereto are subsequently terminated without cause from employment within ninety (90) days after the RIBM Retention Effective Date, HPT shall notify MI and, if requested by MI, pay or ensure the hiring entity pays each such terminated employee an amount of up to one week of pay or salary of such employee for each year of service with MI, with a minimum of two weeks; (c) HPT shall pay all reasonable costs and expenses incurred by MI in terminating the employees at the RIBM Retained Hotel(s) who are not rehired as of the applicable RIBM Retention Effective Date, such as severance pay, unemployment compensation, employment relocation, and other employee liability costs arising therefrom; and (d). all payments pursuant to (b) or (c) above shall be (1) at HPT’s sole cost and expense (and not a Deduction under the Existing Management Agreement), and upon request by MI, paid by HPT to MI within ten (10) business days of MI’s written request therefore and (2) treated as Closing Costs for the purposes of calculating the Net Sales Proceeds with respect to the applicable RIBM Retained Hotels(s) pursuant to the Exit Hotel Agreement.
B.
If HPT elects not to treat either or both of the RIBM Hotels as a Retained Hotel, or otherwise fails to timely elect by written notice as required herein, then for all purposes under the Portfolio Documents, each RIBM Hotel not so elected shall be deemed to be an Unsold Initial Exit Hotel and shall be subject to the completion of the renovations set forth in the applicable PIP for each applicable RIBM Hotel, in accordance with Section 7(a) of the Exit Hotel Agreement and the terms and requirements set forth in the Renovation-Related Agreements, provided that the “Deadline” with respect to the applicable RIBM Hotel(s) for the completion of such renovations shall be March 31, 2013.
Capitalized terms used but not defined herein shall have the meanings ascribed to such terms in the Portfolio Documents. Except as herein modified, the Portfolio Documents remain unmodified and in full force and effect. In the event of a conflict between the interpretation of the terms and provisions of the Portfolio Documents and the terms and provisions of this letter, the terms and provisions of this letter shall control.
[SIGNATURE PAGES FOLLOW]
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Please confirm your agreement to the foregoing terms and conditions by countersigning one copy of this letter agreement in the space herein below provided.
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Very Truly Yours,
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MARRIOTT INTERNATIONAL, INC.,
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By:
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/s/ Michael E. Dearing
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Name:
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Michael E. Dearing
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Title:
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Authorized Signatory
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MARRIOTT HOTEL SERVICES, INC.
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By:
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/s/ Michael E. Dearing
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Name:
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Michael E. Dearing
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Title:
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Authorized Signatory
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RESIDENCE INN BY MARRIOTT, LLC
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By:
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/s/ Michael E. Dearing
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Name:
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Michael E. Dearing
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Title:
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Authorized Signatory
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COURTYARD MANAGEMENT CORPORATION
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By:
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/s/ Michael E. Dearing
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Name:
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Michael E. Dearing
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Title:
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Authorized Signatory
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SPRINGHILL SMC, LLC
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By:
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/s/ Michael E. Dearing
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Name:
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Michael E. Dearing
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Title:
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Authorized Signatory
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TOWNEPLACE MANAGEMENT, LLC
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By:
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/s/ Michael E. Dearing
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Name:
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Michael E. Dearing
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Title:
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Authorized Signatory
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Accepted and agreed to as of
the date first written above:
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HPTMI PROPERTIES TRUST
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By:
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/s/ John G. Murray
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Name:
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John G. Murray
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Title:
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President
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HPT TRS MRP, INC.
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By:
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/s/ John G. Murray
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Name:
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John G. Murray
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Title:
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President
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Exhibit 10.2
MARRIOTT INTERNATIONAL, INC.
