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Executives

Tim Bonang – Director, IR

John Murray – President and COO

Mark Kleifges – CFO and Treasurer

Analysts

Jeff Donnelly – Wells Fargo

Michael Salinsky – RBC Capital Markets

David Loeb – Baird

Ryan Melcher – Morgan Stanley

William E. Thomas [ph] – Thomas Income Investing [ph]

James Adams – Courage Capital

Hospitality Properties Trust (HPT) Q2 2009 Earnings Call Transcript August 6, 2009 11:00 AM ET

Operator

Good day and welcome to the Hospitality Properties Trust second quarter 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, sir.

Tim Bonang

Thank you, Michelle; and good morning, everyone. Joining me on today’s call is John Murray, our President; and Mark Kleifges, our 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’d 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, August 6, 2009. 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.

In addition, this call may contain non-GAAP numbers, including funds from operations or FFO. A reconciliation of FFO to net income is available on 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-K and 10-Q filed with the Securities and Exchange Commission, and in our Q2 supplemental operating and financial data found on our website at www.hptreit.com. Investors are cautioned to not place undue reliance upon any forward-looking statements.

And with that, I would like to turn the call over to John Murray.

John Murray

Thank you, Tim. Good morning and welcome to our second-quarter 2009 earnings call. Today's prepared remarks may be more brief than usual. The fact is that there isn't that much new to report. The economy is still quite weak and that has resulted in continued weak operating results for our properties.

Earlier today, HPT reported FFO per share for the 2009 second-quarter of $0.96, which excludes $0.14 per share of gains resulting from our repurchase of outstanding senior notes during the quarter.

Yesterday, TA reported second-quarter 2009 financial performance, which reflects the continued weakness in the US economy coupled with the impact of steadily rising fuel prices during the quarter, especially in June. Although fuel volumes were down approximately 10% quarter over quarter across the 185 HPT-owned sites, fuel gross profit decreased by only approximately 5% on higher per-gallon margins. We believe TA’s performance is as good as could be expected, given the weak transportation sector, as evidenced by cumulative fuel volume declines of over 24% since 2007.

Non-fuel revenues and gross profit declined by 8.7% and 9.4% respectively, about the same as fuel volumes dropped. Property level operating expenses at HPT-owned sites were down 3.6% compared to the 2008 second quarter. As a result of the continued volume declines, property level rent coverage declined to 1.19 times in the 2009 second-quarter from 1.45 times in the 2008 second quarter.

At June 30, TA had approximately $182 million of cash on hand, availability under its line of credit, access to additional CapEx reimbursement from HPT of about $11 million, and the ability to defer up to $5 million of rent per month through December 2010. We believe the actions taken by TA to improve their business, combined with the current liquidity and the flexibility provided by the rent deferral agreement enhances TA’s ability to address liquidity risks that may arise during this continued recession.

Turning to HPT’s hotel investments, second-quarter 2009 RevPAR declined 23.5% across our 289 hotels, driven by a 9 percentage point decline in average occupancy to 66.1%, and a decline in average daily rate of 13.1%. RevPAR was weak across all regions, all brands, and all price points compared to 2008 second quarter. Our upscale extended stay and higher placed hotels showed the smallest RevPAR declines, down in the 16% to 18% range, while our Country Inn and Suites, Radisson’s, Courtyard by Marriott, and Crown Plaza hotels all dropped by more than 25%.

Across our properties generally, customer mix is shifting to lower rated segments, totaled occupancy and there is little rate integrity. Despite this, our hotels have generally performed well versus their direct competitors, and their average year-to-date occupancy rate and RevPAR index premiums to their competitive sets continues to be approximately 10%, 9% and 20% respectively.

Nonetheless, with only one portfolio generating greater than one-times coverage of our minimum return this quarter, we are closely monitoring all of our markets and all of our contracts. As much as I would like to tell you that the worst is over, there are no clear signs of that. In fact, since our operatives were quick to initiate cost saving contingency plans beginning late in the second quarter of 2008, year-over-year margin weakness may increase as we move through the balance of 2009.

