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Hospitality Properties Trust (NYSE:HPT)

Q3 2008 Earnings Call

November 11, 2008 11:00 am ET

Executives

Tim Bonang - Director of Investor Relations

John Murray - President and COO

Mark Kleifges - Treasurer and CFO

Analysts

Michael Salinsky - RBC Capital Markets

Jeff Donnelley - Wachovia securities

William Truelove - UBS

Nap Overton - Morgan Keegan

David Tannehill - Morgan Asset Management

Operator

Good day and welcome to the Hospitality Properties Trust third quarter 2008 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 Director of Investor Relations Mr. Tim Bonang. Please go ahead.

Tim Bonang

Thank you and good morning, everyone. 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.

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 Federal Securities Laws.

These forward looking statements are based on HPT's present beliefs and expectations as of today, November 11th, 2008. The company undertakes no obligation to revise or publicly release the results of any revision for 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 numbers including funds from operations or FFO. A reconciliation of FFO to net income is 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 the 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 Q3 supplemental operating and financial data found on our website at www.hptreit.com. Investors are cautioned not to place undue reliance on any forward-looking statements.

Now, I would like to turn the call over to John Murray.

John Murray

Thank you, Tim. Good morning and welcome to our third quarter 2008 earnings call. Yesterday, HPT recorded FFO per share for the 2008 third quarter of $1.06. FFO this quarter reflects a rent deferral of $15 million or $0.16 per share in connection with the rent deferral agreement with TA, which we announced last quarter. Amounts deferred have been reserved due to the current uncertainty about TA's eventual ability to repay us in 2010.

In addition, as noted in the second quarter we have stopped accruing straight line rent of $3.5 million or $0.04 per share per quarter related to the TA lease. TA's quarterly results were also announced yesterday and hopefully many of you listened to TA's earning call this morning. Despite the weak economic environment, TA reported its best quarterly financial performance since its spin-off from HPT in January 2007.

Despite fuel volumes, which were down about 17% quarter-over-quarter, across the 184 comparable HPT owned sites fuel gross margin increased 55%. Non-fuel revenues and gross margin declined 4.7% and 3.2% respectively, far less than fuel volumes dropped. This may indicate that even though some customers are purchasing fuel elsewhere, they are still coming to TA and Petro travel centers for the other services.

Other property level operating expenses were flat with the 2007 quarter. As a result, in the 2008 third quarter TA covered the rent due under its leases with HPT at both the property level and more importantly at the corporate adjusted EBITDA level and did so by a substantial amount.

There are a number of factors that led to TA's improved performance as we discussed this morning. Among them was the success with pricing strategies aimed at maintaining acceptable fuel margins, the impact of greater expense control and the steady decline on the price of fuel during the quarter.

Nonetheless, these remain challenging times for TA and the trucking industry, due to the current economic weakness which is causing fewer goods to be shipped. Fleets and independent truckers will also continue efforts to conserve fuel.

Some of you may look at TA's results this quarter and say the rent deferral agreement was unnecessary. However, as we told you last quarter the rent deferral was not made in response to a crisis at TA. Rather it was a proactive move ensure they have sufficient liquidity available for the next two quarters, which are historically the weakest of the year for trucking and may be especially so this year due to the recessionary environment.

At September 30, TA had approximately $144 million of cash on hand, availability under its line of credit of approximately $30 million and access to additional CapEx reimbursement of about $25 million from HPT.

The rent deferral of up to $5 million per month through December 2010 should enhance TA's ability to address the liquidity risks from present market conditions and to meet working capital needs during an extended economic slump. To sum it up, in the current economic environment it seems prudent to have a short-term mechanism to provide TA with additional liquidity if necessary.

Turning to our Hotel investments, third quarter 2008 RevPAR growth averaged 0.3% across our 290 comparable hotels driven by rate increases, which rose 1.5% and a 1.2 percentage rate decline in average occupancy of 74.4%. RevPAR growth was aided primarily by improvement at our higher placed hotels, which increased 23.7% over renovation period comparisons in 2007.

