Good day, and welcome to Hospitality Properties Trust Second Quarter 2019 Financial Results Conference Call. [Operator Instructions] At this time, for opening remarks and introductions, I would like to turn the call over to Senior Director, Investor Relations, Katie Strohacker. Please go ahead.

Good morning. Joining me on today's call are John Murray, President; Brian Donley, Chief Financial Officer; and Todd Hargreaves, Vice President. Today's call includes a presentation by management followed by a question-and-answer session with 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 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, August 9, 2019. 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 and adjusted EBITDAre. Reconciliations of normalized FFO and adjusted EBITDAre 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 you, John.

Thank you, Katie, and good morning. This morning we reported second quarter normalized FFO of $1.03 per share, a decrease of 3.7%, compared to the $1.07 per share reported in the second quarter of 2018, primarily related to our disposition of 20 travel centers and the lease amendments with TA we completed in January. The most significant event this quarter was our announcement of the acquisition of $2.4 billion Net Lease Portfolio of Service-Oriented Retail Properties from SMTA REIT. Todd will provide an update on that transaction shortly. For HPT's hotels, second quarter 2019 comparable RevPAR decreased by 2.1% versus the 2018 quarter, resulting from a 1.2% decline in rate and a 0.7 percentage point decline in occupancy. HPT's comparable RevPAR performance trailed industry results this quarter as the HPT's comparable non-renovation hotel performance, which declined 0.3%. Hotels that were renovated in 2018 recognized healthy double-digit RevPAR growth this quarter with multiple success stories in our Marriott 1, Marriott 234, Radisson, and Sonesta portfolios. We expect lift from these hotels throughout the remainder of the year. However, renovation disruption and other factors more than offset this tailwind. In the second quarter, we had 14 hotels under renovation versus 11 comparable renovations in Q2 2018. Of the 14 comparable renovation hotels this quarter, nine were full-service assets versus three in the same period last year. Renovations were evenly divided across the IHG, Marriott 234, Sonesta and Radisson portfolios. In addition to renovation disruption the portfolio was negatively impacted by non-recurring FEMA business that impacted 15 hotels and reduced demand from fewer Citywide events in Chicago. Supply remains an ongoing burden on hotels and hasn't impeded the ability to replace non-repeat business and to ramp up post renovation as easily as in past years. Turning to hotel portfolio performance, a Marriott 1…

Thanks, John. As John mentioned, in June, we announced our agreement to acquire Net Lease Portfolio of Service-Oriented Retail Properties from SMTA REIT for $2.4 billion. The transaction will add 770 net lease properties to HPT's portfolio in 22 different industries spanning 164 brands across the United States. The acquisition of this portfolio evolves HPT to a hospitality and service retail focus with net leased properties and complements HPT strategy by providing a reliable income stream and should require minimal capital expenditures. SMTA's shareholder vote of transaction is scheduled to occur on September 4 and assuming a favorable outcome, we will close the transaction later in September. Integration efforts are ongoing across the organization and we believe we are well-positioned to transition this portfolio of HPT. As previously announced, we expect to sell approximately $500 million of the properties we will acquire from SMTA. We have commenced marketing efforts and believe we will be in a position to execute the majority of these sales in the fourth quarter of 2019. The assets we are selecting for sale will generally be a cross-section of assets across various industries and certain assets that do not strategically fit the portfolio. We are hopeful that by the time we announce third quarter earnings, we may have selected a buyer. I will now turn the call over to Brian.

Thanks, Todd. Starting with operating results at 322 comparable hotels this quarter, RevPAR decreased 2.1%, GOP margin percentage decreased by 222 basis points and cash flow available to pay HPT's minimum returns and rents decreased by 8.2%, which was the result of the negative impacts of renovations and increased operating costs. Our Hyatt and comparable IHG portfolios had the weakest RevPAR performance with declines of 5.7% and 4.6%, respectively, versus the prior year quarter. Our comparable Sonesta and Radisson Hotel portfolios had the strongest RevPAR performances with increases of 2.5% and 0.2%, respectively, versus the prior year quarter. GOP margin percentage for our comparable hotels decreased by 222 basis points from the 2018 quarter to 40.6%, and gross operating profit decreased approximately $16.2 million. All our comparable portfolios experienced declines in GOP, results from our IHG, Marriott 234, Sonesta, and Hyatt portfolios made up the majority of the decrease. Revenue losses were associated with renovation activity. Fewer Citywide events in certain markets supply growth, non-repeat FEMA business in our Miami and Houston area hotels. Labor-related costs increased approximately 3.6% across the portfolio, while additional marketing efforts also contributed to increased expenses this quarter. Below the GOP line cost at our comparable hotels declined by $2.4 million from the prior year, driven by lower insurance and real estate tax expenses. Cash flow available to pay our minimum returns and rents for our comparable hotels declined $13.8 million or 8.2%. Cash flow coverage of our minimum returns and rents for our 322 comparable hotels decreased to 1.11 times for 2019 quarter, compared to 1.22 times for the prior year quarter. Our available security features under our hotel operating agreements were replenished by $9 million during the quarter from cash flows in excess of our minimum returns and rents. In total, the balance…