10400 Fernwood Road
Bethesda, Maryland 20817
May 30, 2012
HPT TRS MRP, Inc.
c/o Hospitality Properties Trust
Two Newton Place
255 Washington Street, Suite 300
Newton, Massachusetts 02458-1634
Attn: John G. Murray, President
Re:
T-234 FF&E Reserve Contributions
Dear Mr. Murray:
Reference is made to that certain HPT portfolio of properties (collectively, the “Portfolio Properties” and each, a “Portfolio Property”) known commonly as T-234 (the “T-234 Portfolio”). Effective as of January 1, 2011, HPT TRS MRP, Inc. (“TRS”) entered into Amended and Restated Management Agreements (collectively, the “Management Agreements”) with certain affiliates and subsidiaries of Marriott International, Inc. (collectively with Marriott International, Inc., “MI”), and TRS, Hospitality Properties Trust and certain of its affiliates and subsidiaries (collectively with TRS, “HPT”) and MI, as applicable, entered into certain other agreements and documents relating to the Portfolio Properties (collectively with the Management Agreements, the “T-234 Documents”). Terms used but not defined herein shall have the meanings ascribed to such terms in the T-234 Documents.
Notwithstanding the provisions of the Addendum to any of the Management Agreements or any term or provision in any of the other T-234 Documents to the contrary, and for the purposes set forth in each of the T-234 Documents, HPT and MI hereby agree that, effective as of January 1, 2012, the “Reserve Deposit Percentage” with respect to each Portfolio Property (the “Applicable Reserve Deposit Percentage”), shall be as follows with respect to each noted Fiscal Year:
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Fiscal Year
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Reserve Deposit Percentage
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2012
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0%
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2013
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Applicable Reserve Deposit Percentage,
less
3%
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2014
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Applicable Reserve Deposit Percentage,
less
0.5%
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2015 through 2025
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Applicable Reserve Deposit Percentage,
plus
0.5%
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For illustration purposes only, the Addendum to the Management Agreement for the Courtyard Houston Hobby Airport, Texas (the “CY Houston Hobby”) states that the “Reserve Deposit Percentage” for all Accounting Periods during the Term is equal to five percent (5%) of Gross Revenues for each such Accounting Period. As a result of this letter agreement, the “Reserve Deposit Percentage” for the CY Houston Hobby shall be as follows: (i) for FY2012, zero percent (0%), (ii) for FY2013, two percent (2%), (iii) for FY2014, four and one-half percent (4.5%), and (iv) for FY2015 through FY2025, five and one-half percent (5.5%).
Any amounts deposited into the Reserves prior to the date of this letter during FY2012 with respect to any Portfolio Properties shall be released from the Reserves and accounted for in accordance with the T-234 Documents, it being acknowledged and agreed that such amounts shall not be treated as Deductions thereunder.
Except as modified as set forth in this letter agreement, all terms and provisions in the T-234 Documents are hereby ratified and confirmed and shall remain in full force and effect.
[SIGNATURES BEGIN ON THE FOLLOWING PAGE]
Please confirm your agreement to the foregoing terms and conditions by countersigning one copy of this letter agreement in the space hereinbelow provided.
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Very Truly Yours,
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MARRIOTT INTERNATIONAL, INC.,
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By:
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/s/ Michael E. Dearing
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Name:
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Michael E. Dearing
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Title:
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Authorized Signatory
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MARRIOTT HOTEL SERVICES, INC.
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By:
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/s/ Michael E. Dearing
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Name:
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Michael E. Dearing
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Title:
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Authorized Signatory
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RESIDENCE INN BY MARRIOTT, LLC
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By:
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/s/ Michael E. Dearing
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Name:
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Michael E. Dearing
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Title:
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Authorized Signatory
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COURTYARD MANAGEMENT CORPORATION
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By:
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/s/ Michael E. Dearing
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Name:
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Michael E. Dearing
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Title:
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Authorized Signatory
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SPRINGHILL SMC, LLC
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By:
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/s/ Michael E. Dearing
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Name:
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Michael E. Dearing
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Title:
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Authorized Signatory
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TOWNEPLACE MANAGEMENT, LLC
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By:
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/s/ Michael E. Dearing
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Name:
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Michael E. Dearing
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Title:
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Authorized Signatory
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Accepted and agreed to as of
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the date first written above:
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HPTMI PROPERTIES TRUST
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By:
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/s/ John G. Murray
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Name:
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John G. Murray
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Title:
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President
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HOSPITALITY PROPERTIES TRUST
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By:
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/s/ John G. Murray
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Name:
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John G. Murray
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Title:
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President
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HPT TRS MRP, INC.