Although we are pleased that our portfolio has continued to achieve rate gains with only modest occupancy declines, we are concerned about reducing business in leisure transient demand as the economy weakens. We believe HPT's hotels are well positioned to compete in the weak economic cycle as demonstrated at the local market level by their average RevPAR index, which has increased 4.8 percentage points for the third quarter of 2008 to 118.9.

Of course, we have been through down cycles before and our hotels have performed well. RevPAR performance this quarter was flat to down in most regions with the strongest regional performance seen in our hotels in the two west central regions, driven by strong results at our hotels in Texas and at our Hyatt Place properties.

Balancing these strong results were Canada and the mid-Atlantic and mountain regions, which felt the impact of reduced demand particularly in the suburban New Jersey and Philadelphia markets and Phoenix and Las Vegas markets respectively. Clearly the weak economy, related layoffs, and liquidity crisis are having a negative impact.

The strongest portfolio performance came from HPT's highest placed portfolio against the 2007 construction period comparison. Profit margins improved at our Hyatt Place properties from approximately 19% in the 2007 quarter to over 31% in the 2008 quarter.

In addition to the strong Hyatt Place performance our up scale extended stay focused hotels, Residence Inn and Staybridge Suites showed steady RevPAR growth of 2.7% and 2.6% respectively.

Despite growth in total hotel revenue, operating costs increased at a greater rate and as a result hotel gross margins were softer by 110 basis points in the 2008 third quarter versus 2007. However HPT's hotel annual minimum return on rent coverage ratios has generally remained strong.

Our managers continue to reduce their projections for RevPAR growth for the fourth quarter 2008 and full year 2009 as the weak economy has reduced visibility. Most are now expecting full year 2008 RevPAR growth to be flat and slightly down.

Not surprisingly, economic concerns are weighing heavily on expectations for 2009. Each of our operators has implemented contingency plans in an effort to increase demand from new sources and maintain current business while also closely monitoring and controlling costs to the extent possible without impacting the guest experience.

Before I turn the call over to Mark Kleifges, I would like to remind you about our track record during the 2001 to 2002 hotel industry downturn and the security features of our agreements. All of HPT's hotel management agreements and leases require that we be paid priority returns monthly and there are corporate guarantees or security deposits which secure the performance of our tenants and operators. The priority of our returns further allows the interest of the owner HPT and our tenants and operators.

HPT's operators and tenants are not small unknown enterprises, rather our properties are operated by large well known managers, like Marriott, IHG, Hyatt, and Carlson. Our percentage of rents and returns, which made up only about 5% of HPT's net revenue during the first nine months of 2008, may be impacted by a downturn, but we expect the minimum rents and returns will be paid without exception.

We also believe it is short sided to meaningfully curtail capital expenditures at this point in the economic cycle. To the contrary, when business levels are reduced, it is often the best time to complete capital projects. There is less cash displacement and generally labor and materials at a better price, so we intend to continue keeping our assets attractive and competitive.

I will now turn the presentation over to Mark Kleifges, our CFO.

Mark Kleifges

Thanks, John. During the 2008 third quarter, RevPAR for our hotel portfolio increased 0.3% with increases at our Hyatt, IHG4, Residence Inn and Staybridge Suites portfolios of 23.7%, 7.2%, 2.3% and 2.3% respectively. These increases were offset by a 4.9% decline at our Kauai Marriott, a 4.4% decline at our Carlson portfolio, and a 3.4% decline in our Marriott Courtyard portfolio.

Hotel gross margins declined for the quarter dropping 1.1 percentage points to 43.7%. We experienced a significant increase in gross margins at our Hyatt portfolio driven by a 9.4 point increase in average occupancy and a 7% rise in ADR.

Consistent with hotel gross margins, cash flow available to pay our minimum returns and rents also declined quarter-over-quarter. Although our Hyatt turned in a strong performance with cash flow increasing approximately 105% to $6 million in the quarter, eight of our 11 hotel portfolios experienced quarter-over-quarter declines in cash flow resulting in a 1.8% decrease in cash flow available to pay our minimum rents and returns.

Despite this small decline, rent and return coverage ratios remain strong for our hotel portfolios. On a trailing 12-month basis, only two of our operating agreements have coverage below one time at September 30. Our Marriott Kauai lease and our Hyatt management contract.