Yes, thank you. [Operator Instructions] And the first question comes from Bryan Maher with B. Riley FBR.

Yes. Good morning. A couple of questions on the SMTA portfolio. I guess, you noted that you expect to close in the fourth quarter. And I thought I heard from your comments that it would be going to just one buyer. Is that correct?

Well, we expect to close on the SMTA transaction at the end of September, and we hope and expect to close on the sale of the $500 million of assets in the fourth quarter. We have a couple of properties that we identified that are – that just don't fit the portfolio, that we're selling individually. And then we have a large portfolio as Todd mentioned on the call and he can give you in more detail, but that's being offered as a single portfolio initially, but could be broken up into several sub portfolios. Todd, you want to?

Sure. Brian, this is Todd. So, we have – in terms of timing, we have engaged a broker. We are in the market. We're talking with potential buyers. We are marketing approximately 125 properties as one portfolio, but we are also showing it to investors as three different tranches as well ranging from $100 million to $200 million, and it's really broken out more by property type. So, pool 1 is restaurants QSRs casual dining, pool 2 is automotive dealers, car washes, specialty retail and pool 3 is movie theaters, home furnishings, day care health and fitness apparel in dollar stores. I think we probably put it about 25% that it goes to one buyer, we think it's more likely that it gets split up. But again, we're not like we just put it out between more than three buyers.

Okay. So, there is the three tranches, the 125 properties. And I think you said at the beginning of the answer, some single assets as well in addition to the 125, is that correct?

Yes, there is a Class A office building in Las Vegas. And there is an industrial property in just outside South Boston in Massachusetts. With those we have different brokers marketing those two properties individually.

Right. We're in the market on the office building and in the broker selection process for the industrial building.

Okay, great. That's helpful. And then switching on to Wyndham. I know you don't want to get probably too much in the weeds with what happened there. But what was the big hold. What was that – was there some big thing in particular, they kind of kept you guys from getting a deal. And I'm guessing you're not terribly upset by the outcome.

Well, Wyndham worked really hard on that portfolio. And I think, in some respects – it would be – it's a positive for HPT to have a diverse group of hotel operators. So, I wish we could have worked something out, but Wyndham took over our portfolio of properties that we took away from another major brand during or just after the great recession. And they rebranded those hotels and we acquired a couple of other hotels, one in Chicago and one near their office in New Jersey, and the market softened after that, the basis was high, so they had a fairly high hurdle to hit. The Chicago market we can dramatically as a result of a lot of new supply that came on. So, there are a lot of headwinds that they faced and as we tried to negotiate an alternative portfolio we just – we couldn't figure out a way to slice and dice things, so that it was going to be a long-term positive portfolio going forward without obvious challenges. And so, at the end of the day, both sides agreed that we are better off trying to find a cooperative way to bring the relationship to a conclusion. It's possible that some of the hotels or maybe even a majority of the hotels may remain Wyndham branded depending on who the buyers are, so there's a lot there remains to be seen, but we are moving forward with we have several national brokers working on opinions of value for us currently, and we expect to be in the market. Evaluating the potential sales of some of the assets, possible re-brandings of others, you know fairly strong.

And so, as you look at the portfolio, and John, you've been doing this a while. How many of the 22, do you think Ultimately or would your goal be to sell versus how many do you think you want to keep and maybe rebrand or something else?

