Good day, and welcome to Hospitality Properties Trust Second Quarter 2011 Financial Results Conference Call. This call is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to the Manager of Investor Relations, Carlynn Finn. Please go ahead.

Thank you, and good afternoon. Joining me on today’s call are John Murray, President; and Mark Kleifges, Chief Financial Officer. John and Mark will make a short presentation which will be followed by a question-and-answer session. I would also note that the recording and retransmission of today’s conference call is strictly prohibited without the prior written consent of HPT. Before we begin today’s call, I would like to read our Safe Harbor statement. Today's conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other securities laws. These forward-looking statements are based on HPT's present beliefs and expectations as of today, August 9, 2011. The company undertakes no obligation to revise or publicly release the results of any revision to the forward-looking statements made in today's conference call other than through filings with the Securities and Exchange Commission or SEC. In addition, this call may contain non-GAAP financial measures, including normalized funds from operations or normalized FFO. A reconciliation of normalized FFO and EBITDA to net income, as well as components to calculate AFFO, CAD or FAD, are available in our supplemental package found in our Investor Relations section of the company's website. Actual results may differ materially from those projected in these forward-looking statements. Additional information concerning factors that could cause those differences is contained in our Forms 10-Q and 10-K filed with the SEC and in our Q2 supplemental operating and financial data found on our website at www.hptreit.com. Investors are cautioned not to place undue reliance upon any forward-looking statements. Now I would like to turn the call over to John Murray.

Thank you, Karla. Good afternoon, and welcome to our second quarter 2011 earnings call. Today, HPT reported second quarter normalized FFO per share of $0.89, a 9.9% increase over 2010 second quarter normalized FFO per share of $0.81. Focusing first on our TravelCenters investments. This morning, TA reported its strongest quarterly result as a public company with second quarter 2011 net income of almost $22 million. This compares to net income of $1.2 million in the 2010 second quarter. TA's second quarter performance included a modest increase in fuel volume and significant increases in per gallon fuel margins and nonfuel sales and gross margin. Property level rent coverage for HPT's TravelCenters was almost 2x for the quarter. In addition to its strong operating results, TA's financial position remains sound with approximately $137 million of cash on hand at quarter end. Turning to HPT's hotel investments. Second quarter RevPAR increased 8.2% across our 289 hotels driven a by 3.3 percentage point increase in average occupancy to 76.2% and a 3.5% increase in average daily rate to $93.64. Compared with the 2010 second quarter, RevPAR increased in all regions with double-digit gains in the New England, Pacific and North Central regions, but only modest improvement in Canada and the South Atlantic region. Our Country Inn & Suites, Marriott Hotels and Resorts and TownePlace Suites all generated RevPAR growth in excess of 10% this quarter versus last year. There was no material renovation impact in second quarter results. HPT's hotels are concentrated within the upscale and mid-scale industry segments in suburban locations. The average RevPAR increase of our mid-scale hotels was 10.1%, 7.4 percentage points above the industry average for that segment. RevPAR at our upscale hotels increased 7.3% compared to the industry segment average of 7.8% this quarter. HPT's upscale hotels performance…