As we discussed last quarter, the Kauai lease, which is subject to a Marriott guarantee, is not expected to show significant improvement until after its renovation is completed in late 2009 or early 2010.

The 12-month coverage number for the Hyatt portfolio includes operating results for periods when certain of the hotels experience significant description due to the higher place re-branding process. We expect coverage for the Hyatt portfolio to be greater than one times for the 2008 year. Our remaining nine hotel portfolios have coverage ratios of 1.15 times to 1.56 times for the trailing 12 months.

Turning to our TravelCenters portfolio, TA followed a much improved second quarter with an outstanding third quarter. Cash flow available to pay rent at our 184 comparable travel centers increased $22.7 million or 28% over the 2007 third quarter. This compares to quarter-over-quarter declines in cash flow of 33% in the fourth quarter of 2007 and 17% in the first quarter of 2008 and an increase of 6% last quarter.

Property level coverage for the quarter was 1.8 times for our 145 property lease and 1.9 times for our 40 property lease. More importantly, TA produced corporate level adjusted EBITDA of $89.8 million, a 46% increase over the 2007 third quarter. TA's adjusted EBITDA coverage of cash rent at the corporate level for the quarter was two times. Adding back the $15 million rent deferral during the quarter, coverage of cash rent would have been 1.5 times.

HPT's EBITDA in the third quarter of 2008 was $144.2 million which is a 9.6% decline from 2007 third quarter EBITDA of $159.5 million. This decline is attributable to the $15 million rent deferral by TA as well as the impact of not accruing straight-line rent of $3.5 million in the 2008 third quarter.

Minimum returns and rents were $127.8 million in the 2008 third quarter, a 10% decrease from the 2007 third quarter. Again, this decrease resulted primarily from the $15 million rent deferral by TA.

FFO for the third quarter includes approximately $6.4 million, or $0.07 per share of additional returns and percentage rent. This compares to approximately $9.4 million or $0.10 per share in the 2007 third quarter. We experienced quarter-over-quarter declines in additional returns at all of our managed portfolios in the third quarter and expect this trend to continue in the fourth quarter.

In October, we declared a $0.77 per share common dividend related to the third quarter. Our FFO payout ratio was 73% in the third quarter and we generated cash flow available for distribution in the quarter sufficient to cover our common dividend.

Turning to our balance sheet and liquidity, cash and cash equivalents totaled $46.8 million at September 30, which includes $37.5 million of cash escrowed for future improvements to our hotels.

During the quarter, we made approximately $20 million of capital improvements to our hotels and we expect to make additional improvements of between $20 million and $30 million during the remainder of 2008.

HPT's debt to total capital on a book basis was approximately 50% at September 30, and our EBITDA to total fixed charges coverage ratio was 3.3 times in the 2008 third quarter. Our liquidity remains strong with $343 million available under our revolving credit facility and no debt maturities until July 2010. That concludes our prepared remarks.

Operator, we are ready to take questions.

Question-and-Answer Session

Operator

(Operator Instructions). Our first question is from Michael Salinsky with RBC Capital Markets.

Michael Salinsky - RBC Capital Markets

Good morning. Mark, could you touch on your capital spending plans, the full year plans for this year and maybe your initial thoughts about 2009 at this point?

John Murray

As I said, we will probably spend around another 20 million in the fourth quarter. We are in the process right now of working with all of our operators on 2009 capital plans. So, we will be able to give you some color during next quarter's call.

For both total expenditures, we plan to make at our hotels next year as well as how much of those improvements will be funded out of existing FFO reserves versus additional funding by the company.

Michael Salinsky - RBC Capital Markets

Okay. How far would RevPAR have to fall next year before your dividend would be coming into question? You deal with the uncovered by cash flow?

John Murray

We have weathered some pretty significant downturn. You have to remember we have well large capitalized operators and the payment of our rents or minimum returns does not have anything to do with RevPAR growth or declines. So, there are security deposits and guarantees and well capitalized operators. So, we expect that even if there is a fairly significant RevPAR declines in 2009, that we will continue to be paid our rent and minimum returns. Our percentage rent and percentage of returns contingent returns may be impacted but that should be the only impact.