As our operators and industry forecasters such as Smith Travel and PKF update their expectations for the balance of 2009 and 2010, the estimates only seem to get worse. Until the economy begins to generate meaningful GDP growth, hotel performance will remain weak, as unusually low business trends in room demand continues to weigh on room rates.

All of HPT’s hotel management agreements and leases require that we (inaudible) pay rents or returns monthly, and there are corporate guarantees, security deposits, and other features which are intended to secure the performance obligations of our tenants and operators. We believe the structure of our agreement aligns HPT’s interests with those of our tenants and operatives and our properties are operated by large, well-known managers like Marriott, IHG, and Carlson.

Our structure is designed to afford downside protection to HPT during normal cyclical downturns, balanced by a greater sharing of the upside with our operators during normal cyclical upturns. But this recession has been far worse than normal. The scenario of the current recession has caused defaults in the both the 34 hotel Marriott number 3 agreement and the 19 hotel Marriott number 4 agreement. In both cases, we have been paid less than the required periodic minimum return and rent amounts since the beginning of the second quarter, and have drawn on the related security deposits for the deficient amounts.

Based on downward or revised forecast for the remainder of 2009, we now expect to draw between $9 million or $10 million on the Marriott number 3 deposit and between $7 million and $8 million on the Marriott number 4 deposit in 2009. To keep this in perspective, the amounts we expect to draw on the deposits this year represent approximately 3% of HPT’s 2009 total minimum rents and returns, assuming full rent deferral by TA. Even if this recession continues through 2010, we believe the security deposits will be adequate to offset the cash flow shortfalls from these portfolios.

HPT remains one of the most secure hotel REITs in the industry, and we have maintained our investment grade rating throughout this difficult economic environment. HPT has one of the strongest balance sheets in the industry, with $6.4 billion of unencumbered property, and no significant debt maturities until 2011.

In June and July, we sold 19.1 million common shares, raising net proceeds of approximately $221 million, further improving HPT’s financial flexibility as we weather the storm.

Nevertheless, this is the most challenging economic environment we have faced since HPT was formed. Management and our Board of Trustees intend to aggressively asset manage our real estate portfolio and maintain our strong capital base and liquidity.

I was not on the presentation over to Mark Kleifges, our CFO.

Mark Kleifges

Thanks, John. Consistent with the rest of the industry, the operating performance of our hotel portfolio continued to weaken in the 2009 second quarter. RevPAR decreased 23.5%, with declines across all brands and all portfolios. Gross margins declined 6 percentage points from the 2008 second quarter to 40.1%, and cash flow available to pay our minimum returns and rents declined 41% quarter-over-quarter.

As a result of this property-level performance, 10 of our 11 hotel operating agreements had returned rent coverage ratios below one time for the first quarter. As John noted, we did not receive payment during the quarter of all amounts due under our Marriott number 3 and number 4 agreements. For all of our remaining hotel agreements, we received payment of all amounts due to us in the second quarter, and it is our current expectation that this will continue for the balance of the year.

Turning to our travel center portfolio. Cash flow available to pay rent at our 185 travel centers, decreased $13.7 million or 16.7% from the 2008 second quarter. For the last 12 months, cash flow available to pay rent at our travel centers increased $69.3 million or 26.8%.

Property level coverage for the last 12 months was 1.42 times for our 145 property lease and 1.50 times for our 40 property lease. Both of these coverage amounts have been calculated based on contractual cash rents and exclude the impact of the rent deferral agreement.

TA’s second quarter 2009 adjusted EBITDAR was $57.4 million, a 9.4% decline from the 2008 second quarter. TA’s adjusted EBITDAR coverage of rent at the corporate level for the second quarter was 0.94 times. Adding back the $15 million rent deferral during the quarter, coverage of cash rent was 1.2 times.