Thanks, John. First, let's review the second quarter operating results for our hotel properties. Revenues for our hotel portfolio increased $22.6 million or 7.8% versus the prior year. Our strongest performing portfolios were our Carlson, our new combined Marriott and Marriott No. 1 portfolios with RevPAR increasings of 14.8%, 8.3% and 7.4%, respectively. RevPAR for our new combined IHG portfolio increased 7.1% quarter-over-quarter, including a 9.2% increase for our 76 Candlewood Suites. With all of our hotel portfolios experiencing gains in both occupancy and ADR this quarter, GOP and cash flow margins each increased this quarter. Gross operating profit increased by $12.4 million or 11.3% quarter-over-quarter and our GOP margin percentage increased 121 basis points to 39.2%. More importantly, net cash flow available to pay our minimum rents and returns increased by approximately $11.5 million or 16.8% versus last year to $79.9 million. The largest increases were in our Hyatt and combined IHG portfolios which produced net cash flow increases of 20.7% and 16.9%, respectively quarter-over-quarter. With the improvement in hotel net cash flow, coverage of our minimum returns and rents on a rolling 12-month basis improved from the prior quarter for all portfolios except our Marriott No. 1 portfolio, which has been negatively impacted by renovation activity during the past year. In the second quarter, our Hyatt portfolio had 1x coverage and our Marriott No. 1 portfolio 0.99x coverage. During the second quarter, we applied the security deposits we hold in connection with our Marriott and IHG agreements to cover payment shortfalls. We expect the increased IHG security deposit to be sufficient to cover any additional payment shortfalls before the combined portfolio returns to 1x coverage. The remaining security deposit for our combined Marriott portfolio is expected to be fully utilized in the 2011 third quarter. Thereafter, if cash…

[Operator Instructions] Our first question comes from the line of David Loeb. David Loeb - Robert W. Baird & Co. Incorporated: In the press release, you referenced that you'd spent $800,000 in acquisition related costs. Can you just talk a little bit about what that could look like if you can? And if not, then maybe about what you're looking for in acquisition? And how that might play out?

On that particular transaction, we're subject to a confidentiality agreement and frankly, even if we weren't, we wouldn't probably talk about ongoing acquisition discussions until they're completed. So I guess all I would say is we're focused on hotel investments and those conversations are ongoing, and I think the properties that we're looking at will be consistent with the types of properties we own today and I guess I'd prefer to leave it like that. The economy has changed. In the past, you capitalized costs associated with acquisitions and so if you were working on something, it wouldn't be so evident but the accounting rules have changed for acquisitions and acquisition related costs get expensed and so that's why the cat's somewhat out of the bag but that's as far out of the bag as it's going to get. David Loeb - Robert W. Baird & Co. Incorporated: That's totally fair. You said it's similar kinds of assets. Should we assume similar kinds of structure, similar kinds of security features and stability of cash flow, that kind of thing?

I'd rather just not go further. David Loeb - Robert W. Baird & Co. Incorporated: Okay. How about generally speaking, what kind of yields are you looking for from acquisitions and what's the upside split beyond whatever that yield is likely to be? I'm not talking about this one but just generally as you go shopping for acquisitions.

Well, generally, we like our -- we've always liked our structure. We've tried even renegotiating with Marriott and IHG. We've tried to maintain a similar structure in the new combined agreements. And over the long haul, I think our plan would be to try and stick to similar type assets and management contracts that our portfolio contracts that provide a return to HPT first and management fees to our operators, which are subordinated, with credit support to the extent that we can negotiate for it but it's a very competitive landscape and you don't always get everything you wish for. David Loeb - Robert W. Baird & Co. Incorporated: So what does that mean in terms of returns though? What's your return hurdle that you're looking for, for this?

We were targeting -- prior to the last week's events, I think it would be fair to say that we were targeting returns in the 8% range, so that both our equity and weighted capital costs were covered by returns on that contract. David Loeb - Robert W. Baird & Co. Incorporated: Okay. And similar kind of 50-50 split on the upside? Or is that more complicated?

Yes. If we can negotiate for more in certain transactions for whatever reason, we'd be happy to get more than a 50-50 split. A bunch of our agreements have split in that range, so it's probably the direction that we'll be weighted towards.

Our next question comes from Bryan Maher.

Switching gears a little bit, can we talk a little bit about the sales process, specifically how long do you think that will play out is it kind of 6, 12, 18 months? And then secondarily, some of the level of interest that the buyers, potential buyers what you might have seen so far and who they are, not specifically but just generally?