Michael Salinsky - RBC Capital Markets

Okay. That is helpful.

John Murray

We do not rely on those contingent returns to pay our dividends.

Michael Salinsky - RBC Capital Markets

Okay. Third, in terms of TA; obviously the fourth quarter and first quarter are slow periods; do you expect them to take the full deferral again and did they take the deferral in October?

John Murray

We expect that they will through the entire fourth quarter and first quarter continue to defer the rent under the deferral agreement. It may not be necessary in any given month at the front end as you have probably seen that the price of fuel has continued to decline over the course of the month of October but we expect that the deferral will be taken at least through the end of the first quarter.

Michael Salinsky - RBC Capital Markets

Okay. Then finally on your exchange note the APB14-1 which takes effect next year, what impact do you expect from that?

Mark Kleifges

Let's see. If you take a look at the Q, we added some disclosure this quarter on that subject. I can share that with you if you could give me a second. We put in a preliminary estimate what we think the impact of that will be and where we are right now is we think it will be between $0.08 and $0.10 a share on an annual basis, and we will move from that up in the 10-K at year end.

Michael Salinsky - RBC Capital Markets

That is helpful. Thank you very much.

John Murray

Thank you.

Operator

Our next question is from Jeff Donnelley with Wachovia securities.

Jeff Donnelley - Wachovia securities

Hi, good morning. Maybe this is a different way of asking Mike's question. Are you able to provide for us either any aggregate or maybe lease-by-lease the magnitude of the RevPAR decline you can endure before the hotel leases if you go drop below 1.0 times lease coverage? It is not only a dividend question; it is more a lease coverage question.

John Murray

I think just too many factors that go into that, Jeff. There is certain, for instance, we know that the Kauai Marriott is going to be undergoing substantial renovation next year. So, we expect that that will not cover rent next year. Then there may be a ramp up period even into 2010 when that is being completed. So, it is possible even in 2010 that will not cover.

Then you need to make assumptions about the mix of how the revenue declines are driven by occupancy declines and rate declines and how much cost the management teams are able to cut back and it largely becomes a long list of assumptions that go behind it. It is effectively a guessing game.

It is one of the reasons why we structured our agreements the way we did so that even if for a short period of time if we have less than one times coverage, we expect that we will still be paid. We own substantial number of assets for each of the operators who manage hotels for us.

As I said, they are well capitalized and we expect we will be continue to be paying our returns regardless of whether there is a blip below one times coverage. We have had coverage below one time before in a number of portfolios and we have always continued to be paid. So, we expect that will continue.

Jeff Donnelley - Wachovia securities

It may was not what I was asking and then I know you are crystal ball than clear than anyone else's but at this point and given what you are hearing from 2009 outlooks, do you anticipate at this point any defaults under the leases in '09?

John Murray

No.

Jeff Donnelley - Wachovia securities

As it relates to TA, as I think you mentioned, they seem to have good results today. Do you feel there is any need at this point or are they asking to increase concessions under the rent deferral agreement that seems to be at least in view of the financial markets these days?

John Murray

No, if they ask for more, we probably send them to the treasury department to ask and get inline with everybody else. No, seriously, I think that there are features where they could get some of the shares that they gave to us back if they did not use the full rent deferral. So, they are cognizant of that.

They are going to use every bit of the deferral that they need but I do not think that they will use any more than they need. At least based on where fuel prices are and where the results are through the third quarter. The expectation is that they will continue to use the rent deferral, but we do not expect that they will be seeking changes to that one way or the other.

Jeff Donnelley - Wachovia securities

This might be one for Mark. I mean should we look at G&A this quarter either on absolute dollars or as a percentage of assets or somewhat of a run rate for you looking going forward?

Mark Kleifges

No, quarter-over-quarter we were down G&A about $3 million. There is some noise in those numbers and it has to do with the incentive fees under our advisory contract back in the 2007 third quarter, we recorded about $1.6 million of expense associated with those incentive fees.

In the 2008 third quarter we reversed about 1.2 of accrued incentive fees that were recorded in the first and second quarter of this year. So, about a $2.8 million swing that is impacting this quarter. I think on a run rate basis excluding the impact of incentive fees, I think a reasonable run rate is more in the $9.5 million to $9.7 million range.