Turning to HPT’s operating results for the second quarter; this morning we reported FFO of $91.6 million or $0.96 per share, which excludes $13.3 million or $0.14 per share of gains resulting from our repurchase of senior notes during the quarter. Total minimum rents and returns in the second quarter were $130.2 million, which was affected by TA's deferrals of $15 million of rent. Percentage rent and additional returns totaled only $308,000 in the 2009 second quarter versus $9.9 million in the 2008 quarter.

Turning to our balance sheet and liquidity; cash and cash equivalents totaled $31 million at June 30, which includes $23.6 million of cash escrowed for future improvements to our hotels. HPT’s debt-to-total capital on a book basis was approximately 46% at June 30.

HPT’s EBITDA was $134 million in the second quarter and our EBITDA-to-total fixed charges coverage ratio remains strong at 3.2 times.

With respect to our common dividend, there is nothing new to report. It remains the Board’s plan to determine in December the amount of the 2009 dividend and what portion, if any, will be paid in common shares.

Next, I would like to summarize HPT’s recent financing activities. During the second quarter, we repurchased $30.5 million of our convertible senior notes and $57.2 million of various issues of our senior notes for an aggregate purchase price of $56.3 million. In July, we repurchased an additional $175.4 million of our convertible notes for approximately $159.5 million. As of today, we have approximately $255 million of convertible notes outstanding, down from $575 million at the beginning of the year. These convertible notes are puttable to HPT in March 2012.

In June, we sold 17.5 million common shares, raising net proceeds of approximately $192.4 million, and then July 1, the underwriters exercised their options to buy an additional 2.6 million common shares, generating net proceeds of approximately $28.9 million. In both cases, the proceeds were used to reduce borrowings on our revolver.

As of today, we have $322 million available under our revolving credit agreement and only one debt maturity of $50 million between now and October 2011. By increasing our common equity base, and reducing our 2012 debt maturities, we are working towards positioning HPT with the financial flexibility to grow when hotel acquisition opportunities become available over the next 12 to 24 months.

Operator, that concludes our prepared remarks, and we are ready to open up the call for questions.

Question-and-Answer Session

Operator

(Operator instructions) And we will our next question from Jeff Donnelly with Wells Fargo.

Jeff Donnelly – Wells Fargo

Actually, just want to stick with that comment that you made before, Mark, on the dividend. I'm curious, after the common equity issuance; did the Board at least consider restoring the event earlier than Q4? I ask because I appreciate it was suspended earlier in the year when visibility was poor, to take a conservative stance on your source of revenue for the next few years, but considering you raised the money and it provided a lot of relief, debate it makes sense maybe to bring that back to shareholders.

Mark Kleifges

No, we didn’t – the Board didn't give it a whole lot of consideration, Jeff, I mean I think we are going to stick to our original plan and maintain as much flexibility as possible in terms of determining what to do – what the dividend at year end and the best way to do that this to take a look at the capital markets as well as our liquidity, when we get to December and make a decision then as to amount and form of payment.

Jeff Donnelly – Wells Fargo

And then, I guess the second question is, what are you hearing out of the major brands, be it Marriott, Hilton, Hyatt, Starwood et cetera for acquisition opportunities out there. I am sure they are seeing difficulty in their own franchise system. Are they reaching out to you right now to maybe engineer ways so that you can maybe take control from assets that they are concerned about?

John Murray

Well, as you know, we don't have relationships today with Hilton or Starwood, so we haven't really heard much from them. We do have good relationships with the other operators you mentioned and we have had conversations where they have mentioned that they do have some franchisees, some of their owners who may have distress and who may take the trade. But we have not gone to the point of underwriting any portfolios. And most of what we hear today still revolves around individual properties and typically, they are caught up in loan agreements and CMBS structures and special servicers and are not – we haven't seen any transactions that are sort of ready to come to market. Let us put it that way.

Jeff Donnelly – Wells Fargo

And I guess how would you put the probability of HPT may be making an acquisition, even if it is a single asset, say in 2009 versus 2010?