Well, it's – I think, I would say it's maybe too early to say. I think that they'll definitely be interested in a couple of hotels for rebranding, Chicago and – the property in Irvine, California, are probably likely to be rebranded. The major brands are in a constant battle for unit growth. And so, I think that our existing partners will probably look at these assets to see if there may be some that they might be want to add to our existing portfolio, so we may – to maybe some properties that shift from one portfolio to another. But I would suspect that – if I had a guess right now, I would say probably somewhere between 15 and 20 of the properties are sold in the Wyndham portfolio. And there's a good chance that a bunch of them, bunch of the Hawthorns, in particular, might remain may keep the brand.

Okay. Thanks, John. That's really helpful.

Thank you. [Operator Instructions] And the next question comes from Michael Bellisario with Baird.

Good morning, everyone.

Good morning.

Good morning.

Good morning.

Just on the same Wyndham topic, kind of high level, how you're thinking about balancing the capex needs for the few that you might keep and rebrand versus just simply selling all of them to reduce your leverage a little bit quicker given that it's stepping up after the Spirit transaction.

Yes. We have been investing in the portfolio. So, I think that the hotels are in okay shape. So, I imagine whoever ends up with some of the – with a couple of those larger full-service hotels like Chicago in Irvine, if they do get rebranded. There will be – there will be capital associated with those. But it's still too early to tell how big a number that will be – but I don't think that won't have a material impact on HPT on its leverage. So, there is capital, it's been six or seven years since Wyndham rebranded the Hawthorn. So, I expect that there will be capital that goes into those properties. Well, I don't – I don't want to give anybody their own pep. I'll let them figure it out. But there will be capital required on the Hawthorn.

Got it. And then just to clarify on Chicago in Irvine, when you say rebrand, you mean rebrand by you or a potential buyer of the property?

I think that – what I meant, when I said rebrand on those two properties is that we would probably keep them in the portfolio and then by change to one of our other operators. It could be – it could be a Sonesta somebody else.

Got it. Okay. That's what I thought. And then just lastly on Kauai, I know it's early there, but just thinking about, if you do sell 30 properties, where would that take your hotel exposure? I know you mentioned 50% to 60% was kind of a target in June after the Spirit transaction. Has your view changed at all on what that 50% to 60% range look like and does this potential 30 Hotel sale changed our thinking at all?

Well I guess just stepping back where we currently have brokers doing opinions of value for us on both portfolios about a little over 30 properties in out of the two Marriott: Marriott 1 and Marriott 234 portfolios, and the 22 properties in the Wyndham portfolio. And depending on where those valuations come in and where the levels of interest come in from other operators, that we do business with what – that's how, once we have all that data, we'll make the decisions on how much to sell. Right now, we have between the SMTA portfolio, that Todd talked about earlier, and the RMR shares that have already been sold. I think to meet the targets that we had, Brian will correct me if I get this wrong, but to meet the targets that we had previously discussed, we only need to sell about $200 million worth of hotels, and I think we have in excess of that in these two portfolio, so we have a fair amount of flexibility. So, we could – if we sell more and rebrand less and our leverage will come down a little further than we initially told people.

Got it. That's helpful. Thank you.

Thank you. And the next question comes from Dori Kesten with Wells Fargo.

Hi, good morning, everyone. Your operators RevPAR expectations for the year came down considerably quarter-over-quarter. And I was just wondering was this evenly distributed across the agreements or was it concentrated in some and then what would that imply for rent coverage by year-end?

I'll take the first part, and I'll let Brian fill in the coverage part. But I think it will be fair to say that all of our operators have reduced their expectations. They are all expecting that to see occupancy grow largely because of renovations we've had as properties come off renovation. So, they are expected to regain some of the disruption, but rates are – if there's any growth that will be – it's expected to be modest. And so, and there's a lot of continued wage benefits pressure. So, I think it's across the Board, that where everybody is experiencing some weakness, suppliers impacting everybody, supply growth. So, yes, there is no one – there's no one cooperate, it's evenly spread.

Dori, as far as coverage goes, we expect our two Marriott portfolios, our Radisson portfolio to be above one time, but decreased over prior from prior years, IHG and Hyatt portfolios will hover around one times, and then the other portfolios Sonesta and Wyndham will track to similar to prior years. So, overall coverage for the whole consolidated hotel portfolio will be under one times, but the major components of that will be around one time or greater.

Okay. Thank you.

Thank you.

Thank you. And as there are no more questions, I would like to return the floor to John Murray for any closing comments.

Thank you everyone for joining us on today's call.

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