Jeff Donnelley - Wachovia securities

Just one last question; John, maybe more for a bit of history, can you (inaudible) the Marriott Kauai was carved off into a single property lease and does that make you more concerned, that is given, I know it is just one asset and it is under going renovation, however Kauai is taking its lump sum it does not have the benefit of cross collateralization with other properties in the lease arrangement.

John Murray

There are a variety of factors for the reasons why we separated it out. It was a size hotel that really did not fit well. It was very much unlike all the other hotels in that portfolio that it was in. and it is also part of a Marriott timeshare community and Marriott was going to be expanding that timeshare operation in building Ritz residences and changing the layout of the golf courses and there was going to be a substantial amount of work going on at the resort around that property and we thought we would be better off with a lease that had CPI based rent adjustments in it and we would be counting on revenue increases.

Anyway, so that is why we amended the management contract to pull Kauai out and put it on a lease by itself. I think the most important thing there is that we have a full guarantee for the duration of the lease term from Marriott International, so I can not imagine that we will not be paid the rent there.

Jeff Donnelley - Wachovia securities

It is tied to CPI instead of just actual operating performance?

John Murray

The increases are, yes.

Jeff Donnelley - Wachovia securities

Great, thank you.

Operator

(Operator Instructions). Our next question is from William Truelove with UBS.

William Truelove - UBS

Hey, let me just first say, I am glad that we can get a timeshare discussion in this conference call as well. So you mentioned the additional rents about the minimum are 5% of the revenues, what is that in terms of year-to-date, what is that in terms of FFO per share and can you tell us what it was on a full year basis in 2007? Thanks.

Mark Kleifges

Well, this is Mark. I do not have the per share numbers in front of me, but I can give you the gross dollars. Year-to-date gross dollars is $25.3 million and that -- I am sorry, that was$ 25.3 million in 2007, 21.3 this year, so about a $4 million or 16% year-over-year decline.

William Truelove - UBS

So it is $21.3 million year-to-date for 2008 versus $25.3 million in 2007?

Mark Kleifges

Right. So, it is roughly about a $0.04 just dong the math on my head here about a $0.04 per share decline year-over-year.

William Truelove - UBS

Thanks much. That did it. Appreciate it.

John Murray

Thanks.

Operator

Our next question is from Nap Overton with Morgan Keegan.

Nap Overton - Morgan Keegan

Good morning. A couple of my questions have been addressed but an open-ended question. The market is clearly pricing in a disastrous scenario with the yield on your common stock, the market does not believe that that is a sustainable dividend. I wonder whether you might just want to comment on your view of the real disaster scenario over the next 18 months.

John Murray

I would rather tell you that our Board looked at our dividend every quarter and our cash flow this quarter covered our dividend. We expect it is going to cover in the fourth quarter and as we look out into even in disaster scenarios, we still believe that our operators will continue to pay the rent and returns due to us and that being the case we will continue to be able to pay our dividends. So, I do not lose any sleep at night and frankly I never have at HPT worrying about whether our dividends going to be paid. I do not see that happening in the next 18 months either.

Nap Overton - Morgan Keegan

Okay. Then if we look at, if you go back and look at post 9/11, do I recall correctly that there were defaults under two of your operating agreements during those ensuing years?

John Murray

That is correct. We had two portfolios actually that were with Wyndham and one portfolio with prime where we had defaults and we were able to work through those situations. I think one of misconceptions which may explain where our dividend yield is today is that there are some people that think if there is a less than one times coverage and somehow a default ensues from there that all of that rent or all of those returns go away.

We had coverage that was less than one times and we had defaults but we were able to replace where Wyndham was managing summer field suites for us and we re-branded those to Staybridge Suites hotels with IHG and we were able to do so at fairly favorable with a fairly favorable structure and with a much stronger operator. The 12 Wyndham garden hotels have been branded at Radisson or Country Hill Suite hotels managed by Carlson. We have a fairly substantial guarantee form them.