John Murray

I think the probability is far greater in 2010. It is possible that we might buy something between now and year end, but it would have to be an unusual opportunity. I think – we are keeping on the market, so like I said, most of what we are seeing is one off, it may well be that the one or two pop free that would be nice additions to existing portfolios. But we have largely been focused on improving the strength of our balance sheets to be better positioned for portfolio transactions and take care of some maturities that seem problematic for us. And so we have been perhaps a little bit less focused on acquisition activity of hotels just because we haven't been seeing portfolios. We expect that pace to pick up, we are seeing an increased amount of e-mails flying around about potential transactions and hotels that may be coming to market and more of that is starting to have multiple properties as opposed to just individual properties. So realistically, I think 2010 is what – I don't think anyone should really be counting on any material acquisitions this year.

Jeff Donnelly – Wells Fargo

Okay, thank you.

Operator

(Operator instructions) And our next question comes from Michael Salinsky with RBC Capital Markets.

Michael Salinsky – RBC Capital Markets

Good morning, guys. Quick question as it relates to the insecure market and we recently saw Matt Calley come out with a pretty attractively priced unsecured offering. I know you guys have talked in the past about looking at the unsecured market, possibly the turn of the line. Where do you stand with that right now, is that still something you guys are looking at doing and where do you think pricing would come in at this point?

John Murray

Well, Mike, I think you are right. You pointed to the transaction yesterday. That was the first unsecured re-transaction since May of – if my memory serves me correctly, it was a very strongly deal. There is two more REIT unsecured deals in the market this morning that I am aware of and what I have heard on those is they are both going very well also. So you have seen a lot of momentum in REIT unsecured market, just over the last few days, which is obviously, we view it is a real positive.

In terms of where we could do a deal for the reasons I just explained in terms of what has happened over the last several days; that is a tough question to answer. To be quite frank, I haven't had a lot of time to reach out to bankers over the last couple of days, as a result of the quarter end activities. But clearly, I can say without doubt that if we went out now in the market, the spreads would be a lot tighter than they were just a week ago, which is a real positive from our perspective.

Michael Salinsky – RBC Capital Markets

And in the short term, are there still plans to term out the terminal portion of the line or do you want to maintain a pretty high variable-rate exposure at this point, just given what rates are?

John Murray

Well, I think our mode of operation has always been to try to take out the line with the permanent financing in the form of debt and equity to allow us to have the most financial flexibility as possible, should acquisition opportunities present themselves. So as John mentioned, we think the likelihood of an acquisition this year is not great, but we think there is going to be a lot more opportunities in 2010 and 2011. So there is probably no urgency to take out the line, but that is our long term plan.

Michael Salinsky – RBC Capital Markets

I may have missed this in your comments, Mark, but did you talk about the CapEx spend for the year, what your plan is for that?

Mark Kleifges

I think we are expecting maybe $5 million to $10 million that we have got committed being spent over the balance of the year, and we are currently in discussions with Marriott about a variety of things, including capital spending on the 125 Marriott-branded properties that we own. So, I don't really have a good number for that part of the portfolio, but over and above what is in the CapEx reserves, I think the best estimate is between $5 million and $10 million over the next two quarters.

Michael Salinsky – RBC Capital Markets

Okay. Just a quick check here. With the two Marriott leases, the Marriott and (inaudible) leases, they are not covering shortfalls right now. Once those get above one times coverage, I am assuming excess proceeds then go to (inaudible) security deposits before Marriott takes anything home. Am I looking at that correctly?

Mark Kleifges

Yes. And after we get paid in those transactions, after we get paid our minimum returns or rent, then the next spot in the waterfall goes to replenishing the security deposit, and then after that, it would go towards a base management fee.

Michael Salinsky – RBC Capital Markets

Okay. So there is –

Mark Kleifges

There are other fees, your reservation costs and system fees and things that Marriott gets currently.