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By:
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/s/ John G. Murray
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Name:
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John G. Murray
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Title:
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President
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Exhibit 99.1
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FOR IMMEDIATE RELEASE
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Contact:
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Timothy A. Bonang, Vice President, Investor Relations, or Carlynn Finn, Senior Manager, Investor Relations.
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(617) 796-8232
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www.hptreit.com
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Hospitality Properties Trust to Retain Certain Marriott Branded Hotels
and Marriott’s Guarantee Extended
Newton, MA
(May 31, 2012): Hospitality Properties Trust (NYSE: HPT)
today announced that it has entered agreements with Marriott International, Inc. (NYSE: MAR) to retain and renovate certain of its “Marriott” branded hotels previously offered for sale and to extend the term of MAR’s limited guarantee of the payments due to HPT with regard to those hotels.
In June 2011, HPT announced that it had entered agreements with MAR to re-align certain contracts affecting 71 Marriott branded hotels. Among other matters, the June 2011 agreement provided that 21 of the 71 affected hotels would be offered for sale and that MAR would provide a limited guarantee through 2017 of the owner’s priority amounts due to HPT for those hotels which HPT continued to own.
Since the June 2011 agreement, HPT has agreed to sell one hotel for net proceeds of approximately $29 million (which amount is net of brokerage and a renovation discount agreed by HPT and the buyer), and HPT has concluded that the financial prospects for most or all of the remaining 20 hotels are such that greater long term value may be achieved by retaining those hotels under HPT ownership and MAR management than by selling the hotels. Accordingly, HPT has agreed to retain ownership of and renovate at least 18 of those 20 remaining hotels previously offered for sale, and MAR has agreed to extend its limited guarantee of owner’s priority amounts due to HPT through 2019. HPT is currently considering whether the two remaining hotels previously designated for sale should be retained and managed by MAR or rebranded.
HPT’s aggregate owner’s priority amount for the 18 hotels that HPT has decided to retain ownership of under MAR management is approximately $18 million per year. Because these hotels will be retained, HPT currently expects to provide approximately $43 million to renovate these 18 hotels to current “Marriott” brand standards; as this HPT funding is paid, owner’s priority amounts due HPT will increase by nine percent (9%) per year of the amounts funded by HPT.
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.
The agreements announced today also provide that capital expenditures, or FF&E, reserve funding for all 71 hotels affected by the June 2011 agreement which HPT continues to own and MAR continues to manage will be eliminated during 2012, reduced in 2013 and 2014 and then increased in 2015 through the remaining contract term. This change in FF&E reserve funding will decrease HPT’s reported net income and funds from operations, or FFO (a commonly used non-GAAP measure of reporting by real estate investment trusts), but it will have no impact upon HPT’s cash flows from operating activities. Also, although this change will modestly increase HPT’s renovation fundings in the short term, it is not expected to have a material impact upon HPT’s long term capital expenditures at the affected hotels.
Hospitality Properties Trust is a real estate investment trust headquartered in Newton, Massachusetts which currently owns 290 hotels and 185 travel centers located throughout the United States and in Puerto Rico and Ontario, Canada.
WARNING REGARDING FORWARD LOOKING STATEMENTS
THIS PRESS RELEASE CONTAINS 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 CURRENT BELIEFS AND EXPECTATIONS BUT THEY ARE NOT GUARANTEED TO OCCUR AND MAY NOT OCCUR FOR VARIOUS REASONS, INCLUDING SOME REASONS BEYOND HPT’S CONTROL. HPT’S ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE CONTAINED IN OR IMPLIED BY HPT’S FORWARD LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS. FOR EXAMPLE:
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THIS PRESS RELEASE STATES THAT HPT HAS AGREED TO SELL ONE HOTEL FOR NET PROCEEDS OF APPROXIMATELY $29 MILLION. THIS SALE HAS NOT CLOSED AND IS SUBJECT TO CUSTOMARY CLOSING CONDITIONS. SOME OF THESE CONDITIONS MAY NOT BE SATISFIED AND THIS SALE MAY NOT OCCUR.