They are doing a good job operating those properties for us. In the case of prime's default, eventually, after a couple of changes, Hyatt brought that brand, assumed the management contract that we had in place with prime and has converted the majority of those properties, 22 so far, to Hyatt Place hotels which have been a great story for our portfolio this year.

So, I think that a few negative blips that occurred in that very challenging period have been turned into much better relationships, much improved relationships than existed prior to those defaults and in the meantime, we never had to change our dividend.

Nap Overton - Morgan Keegan

Okay. Then on the travel centers lease, just hypothetically. What do you think would trigger a potential decision? I know it is not in the plans of the company now, but a potential judgment to permanently change that lease as opposed to a rent deferral agreement. Just change the lease all together with a new rent payment at a lower deferral amount that the company is paying in cash right now. Or to readjust that lease again? What would trigger that event and what time frame do you think that might occur in?

John Murray

Based on the results that they announced today, I do not see a, I think probably both TA and HPT shareholders are wondering why we entered into that agreement in the first place, now that they have seen the third quarter results. So, I think we are going to get through these next couple of quarters, see how the economy is doing and then TA's management team will decide whether they want to continue to seek deferrals. Based on what we see today and what we know today, we are not contemplating any permanent adjustments or further changes to the agreement that we already have in place.

Nap Overton - Morgan Keegan

Okay. Thanks a lot.

John Murray

Thank you.

Operator

Our next question is from Michael Laurent with Sun Capital Advisors.

Unidentified Analyst

Just a real quick question about TA and this might have been answered on their earnings call. So forgive me I did not listen into that. Given the drop in fuel helping their operations, is there anything that they can do, if fuel rises obviously that is going to put them in dire states again. Is there anything they can do to mitigate the price of fuel or hedge against it or anything like that? I just wonder what the scenario would look like if we did not have a significant drop in the price of oil.

John Murray

Well, I think that is probably a question that is better addressed at TA quite frankly, but I would say that rapidly increasing oil and diesel prices without any abatement creates a very challenging environment for TA. We saw that earlier this year and in 2007. But, in the current economic environment, it is hard to imagine that prices are going to spike back up the way that they did.

So, I do not believe that TA has substantial hedging programs today and I do not believe that they are working on that or expected to start that in the future. I think they are focused on doing a good job with their operations and maintaining margins. I think they have done a good job with that so far.

Unidentified Analyst

Okay, so then given that, do you have any concept of what and I know its may be an unfair question, so I apologize but do you have any concept of what their quarter might have looked like had we not seen such a precipitous decline in the price of oil?

John Murray

I think somebody asked that question on the call this morning and they were not able to quantify the split between what was related to the cost cutting what was related to their efforts to better manage margins and what was related to the drop. We are pretty sure that all three of those impacted it, while we can not distinguish how much was from either.

Unidentified Analyst

Okay, all right, thanks.

Operator

Our next question is from Dennis O'Neil with Sterne, Agee.

Unidentified Analyst

Good morning. Question on FFO or funds from operation, is that the most important factor or figure in determining whether you can pay the dividend?

John Murray

When we look at cash flow, we look at it after FF&E, it is an important measure, and we see it more important than net income.

Unidentified Analyst

That is what I think and that is why I was asking.

John Murray

Cash flow is the most important.

Unidentified Analyst

What was cash flow per share? I did not see that on the release, I was looking for it.

Mark Kleifges

It is not disclosed in there.

Unidentified Analyst

That is why I did not see it then. Why is not it disclosed?

Mark Kleifges

Cash flow per share is really not a typical measure. There are rules about non-GAAP financial measures…

Unidentified Analyst

Okay.

Mark Kleifges

Cash flow per share is not one of them. You can obviously go to the statement of cash flows that is in our supplemental as well as our 10-Q and see the type of cash flow that we have through the first nine months of the year we have generated $260 million of cash flow from operations.

Unidentified Analyst

All right okay we can figure it out that way. Somebody asked about RevPAR and you I said well we have rents and minimum returns and everything. Do your minimum rents and minimum returns pretty much cover the dividend?

Mark Kleifges

Yes, they do.

Unidentified Analyst

Let’s think positive about travel centers. Let's think the other way instead of being doom and gloom. We are going to come out of this sooner or latter. When do you think they could pay back the rents that have been deferred?

