Good morning and welcome to the Hospitality Properties Trust First Quarter 2017 Financial Results Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Katie Strohacker, Senior Director of Investor Relations. Please go ahead.

Thanks, Kate, and good morning everyone. On today's call, John Murray, President; and Mark Kleifges, Chief Financial Officer, will make a short presentation, which will be followed by a question-and-answer session from analysts. Please note that the recording, retransmission and transcription of today's conference call is prohibited without the prior written consent of HPT. I'd also like to point out that 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, May 10, 2017. 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 adjusted EBITDA to net income as well as components to calculate AFFO are available in our supplemental package found in the 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 Form 10-Q to be filed later today with the SEC and in our 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. And with that, I'll turn the call over to John Murray.

Thank you, Katie. Good morning and welcome to our first quarter 2017 earnings call. Earlier this morning, we reported first quarter normalized FFO of $148.8 million, an increase of 6.2% compared to the 140.2 million reported in the first quarter of 2016. On a per share basis, normalized FFO of $0.91 per share represents a 2.2% decrease compared to the $0.93 per share reported in the first quarter of 2016 due to our higher outstanding share count a result of our common share offering last August. First quarter results for HPT's 198 travel centers reflected reduced diesel fuel volume sold and slightly lower cents per gallon diesel fuel margins versus the comparable 2016 period, resulting in a 9.2% or $7 million decrease in fuel margin. The decline in fuel gross margin was partially offset by nonfuel gross margin, which increased $2.5 million or 1.2%, led by improvements in the stores, repair shops and quick service restaurants. TA's rent due to HPT increased to 4% compared to the 2015 quarter, a result of increased investments. Property level rent coverage for the quarter was 1.22 times, down from 1.37 times in the 2016 quarter. Turning to hotel investments, HPT's first quarter 2017 comparable RevPAR grew by 1% despite competition from new room supply and market-specific events including continued weakness in Houston, the Convention Center renovation in San Francisco and difficult comparisons in Southern California reflecting last year's gas leak. GOP margins declined by 50 basis points versus the 2016 quarter to 39%, reflecting increased labor costs in travel agent commissions. Coverage of annual minimum returns and rents at all of our hotels declined to 0.88 times for the quarter from 0.92 times in 2016. This is the seasonally weakest quarter for HPT's hotel portfolio. Despite expectations for better growth later in the…

Thanks, John. Starting with the performance of our travel center investments, a relatively soft trucking environment in the 2017 first quarter resulted in the decline in property level operating results from the 2016 quarter. Fuel gross margin for our travel centers decreased $7 million or 9.2% versus the prior year quarter, primarily as a result of a 6.3% decline in total gallons sold. TA believes that the decline in gallons sold was largely due to a combination of continued fuel efficiency gains and the soft trucking freight environment in particular during the first two months of the year. Per gallon gross margin decreased modestly year-over-year. Our travel centers continued to grow nonfuel gross margin, which increased 1.2% versus the prior year. Nonfuel gross margin totaled $211.1 million in the 2017 first quarter and accounted for approximately 75% of the total gross margin of our travel centers during the quarter. Site level operating expenses increased to 1.2% versus the prior year quarter due primarily to increased fuel card transaction fees, which are subject pending litigation between TA and the card provider. As a result of these changes, first quarter EBITDA of our travel centers was $83.4 million, a 7.5% decrease compared to the first quarter of 2016. Minimum rent for our travel center leases was well covered at 1.22 times for the seasonably weaker first quarter and a 1.53 times for the last 12 months. Operating results at our comparable hotels were generally soft this quarter with RevPAR up 1%, a 50 basis point decrease in GOP margin percentage and a decline in cash flow available to pay HPT's minimum returns and rents of 1.7%. The 1% increase in RevPAR this quarter resulted from ADR growth of the 0.9% and a 10 basis point increase in occupancy. The portfolios with the…

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Ryan Meliker of Canaccord Genuity. Please go ahead.

I had a couple of things I wanted to touch on. First of all, I wanted to better understand with the Wyndham portfolio, I know it's not a big component of your overall portfolio, but obviously looks like the security deposit was depleted in the first quarter. I know there's seasonality tied to the quarterly results. And obviously, it looks like 3Q is probably the strongest quarter for that portfolio. How does the waterfall work with regards to that? Is that, if in the third quarter, you're not seeing NOI well in excess of the minimum rents there, minimum returns there?

The waterfalls look at month-by-month and quarter-by-quarter and it's a cumulative outlook back. So, to the extent that there is shortfalls early in the year during the weaker quarters and then stronger performance later in the second and third quarters, advancements made by Wyndham to cover shortfalls in the early periods can be earned back replenished, which we expect and I think they expect will happen this year and is what happened last year as well.

So, I guess to put it another way, if in 2Q, you guys don't receive the minimum returns by let's just say $1 million. In 3Q, if you -- if the performance generates minimum returns of say in excess of the minimum of $5 million, you get the $1 million from 2Q that you lost and the other $4 million goes to replenish the security deposit? Is that correct?

Well, we have to play out that way but let's just point out that Wyndham, the guarantee was utilized in January, fully utilized in January. Wyndham has continued to fund shortfalls in excess of the guarantee amounts. So through the end of the first quarter, they funded about $3.9 million of shortfalls in excess of maximum guarantee amount. So, to the extent there's excess cash flows as we expect there will be going forward in excess of our minimum returns, first, they'd earn back that $3.9 million in advances, if you will, that they have made through the end of the first quarter, and then the security deposit would start getting replenished after that point.

Got you. So that's helpful. So Wyndham's coming out of pocket with a corporate guarantee in excess of security deposit. Do they an obligation to be funding the shortfalls in excess of the security deposit? Or is this just sign of choosing to do with sign of good faith?