We've got 21 Marriott branded properties that are on the market today, and I think that the process is going well. I think we'll probably call for offers during the third quarter and hope to have closed on the sale by the end of this year. The level of interest has been very strong. We thought because of the mix of properties that the portfolio would be sold possibly in a series of many portfolios and maybe even a couple might be sold on a one-off basis but we've seen very strong portfolio interest and it's come from a wide variety of sources from hedge funds, sovereign wealth funds, private equity hotel third-party hotel operators. Remember, this portfolio is being sold subject to the existing Marriott branding. The IHG hotels, we sold the Memphis hotel for net proceeds of about $6.9 million during the quarter or I guess, maybe in July. And we're currently evaluating what we're going to do with the other properties and what the best way to go forward there is. So I don't really have a good update there.

So probably the Marriott property is likely this year and as I read what you're saying probably to IHG in 2012?

Yes, I think that's a good estimate.

And then circling back to David's question for a moment as it relates to those acquisition costs, they seemed a little bit high relative to doing an acquisition that would be measured in tens of millions. Would it be safe for us to guess or not that it's more along the line of above $100 million purchase?

I don't want to provide too much...

I don't want you to negotiate against yourself.

Yes, I would just -- traditionally, we preferred portfolio contracts and traditionally, our transaction size has been larger than the average hotel transaction that some of our competitors do. So I'd prefer to just leave it there.

Okay. And then just lastly and I'll hand off to somebody else. As it relates to TravelCenters, are you in the market at all for anymore TravelCenters or is that just a done deal for now?

We are not looking at or looking for additional TravelCenter investments at the current time. We're focused on hotel acquisitions.

Our next question comes from Smedes Rose. Smedes Rose - Keefe, Bruyette, & Woods, Inc.: I was just wondering for the hotel that are for -- or is it possible to give sort of a pro forma RevPAR percentage increase in the quarter if you take out the hotels that you are planning to sell?

I don't know if I have that handy. Smedes Rose - Keefe, Bruyette, & Woods, Inc.: Okay. Well, if you can or maybe I can ask you offline. And then I just wanted to be clear, the InterCon hotels that you're selling, those can be rebranded by the buyer or reflagged?

Yes, the IHG branded properties that we may sell can be rebranded. It can be sold with branded management or without. Smedes Rose - Keefe, Bruyette, & Woods, Inc.: Okay. If you're selling, I think I'm right, selling the 9 TownePlace Suites, does that pretty much take you out of that brand now in terms of after you've sold those?

I think we may have one -- we have a couple of them. I think we had 12. So we have a few. Smedes Rose - Keefe, Bruyette, & Woods, Inc.: Okay. So you have a few left, but you're sort of largely exiting that brand.

Yes.

Our next question comes from Jeff Donnelly.

John, you were discussing acquisitions earlier. How do you feel about your cost of capital today versus pricing on hotels in the marketplace? I'm just curious given the, at least in the full-service side, the sort of the frost we've seen there that I'm curious if you guys think you can be competitive for deals while still providing FFO and any of the accretion to your shareholders?

Our capital costs today, obviously, are a lot higher than they were 2 days [ph] ago. So it's -- the discussions are in progress and we may not get a deal done. We're not going to buy any hotels 4 caps or 5 caps on a one-off basis in New York or Chicago or Denver and Indianapolis. Our competitors are fighting with each other over those. We'll let them have that. Historically, we've done transactions that have been strategic that are important to the operator as well as important to us. And they haven't been so much a widely exposed option where we've had to give up returns to our shareholders to get the deal done. So we're going to be disciplined and if we can generate an accretive return, then we'll go forward. And if we can't, then we'll pass and wait for the next opportunity.

Do you think that just the reality of the market today probably means that more of your acquisitions are select service than full-service?

That may be true. Historically, that's been our preferred area of focus anyway. We like the upscale select service hotels like Courtyard and Hyatt Place and Staybridge and Residence Inn. Those are all very well-performing, stable properties with high margins. So I don't have any trouble staying in that segment.

And then, I guess, to build on Bryan's question on dispositions, is there a reason we should assume that the experience you're having with selling the Marriott branded assets wouldn't apply to the InterCon assets, meaning do you think you might have to put capital into those ahead of the sale or I'm just curious why you're not as confident about the path that they would take when you put them into market?