John Murray

I think it is just too early to tell. At present we are reserving the amounts that are deferred, because we are not sure for that. If we were or if we had a reasonable basis for thinking otherwise, we would tell everybody.

Unidentified Analyst

Okay, thanks.

Operator

Our next question is from James Howard with JB Howard Investment Company.

Unidentified Analyst

Good morning. I wonder if it would make sense for your Board to purchase some of your shares. Would not that be a good investment for you given the current dividend yield?

John Murray

In the present market conditions we have about, I think we said earlier about $340 million of availability under our credit facility and right now we are holding onto that capacity, monitoring where the economy is going and how it is impacting our existing investments. There is a fairly limited amount of transaction activity out in the marketplace and near-term we are not expecting to be investing any of our capital resources in real estate acquisitions.

At the same time if we were to change course in that regard, we would also evaluate whether it would be better to buyback shares than to buy real estate, but at the present time we are preserving our capital, not reducing our capital base. Certainly there would be something compelling consideration once we decide to begin investing again.

Operator

Our next question is from William Thomas with Thomas Income Investment.

Unidentified Analyst

Good morning. You have already talked about the dividend and it appears that going forward, that the dividend is as secure as most these days. It is my feeling that what is most important is the attitude towards the dividend, just like a coach's attitude towards whether or not he is going to win the game. The attitude towards the dividend, if you could speak to that by any of the key people here in the conference about the attitude towards the dividend, I would appreciate it.

If you could also maybe mention what you think fair market value would be. You would take a look at your NAV. If you could put some a guesstimate as to what you feel fair market value would be if it was not such a psychological market and controlled by people including analysts who do not understand, as you have indicated, how the dividend is covered. I would certainly appreciate it.

Mark Kleifges

I think actions speak louder than words. We have never reduced our dividend. We have increased it 18 times. We have declared the dividends for the third quarter. So I think that the coach's and team here feel pretty strongly about our dividend. I do not, on the other hand, feel comfortable commenting on fair market value. We believe that our yield is way too high and our share price is too low. There is better understanding of how our operations work, hopefully those come more in line. In terms of the dividend, our Board looks at it every quarter and like I said, it has never been cut. It has been raised 18 times. So I think that is where the mind set is.

Unidentified Analyst

Thank you.

Operator

Our next question is from David Tannehill with Morgan Asset Management.

David Tannehill - Morgan Asset Management

Good morning. I had a question about the dividend as well, but from a different angle. It looks like your yield is about 33%. Market is not giving you credit for it and all likely hood the market is not going to anybody credit for you dividends for the foreseeable future. Why not cut it in half? I calculate that would save you about $145 million a year, as additional capital cushion and at some later date when the markets return, you can start raising it again and your stock would probably reflect it.

Mark Kleifges

Our Board considers a lot of different things in setting the dividend each quarter. The opportunity to conserve cash is one of those considerations maintaining REIT status is another one and certainly I do not believe that we could do what you are suggesting and still be a REIT. So, anyway, the Board considers that and to-date they have not gone in that direction. I do not expect them to.

David Tannehill - Morgan Asset Management

Okay, thank you.

Operator

Our next question is from Charles Hoffman with Hoffman Invest Co.

Unidentified Analyst

Along the same lines as the prior questioner, do you have opportunities to buyback some of your debt at a significant enough discount to warrant using a deferred dividend or/definitely using the proceeds of that to achieve a long-term benefit for the company?

John Murray

Our debt does trade and so there are opportunities to repurchase. As I mentioned earlier on the share repurchase call, we are not currently planning to use our existing availability in this challenging market time to buying capital that is already out there. It is possible that we will consider that for debt or equity securities in the future, when the current malays in the marketplace seems to be going away, but at the present time we are not considering that.

Unidentified Analyst

Okay, thank you.

Operator

That concludes our question and answer session, so I would like to turn the call back to Mr. John Murray.

John Murray

Thank you all very much for joining us today. We look forward to hopefully seeing some of you at the NAREIT Annual Convention next week and we hope you have a nice day. Thank you.

Operator

We thank you for your participation on today's call and have a wonderful day.

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