Well, the way that particular contract works is it's an event of default, if we receive less than 85% of the minimum returns for any month.

Got you. So, they'll guarantee up to 85% then essentially?

Right, I think it's fair to say that they are acting in good faith and paying the full amount because they expect that as we get into the better -- the stronger years, the stronger quarters of the year for lodging performance for this portfolio and as the Hamilton Park Hotel ramps up after the renovation, the cash flow will increase significantly from where it is in the first quarter.

Yes, I think it's important to put the first quarter in perspective. There's two hotels that make up about 47% of the minimum returns under that agreement. That's the Florham Park Wyndham Hotel, which was under renovation during the first quarter and the Wyndham Grand in Chicago, which, as everyone knows, Chicago is not a great first quarter market. So, we expect performance of both of those hotels to increase significantly going forward and therefore the results of this portfolio to improve significantly.

Okay, that's helpful. And then just one more that I wanted to touch on was you guys obviously did some acquisitions in the quarter. We've particular noticed the two IHG Kimpton transactions. It seems like over the past couple of years, IHG and particularly Kimpton-related deals have been what you've kind of leaned towards the side from the Sonesta product. I'm just wondering, is IHG the primary player right now that's willing to work with you guys in terms of the minimum returns and minimum rent requirements? Or is it just that these are the deals that have worked out best for you?

Well, obviously, Sonesta is a related party so I don't have to discuss that. But IHG, we've had a good relationship with IHG for many, many years. And most of the transactions we've done with them have been based on a strategic rationale, and they invested in the Kimpton brand. The Kimpton brand has performed well. It's been a leader among independent and boutique hotels. But because Kimpton was a private acquisition by IHG, it was a small company. They had to make some concessions in their management agreement historically to get owners to engage them as managers. And some of those provisions were included either easy or low termination cost or termination provisions upon sale. And so IHG is interested to keep its footprint and so we've worked with them strategically to help them keep hotels in Portland, Oregon, in Downtown Chicago, in Seattle to help them keep their distribution in those brands, which might otherwise have been rebranded or kept as independents. And they've also made a strategic commitment to improve the Crowne Plaza brand, and we own a number of Crowne Plazas already. And so that benefits us if that brand is improved, and we -- but they're also putting more money into those hotels. So that -- those are the reasons why we've been investing there, we have other transactions that may play out over the next year or so that involve our other operators. You are correct that over the last two years, that's where we've done most of the business, IHG and Sonesta.

But then the other operators are still receptive to doing deals with you that involved your minimum returns?

Yes, I think they are.

[Operator Instructions] The next question comes from Bryan Maher of FBR & Co. Please go ahead.

First, technical question for Mark. The, to be funded TA for the balance of this year, I think you said $53.8 million. Does that include the second quarter property by or is that just improvements?

Just improvements.

And can you give us a little color on what kind of improvements? Is it the continuation of the re-skinning of a lot of properties or is it going to be restaurant additions and truck service bed additions?

It's all over the place from store re-brandings and upgrades, restaurant upgrades, fuel upgrade. It's spread out fairly wide.

And as I'm sure you guys know, TA missed earnings estimates yesterday by a pretty wide mark and I think some of the criticism has been related to significant spend in numerous areas. And I think our expectation would be that, that spend starts to get range in a little bit. Is that consistent with what you guys are thinking or no?

I think there's a steady level of amounts that they'll spend to keep their properties up. And to the extent some of those are capital expenditures that improved property layouts or improved bathrooms or stores or truck service beds then I think that we're willing to continue to make investments in, like we have in the past.

Yes. And I guess, I'd say 2015 was around, we funded around $100 million of improvements, about $110 million last year and this year will be the high $70 million. So it has come down rather significantly this year.

And then kind of lastly on TA, I mean, the stock has gone decimated and you know that there wasn't reported offer on the table for the Company a year ago. I believe, if memory serves me, it was $14 a share that was kind of put off by the management and the Board. My question is given where the stock is trading and what's been going on with earnings for the last two years, if a meaningful capital partner were to come along and make an acquisition attempt for TA, and I'll asked this question separately of RMR. Would you be entirely adverse as a company to reassign those leases to a new owner? Or is that something you're just vehemently against?

I don't think there's a lot of -- that's really productive, Bryan, for us to comment on hypothetical acquisition offers for companies those in HPT. So, I just would rather not go there. We would evaluate whatever transactions on the table is the time is of the table I do think we have any sort of lines drawn on the sand. But it's hard to comment on something that's that abstract.

Okay. And then of the hotel acquisitions side, I mean, you've made a couple of pricy acquisitions, particularly the Seattle properties, I guess, it was the hotel Alexis. Should we consider this a little bit of a shift for you guys to more upscale and luxury? Or is it purely opportunistic?

Maybe a measure of both possibly, I mean again, it was -- those are transactions to help one of our better or one of our strong operating partners. And we think Seattle is a great market. It's one of the largest ports on the West Coast, its home system companies like Amazon and Nordstrom and Microsoft and it's a great city. The hotel is very well located. I would add to the purchase price for that hotel on a 4Q basis was less than a couple of other acquisitions that were taking place in the same time frame. So that's just a reflection of how successful and vibrant the economy is in Seattle as opposed to crazy pricing. So when there's opportunities we'll take advantage of those opportunities, but I think you'll continue to see us invest in select service, extended stay hotels at the same pace. But there will be generally speaking be in portfolios, not one offs like the full service.

There are no additional questions at this time. This concludes our question-and-answer session. I would like to turn the conference back over to John Murray, President, for any closing remarks.

Thank you for joining us today. We hope to see some of you at NYU with the conference coming up in a few weeks. Thanks again.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.