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THIS PRESS RELEASE STATES THAT THE FINANCIAL PROSPECTS FOR AT LEAST 18 HOTELS PREVIOUSLY OFFERED FOR SALE BY HPT HAVE IMPROVED TO A LEVEL WHICH HAS CAUSED HPT TO CONCLUDE THAT GREATER LONG TERM VALUE MAY BE ACHIEVED BY RETAINING THOSE HOTELS UNDER HPT OWNERSHIP AND MAR MANAGEMENT THAN BY SELLING THE HOTELS. AN IMPLICATION OF THIS STATEMENT MAY BE THAT THESE 18 HOTELS’ OPERATIONS WILL PRODUCE ACCEPTABLE FINANCIAL RETURNS ON HPT’S INVESTED CAPITAL. THE FINANCIAL RESULTS OF THESE HOTELS’ OPERATIONS DEPEND UPON MANY FACTORS, INCLUDING THE LOCATIONS OF THE HOTELS, COMPETITIVE CONDITIONS AT THOSE LOCATIONS, THE QUALITY OF THE HOTELS’ PHYSICAL CHARACTERISTICS AND THE QUALITY
OF THE HOTELS MANAGEMENT. FOR COMBINATIONS OF HOTELS IN DIVERSE LOCATIONS SUCH AS THOSE REFERENCED IN THIS PRESS RELEASE, THE FINANCIAL RESULTS OF OPERATIONS OFTEN REFLECT GENERAL ECONOMIC CONDITIONS. SOME OF THESE FACTORS, SUCH AS COMPETITIVE CIRCUMSTANCES AND GENERAL ECONOMIC CONDITIONS ARE BEYOND HPT’S CONTROL. ALSO, THE MANAGEMENT CONTRACTS WHICH HPT HAS ENTERED WITH MAR GRANT MAR CONSIDERABLE DISCRETION TO OPERATE THE HOTELS. FOR THESE REASONS, HPT CAN PROVIDE NO ASSURANCE THAT THE FUTURE FINANCIAL RESULTS OF OPERATIONS OF THESE HOTELS WILL PROVIDE ACCEPTABLE RETURNS ON HPT’S INVESTED CAPITAL.
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THIS PRESS RELEASE STATES THAT MAR HAS AGREED TO EXTEND ITS LIMITED GUARANTEE OF OWNER’S PRIORITY AMOUNTS DUE TO HPT THROUGH 2019. AN IMPLICATION OF THIS STATEMENT MAY BE THAT HPT’S OWNER’S PRIORITY AMOUNTS WILL BE PAID THROUGH 2019. THE OWNER’S PRIORITY AMOUNTS DUE TO HPT FOR THE AFFECTED HOTELS ARE PAID FROM THE OPERATING CASH FLOW OF THESE MAR MANAGED HOTELS AFTER PAYING HOTEL LEVEL OPERATING EXPENSES AND AFTER FUNDING FF&E RESERVES. IF THE FINANCIAL RESULTS OF THESE MANAGED HOTELS ARE NOT SUFFICIENT TO PAY THE OWNER’S PRIORITY AMOUNTS DUE TO HPT, THESE AMOUNTS MAY NOT BE PAID. MAR’S GUARANTEE IS LIMITED BY BOTH AMOUNT AND TIME. MAR’S GUARANTEE DESCRIBED IN THIS PRESS RELEASE APPLIES TO AMOUNTS DUE TO HPT FROM OPERATIONS OF ALL 71 OF THE HOTELS AFFECTED BY THE JUNE 2011 CONTRACTS RE-ALIGNMENT. MAR HAS GUARANTEED ONLY 90% OF THE OWNER’S PRIORITY AMOUNTS DUE TO HPT, THE MAXIMUM AMOUNT OF MAR’S PAYMENTS UNDER ITS GUARANTEE IS $40 MILLION, AND APPROXIMATELY $9.1 MILLION OF THIS AMOUNT HAS BEEN PAID TO HPT THROUGH DECEMBER 31, 2011. ACCORDINGLY, FOR AMOUNTS IN EXCESS OF 90% OF OWNER’S PRIORITY AMOUNTS DUE HPT, FOR AMOUNTS IN EXCESS OF THE APPROXIMATELY $30.9 MILLION REMAINING AVAILABLE UNDER THIS LIMITED GUARANTEE AS OF DECEMBER 31, 2011 AND FOR AMOUNTS DUE TO HPT AFTER 2019, THERE IS NO MAR GUARANTEE. FOR THESE REASONS THERE CAN BE NO ASSURANCE THAT OWNER’S PRIORITY AMOUNTS DUE HPT THROUGH 2019 OR THEREAFTER WILL BE PAID IN FULL, AT THE 90% LEVEL TO WHICH MAR’S LIMITED GUARANTEE APPLIES OR AT ALL.
