New York, December 13, 2002 -- Moody's Investors Service has confirmed its Baa3 senior unsecured debt and Ba1 preferred share ratings of Hospitality Properties Trust (HPT). Hospitality Properties Trust, externally managed by REIT Management & Research, owns a portfolio of 251 hotel properties, diversified by several national brands and by geography. HPT's portfolio is leased under long-term pooled lease agreements and management contracts to several unaffiliated national hotel owners/operators, including Marriott International and Prime Hospitality Corporation. Moody's rating outlook is stable.

According to Moody's, these rating confirmations reflect HPT's continued steady operating performance, demonstrated access to multiple sources of capital, strong balance sheet and an unencumbered asset base, as well as protective security features embedded in its lease agreements. HPT's strong liquidity position ($350 million available under its credit facility as of December 13, 2002), and by its well-laddered debt maturity structure with no indebtedness due until 2005. Moody's comments that HPT maintains a conservative financing strategy, further supporting bondholders' position.

Offsetting these credit positives are the REIT's exposure to weaker portfolios, which have continued to underperform in the current lodging industry downcycle, and its focus on the volatile hotel segment. Like most lodging REITs, HPT's property portfolio is experiencing declines in revenues and occupancy, a trend Moody's expects will continue well into 2003. The dual challenges of a weak economic environment combined with cutbacks in corporate travel are pressuring room rates (ADR, or average daily rates) and are contributing to deterioration in operating performance for many of HPT's properties.

Moody's believes that the REIT's exposure to underperforming portfolios and less-well positioned brands dilutes the quality of its cash flows and decreases cash flow stability of HPT's portfolio. Moody's noted that some of HPT's pools of leased properties, which collectively account for 41% of HPT's annual base rent, have continued to generate rent cash flow coverages (after FF&E reserve payments) of below 1.0X. While tenants which lease these portfolios have remained current on their rent payments to HPT, a prolonged lodging downturn could result in a diminution in rental income to HPT, and place additional stress on the better performing portfolios. In Moody's view, the loss of minimum rental income from its weakest portfolios would substantially reduce HPT's fixed charge coverage, while leverage (as measured by debt to EBITDA excluding FF&E income) would rise from 2.2X to 3.9X.

Credit concerns are mitigated by HPT's available cushion from security deposits sufficient to cover annual base rent, as well as HPT's conservative capital structure. Moody's notes, however, that HPT's ratings could come under pressure should operating performance and the financial condition of some of its tenants continue to deteriorate.

Moody's stable outlook reflects the relative consistency in HPT's operating performance, even during an economic downturn, due to stability provided by its lease agreements. The stable rating outlook also reflects Moody's expectation that the REIT will maintain its conservative financing strategy. Future downward pressure on the REIT's ratings and/or outlook would result from material deterioration in lessee and portfolio quality.

The following ratings were confirmed:

Hospitality Properties Trust -- Senior unsecured debt at Baa3; senior unsecured shelf at (P)Baa3; preferred stock at Ba1; preferred stock shelf at (P)Ba1; subordinated debt shelf at (P)Ba1.

Hospitality Properties Trust (NYSE: HPT) is a REIT, headquartered in Boston, Massachusetts, USA. HPT owns 251 hotel properties encompassing 34,284 rooms located throughout 37 states. As of September 30, 2002, the REIT had book assets of $2.4 billion and $1.5 billion in book common equity.

New York
Lesia Bates Moss
Senior Vice President
Real Estate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
John J. Kriz
Managing Director
Real Estate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Instant Insights /

MOODY'S CONFIRMS Baa3 SENIOR DEBT RATING OF HOSPITALITY PROPERTIES TRUST

Related Stories

Recommended For You