Michael Salinsky – RBC Capital Markets

But there are no loopholes or anything like that where they can get around (inaudible) security deposits before they take anything. So those have to be –

Mark Kleifges

Correct.

Michael Salinsky – RBC Capital Markets

Okay.

Mark Kleifges

They have to repay the deposits.

Michael Salinsky – RBC Capital Markets

And then, final question. The investment in the insurance company here in the first half of the year, what is that specifically related to?

Mark Kleifges

Well, as you know, there is – in addition to HPT, there's a couple of other REITs and real estate operating companies here and property and casualty insurance is a major expense for all of those companies, and this insurance company that we have invested in has been set up to provide insurance of – property insurance, property and casualty insurance. We believe with the amount of properties that are owned by HPT and others here that we ought to be able to get attractive insurance rates and in fact that we should be able to get insurance costs down from where they are with some of our hotel operating companies today. So that is the reason for that investment in creating that company.

Michael Salinsky – RBC Capital Markets

Okay, thank you.

Operator

And our next question comes from David Loeb with Baird.

David Loeb – Baird

Thank you. I had a couple of follow-ups to those and maybe one in a different direction. I want to start with a follow up on Jeff’s question about the cash dividend. You made the decision to cut the dividend. It seemed really sound as a way to build up cash, to be able to fund the maturities of the convert on the line of credit. Since then, you have issued equity. You have bought back a lot of those converts and therefore lowered that maturity repayment requirement. The unsecured markets are opening up a bit. I guess I'm curious as to what the Board’s thinking was of not coming back with even a small, even a token of quarterly cash dividend in order to attract investors that are required to have a dividend. What is your thought on paying a nickel or a penny a quarter? What was the Board’s thought on that?

John Murray

Well, as Mark mentioned, David, the Board didn't – we didn't really have a lengthy – we didn't really have a dividend discussion of any significance in our most recent Board meeting. And the reason is, although we have made up a lot of ground in terms of the maturities that were concerned, the feeling is that there is still a little bit more work to be done on that front and as a result of those activities, there has been a lot of – a lot of the activity buying in deference generates gains and that all effects taxable income, and there has been a lot of changes to tax regulations besides the option to defer. You know, to pay a part of your dividend this year in shares versus cash, there is different tax incentives.

We can defer some of those gains on debt repurchases and them amortize them over longer periods and there has been some – anyway, there has just been a lot of moving parts and the dividend payment for REIT status is really based on your taxable income and we want to – the Board has made its decision what they want to know, what that number is with a reasonable amount of certainty, and the only way to know that is to wait until the end of the year and that was their position and still is their position and we understand that if we put some dividend in, it would attract some investors, but we don't want to attract investors for the wrong reason or cause other investors to maybe think we are sending a message with just a token dividend, we want to come out with a clear dividend policy based on the most possible knowledge at year end, so that everybody is on the same page.

David Loeb – Baird

Fair enough. I want to – I think that the big issue that a lot of us are dealing with is what the real risks are to your portfolio, to your cash flow. So I want to come back to the Marriott 3 and 4; clearly, Marriott cannot be happy working for free, and with the prospect of working for free for a really long time. And what options do they have with regard to these leases and management contracts, and what options do you have given the shortfalls going forward?

John Murray

Well, first, I wouldn't (inaudible) from Marriott. They are a big, well capitalized company and they are covering their costs in our contract. So they are not – it may appear that they are working for free, that clearly they are not getting their profit, they are not getting the 2% base management fee, which we believe is profit anyway, but they are not really coming out to pocket any great degree. So I wouldn't feel too sorry for them.

In terms of the rights under the agreement, since they first defaulted, we have had the right to terminate the management agreements. We don't believe that they defaulted because they are bad managers or because they are weak brands, but we believe it is largely because of the economy. And we also don't believe this is necessarily the best time to try and find a replacement manager. So at the present time, it seems to us, particularly where we have five arrangements with Marriott and only two of them are in default, it seems like the best course of action for two large, well capitalized companies like ourselves, who both intend to be in this business for a long period of time, that the best course of action is to try and see if we can work this out in a way that is beneficial for both of us.