Well, there's -- they're both -- they're different in that we have the ability to sell only operating management on the Marriott portfolio, the brand name can't change. In the IHG portfolio, we have the ability to sell encumbered or unencumbered and we could retain hotels and rebrand so it's -- we haven't decided exactly what we're going to do with those hotels yet and so that's the delay. I think that there is some capital needed in the Marriott properties just as much as there may be in the IHG properties. So I don't believe there's any reason why there'll be any different level of interest in the IHG properties when we do come to market with them.

And just two last questions and I guess for Mark. I don't want to leave you out. Any sense that the gyration in the market we've seen the last few weeks have meaningfully translated to the lending markets for hotels such that it might become more difficult or more challenging for someone looking to get financing to buy these hotels you're selling? And then just separately, can you talk about the pricing on your new credit facility?

On the first thing, I think it's too early to tell the longer-term implications of what the fallout, if you will, from the S&P downgrade and some of the other uncertainties in the debt markets these days, but I think there's still -- I think there's still a lot of cash and liquidity out there that wants to be put to work. So I'm hopeful that the markets, the debt markets come back. In fact, I know someone did -- received a note earlier today. There was an investment grade deal that's being marketed today. So hopefully, that will go off well, and I think that will be a positive for the debt markets. In terms of our revolver, just to refresh people's memory, we're currently paying 55 basis points over LIBOR with our current credit rating on that facility. It's fair to say that today's market for revolvers is not at 55 over LIBOR, so we're going to pay something more than that. Similar to the acquisition front, we're in the middle of those negotiations now so I don't really want to get into too much detail, but I think it's fair to say that if you look at deals that are priced recently for investment grade companies at the BBB level, it's been in the 120 to 140 over area.

Our next question comes from Ryan Meliker.

Just a quick follow up on the revolver. So I guess have the events of the past couple of weeks altered your view in terms of your ability to be able to get the new revolver in place by the time the current one expires in October?

No, not at all. We still feel very good about our ability to replace the revolver, and our current expectation is it will continue to be a $750 million facility.

Great. And then with regards to the CapEx that you're going to be investing in the Marriott and IHG properties, it sounds like you indicated that the Marriott investment might start around 1Q of next year. Can you give us the time line on both of those when they're going to start and kind of how that's going to progress and when it'll finish?

Yes, we're still -- on the Marriott, you're right. The first funding we make will be in the first quarter of 2012 and we're actually in the process of working through formerly scheduling that funding out with Marriott, so we'll have a more detailed update to provide on next quarter's call. With IHG, we expect to make the first funding in the fourth quarter. And at this point, I would expect that, that funding will be in the $30 million to $50 million range and once again, we'll have a more detailed schedule to walk through on next quarter's call.

And the I guess just -- I'm just thinking about as it pertains to the cash flows in versus cash flows out, it sounds like you indicated on previous conversations that you were expecting the funding for these investments to really be driven by the dispositions of all these hotels that you're selling. I'm wondering is it possible that some of the funding is going to come before the dispositions? And if that's the case, how are you planning to funds it, is it going to be through the revolver or some other means?

Well, if we're successful in selling the Marriott hotels by the end of the year, I think proceeds -- in that case, proceeds will be greater than our funding commitments at that point. And to the extent, we do not sell and need to fund, our current thinking is we do that through the revolver since it's more or less just a timing difference in terms of when we received proceeds and we made capital fundings.

Okay, and then just one last question [indiscernible]. If you do sell the assets in advance of the investment CapEx being put in, my understanding is your minimum -- your returns go down a little bit. Do you expect -- could that potentially pressure your dividend coverage or is that a non-issue?

No, I don't -- that's not going to be an issue. We were at 50% FFO payout ratio this quarter. It's just not...

But that's just for all the CapEx.

Yes, I agree. I understand. No, it's not going to put any pressure on the dividend.