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THIS PRESS RELEASE STATES THAT THE AGGREGATE OWNER’S PRIORITY AMOUNTS DUE HPT FOR THE 18 HOTELS WHICH WILL BE RETAINED BY HPT AND MANAGED BY MAR IS APPROXIMATELY $18 MILLION PER YEAR AND THAT THIS AMOUNT WILL INCREASE AS CAPITAL IS INVESTED BY HPT BY NINE PERCENT (9%) PER YEAR OF THE AMOUNTS FUNDED BY HPT. AN IMPLICATION OF THESE STATEMENTS MAY BE THAT HPT WILL BE PAID
APPROXIMATELY $18 MILLION PER YEAR PLUS NINE PERCENT (9%) PER YEAR OF ANY ADDITIONAL CAPITAL INVESTED IN THESE HOTELS. AS NOTED ABOVE, THE PAYMENT OF OWNER’S PRIORITY AMOUNTS DUE HPT IS SUBJECT TO THERE BEING SUFFICIENT CASH FLOWS AT THESE HOTELS AND AT THE OTHER HOTELS INCLUDED IN THE COMBINATION MANAGEMENT CONTRACTS TO MAKE SUCH PAYMENTS; AND THE CASH FLOW REALIZED AT THESE HOTELS DEPENDS UPON VARIOUS FACTORS, INCLUDING SOME WHICH ARE BEYOND HPT’S CONTROL. ACCORDINGLY THERE CAN BE NO ASSURANCE THAT THE OWNER’S PRIORITY AMOUNTS DUE HPT WILL BE PAID IN FULL, AT THE 90% LEVEL TO WHICH MAR’S LIMITED GUARANTEE APPLIES, OR AT ALL.
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THIS PRESS RELEASE STATES THAT HPT CURRENTLY EXPECTS TO PROVIDE APPROXIMATELY $43 MILLION TO RENOVATE THE 18 HOTELS WHICH HPT WILL RETAIN TO CURRENT “MARRIOTT” BRAND STANDARDS. AN IMPLICATION OF THIS STATEMENT MAY BE THAT THE RENOVATION OF THESE HOTELS TO CURRENT “MARRIOTT” BRAND STANDARDS CAN BE COMPLETED FOR APPROXIMATELY $43 MILLION. THE COST OF HOTEL RENOVATIONS IS DIFFICULT TO ESTIMATE. AFTER A RENOVATION PROJECT IS BEGUN, UNANTICIPATED PROBLEMS AND COSTS MAY BE ENCOUNTERED. HPT CAN PROVIDE NO ASSURANCE THAT THESE RENOVATIONS CAN BE COMPLETED FOR APPROXIMATELY $43 MILLION; HPT MAY NEED TO FURTHER INCREASE ITS INVESTMENT IN THESE HOTELS.
THE INFORMATION CONTAINED IN HPT’S FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION, OR SEC, INCLUDING UNDER “RISK FACTORS” IN HPT’S PERIODIC REPORTS, OR INCORPORATED THEREIN, IDENTIFIES OTHER IMPORTANT FACTORS THAT COULD CAUSE HPT’S ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE STATED IN HPT’S FORWARD LOOKING STATEMENTS. HPT’S FILINGS WITH THE SEC ARE AVAILABLE AT THE SEC’S WEBSITE AT WWW.SEC.GOV.
YOU SHOULD NOT PLACE UNDUE RELIANCE UPON HPT’S FORWARD LOOKING STATEMENTS.
EXCEPT AS MAY BE REQUIRED BY APPLICABLE LAW, HPT DOES NOT INTEND TO UPDATE OR CHANGE FORWARD LOOKING STATEMENTS AS A RESULT OR FROM NEW INFORMATION, FUTURE EVENTS OR OTHERWISE.
(END)