And so, we are in discussions with Marriott to try and find a satisfactory resolution that is good for our shareholders as well as them trying to find one that is good for theirs, and those discussions are ongoing and probably doesn't make sense for me to go into that much more detail about that. From their perspective, they are required to pay the cash flow from the properties to us at a minimum and it is up to them if they want to take the risk that their management contract may be canceled. But they don't, for instance, have the right to keep that cash. That would be – that is our cash; that is not their cash.

David Loeb – Baird

Clearly, you have the right to terminate, but do they have the right to terminate?

John Murray

No, they don’t.

David Loeb – Baird

Okay, and –

John Murray

And I don’t think they would. It is a substantial number of hotels at a time when losing that brand power and losing the ability to spread their costs over a large base of hotels would be a detriment to them, not a positive to them I don't think.

David Loeb – Baird

I really don't mean to put you in a position where you are negotiating via conference call, but I just want to make sure I understand; you talked about losing the brand power, that was actually where I was going next. You sounded confident in the past that you have the right to terminate the agreement, including pulling the flags from those. Marriott has said that worst case, they just convert to franchises, so clearly there is a difference of opinion there. Can you just explain a little about the contractual language?

John Murray

The contractual language is very clear on the management contracts that we have the right to terminate them as manager. There are certain actions that companies take at different times and there have been some taken that we believe have given us some additional rights versus brand termination. I think we felt strongly about that in the past, but we have also I think been clear that we recognize that Marriott felt to the contrary and that it would end up in a fight and that wouldn’t be written in the – probably the interest of either of us. So I think we are not currently looking at that.

David Loeb – Baird

Great. So it sounds like what you are saying is it is in everybody's interest that these stay Marriott-branded, that you stay in the current situation. Your economics are the same in that you are drawing the security deposit and eventually assuming that healthy upturn you refill all those buckets. So, at the end of the day, the cash will all come in. I guess it is kind of important for everybody, for me at least, to understand who is got what rights. So that is – I don't mean to pester you on that, it is all kind of confusing.

John Murray

Right. I have been as clear as I can, I think given the circumstances.

David Loeb – Baird

One more quick question. Can you give us the remaining balance in the IHG corporate guaranty?

John Murray

I think so.

Mark Kleifges

Yes. There is – as of the end of the second quarter, is about $96 million.

David Loeb – Baird

Great. Thank you very much.

John Murray

Thanks, David.

Operator

And our next question comes from Ryan Melcher with Morgan Stanley.

Ryan Melcher – Morgan Stanley

Hi, guys. I just had a quick question for you, actually following up on what David had before. You mentioned that you didn't think it was the best time to find a replacement manager, if you had decided to go that route. I am wondering why that is. Is it because the downturn in the environment you think will be challenging to find a manager that would be willing to offer the minimum rents and returns that you guys prefer?

John Murray

Yes. I mean I think that at a minimum, if somebody was taking over these properties as a third-party manager, and they were retaining the Marriott brands, that the new manager would not be willing to subordinate their management fee to our return. So that would automatically move something in that 1% to 3% of revenues from being paid after us to being paid before us. And then, whether in the current market, they may want other terms and we don't feel compelled to change any of the other terms because we think we have sufficient security. So –

Ryan Melcher – Morgan Stanley

Okay. That makes sense. Now, following up from that, if you were to acquire a new portfolio, do you feel confident that you would have – that you would be able to find management that would be willing to have a similar view to what you have with a lot of your portfolios now where you have got these minimum returns and minimum rents, or will that be a challenge as well, as you start to look for acquisitions and will you look more towards you not having that the security of the minimum returns and minimum rents?