Okay. So you'd be able to manage your CapEx to make sure that your dividend coverage is comfortable?

Yes.

[Operator Instructions] We have a question from Michael Salinsky.

Just going back to the acquisition, is there anything under contract at this point?

No. If we had it under contract, I think we'd have to disclose it.

Yes, we would disclose it. Yes.

Okay, fair enough. Second of all, I think, Mark, in your comments, you talked about, sounded like there was an accounting change related to CapEx. Can you explain that a little bit more?

Well, I think you're talking about the FF&E reserves under the IHG contract.

Yes.

Yes. Well, historically, we've escrowed 5% of hotel revenues into the FF&E reserves under our 4 IHG contracts. And as part of the amended contract, there will be no FF&E escrows until we complete all of the hotel renovations at the end of 2013. So until 1/1/14, there will be no FF&E reserves. Now the way that the FF&E reserves flow through our income statement, they end up in net income and FFO and normalized FFO. And so when you eliminate those and that excess cash flow goes to pay -- in effect, it goes to pay our minimum returns. So we lose the benefit -- and this only is an issue when we're drawing on security deposits because we're at less than [indiscernible] coverage which is the situation we currently find ourselves in. So there'll be a decline in net income and FFO and normalized FFO equal to essentially 5% of revenues for the IHG portfolio. On the other -- on the flip side of that is that because that cash is not being put into an escrow or restricted cash account, it's available to pay our minimum return the way the waterfall works. So it will reduce the amount we have to draw on security deposits and therefore, since drawing on a security deposit is noncash income will increase our cash available for distribution by an equal amount. Does that make sense? There's a lot of debits and credits. And if anyone doesn't get it, please give me a call and we can kind of walk through the debits and credits on the phone.

So it sounds likes going to flow through the FFO but its' going to be basically be a wash in AFFO.

It actually -- well, if you're deducting FF&E reserves from AFFO. If AFFO and deducting noncash income when you draw on a security deposit, it will actually be an increased to AFFO depending on how do you define AFFO.

Follow-up with you offline on that one. No problem.

That would probably make sense.

Then just going back to I think, Ryan's question as we're looking at sources and uses here, what is the -- I mean as you're putting together budgets and you're probably early on here, what is the realistic CapEx spend we should expect for '12? It sounds like you've got a couple of years in the IHG ones and it sounds at the Marriott ones, I think are going to be on the front burner there. Should we expect the full Marriott renovations in 2012 and then split up the $300 million between '12 and '13 or...

I think if you're going to model it, that's the right way to do it. You should assume that all the Marriott CapEx gets funded next year and that the IHG fundings occur over the 2012, 2013. They're getting started probably at IHG, probably November or early December, first on all of the extended stay properties. There's more planning involved with the Crowne Plaza and InterContinental so they probably won't start until later in 2012 and that will take during 2013 to get finished. Marriott properties, a lot of planning has already been done and so they should be able to finish all of that capital barring any unforeseen circumstances all next year.

Okay, that's helpful. And then finally, it doesn't sound like you guys are active in the debt markets right now, but can you just give us an update what you're hearing from lenders as to spreads, how far those have blown out, the availability?

I don't have a whole lot of color on that, Mike. It's only been a couple of day -- we're a day and a half into since the S&P announcement. I know our Monday spreads did widened some. I don't have some specific numbers. I think I read something where for all investment grades it was on average 15 to 20 basis points wider. Of course, the treasuries traded up yesterday, so that would have diminished the impact of that widening. As I mentioned earlier, I did see there was an investment grade transaction announced this morning. Hopefully, that transaction went well, and I think if that transaction went well, you'll probably see the -- I would hope you'd see the debt -- the investment grade debt markets open up again this week.

We have no further questions. I will turn it back over to John Murray for closing remarks.

Thank you again for joining us today, and we look forward to speaking to you again and give you an update when we talk about our Q3 results in November unless we have a transaction earlier than that. Thank you.

Thank you. That does conclude our conference for today. Thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.