John Murray

Well, I wish I had a crystal ball, I could give you the absolute right answer on this, but I think there are always risks both ways. I think on the one hand, there are some of our operators, all of our operators today are either seeing draws on their security deposits or making advances under their guarantees, and that is never something that a management company enjoys, or wants to continue for a lengthy period of time. On the other hand, if you are entering into a new transaction, presumably you are setting the rents and returns and setting the – determining the pricing, all based on these reduced levels of performance, and so, most operators would probably be looking at that same – probably never going to get this bad again, it has never been this bad before. Most likely, I am only going to have upside from here and maybe I should be willing to give up a security deposit or guaranty because chances are it is never going to be used.

So I think there is at least an even chance that we continue to do business the same way we have been doing it. I also think that – in any capital decision, you look at the alternatives and a couple of years ago, we haven't bought a hotel since 2006 and part of the reason for that was that debt was available very high loan to values and at very low cost. Today, for hotel transactions, loan to values are very low in the 40% to 60% range, our rates are high, terms are more owners, and so acquirers need to come up with a fair amount of equity of their own. I think that scenario makes our style of financing much more attractive. So I don't lose sleep at night over whether we're going to be able to have transactional growth going forward.

Ryan Melcher – Morgan Stanley

Wonderful. Thanks a lot.

Operator

And our next question comes from William E. Thomas [ph] with Thomas Income Investing [ph].

William E. Thomas – Thomas Income Investing

Good morning. It concerns me when you say that the Board hasn't even thought or considered or done soul-searching regarding the dividend. I think you have to realize, I hope you do in your ivory tower, you have to realize that a good number of HPT investors are income investors, and rely on the income, and rely on it and when the company gives every indication that it considers the dividend important; until it does away with the dividend, then it talks about all the dividend as being – well, you don't say the dividend is unimportant, you just say that other things are more important. And certainly, you have to do what is right for the shareholder, but it seems to me and I would like you to comment on this, that one of the main things you would talk about in all of the Board meetings – or that the Board would talk about in all the Board meetings, would be returned to the shareowner, the dividend, the – what is happening to the dividend in the future, sure, maybe you can't talk to us about the – the individual shareowner about the dividend in the future, but the Board can certainly talk about it in the boardroom about –

John Murray

I understand where you are coming from with your commentary, and appreciate it. Maybe I misspoke in that last response. Our Board talks about our dividend policy at every meeting. Our dividend policy is important to our Board, it is important to our management team and I certainly didn't mean to belittle the importance of it. I guess the point I was trying to make is that since we suspended the dividend in April, we have been – we announced then and we have announced in every conference and on every quarterly call since then that it was our intention when we suspended the dividend, it remains our strategy now to have the most facts and to understand where the economy is going and what the impact that the economy is having on all of our portfolios and where the capital markets are in terms of our ability to repay coming maturities, and the decision was made that we would have the most amount of information and facts about all of those things at the end of the year, and that a lot of those activities impact where the taxable income number is going to be at the end of the year.

So, the decision was to stick to the current strategy, which was to wait until December to make a final determination of what the distribution would be and how it would be paid. We have also been very clear that we expect to have substantial income this year, and so, there will be – there will need to be that decision made in December, but that is when it's going to be made. We will have the most information, we can make sure we do it right.

William E. Thomas – Thomas Income Investing

Thank you.

Operator

And we will take our next question from James Adams with Courage Capital.

James Adams – Courage Capital

Good morning. During your commentary, you give a number on hotel gross margin, maybe I missed that, but could you just tell us what that was during the quarter?

Mark Kleifges

Yes, the gross margin percentage was 40.1%, down 6 percentage points from the 2008 quarter.

James Adams – Courage Capital

Okay. Thank you.

Operator

And with no more questions in the queue, I would like to turn the call back over to John Murray for any additional or closing remarks.

John Murray

Thank you all for joining us today. We look forward to talking to you next quarter. Thanks.

Operator

And this does conclude today’s conference. We thank you for your participation.

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Source: Hospitality Properties Trust Q2 2009 Earnings Call Transcript
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