Service Properties Trust (SVC) 2007 Q1 法說會逐字稿

Good day, and welcome to the Hospitality Properties Trust first quarter 2007 financial results conference call. This call is being recorded.

At this time for opening remarks and introductions, I would like to turn the call over to the Manager of Investor Relations, Mr. Tim Bonang. Please go ahead sir.

Thank you, Patty, and good afternoon, 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, May 2, 2007. 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 regarding this reporting period.

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 Web site.

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 filed with the Securities and Exchange Commission and in our Q1 supplemental operating and financial data found on our Web site at www.hptreit.com. Investors are cautioned not to place undue reliance upon any forward-looking statements.

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

Thank you, Tim. Good afternoon and welcome to our first quarter 2007 earnings call.

Earlier today HPT reported FFO per share for the quarter of $1.08. This represents quarter-over-quarter FFO per share growth of approximately 7%. FFO for the quarter includes the add back of $2.7 million, or $0.03 per share of one-time costs expensed in the 2007 first quarter related to the spin-off of TA.

First quarter RevPAR growth averaged 4.1% across our 308 hotels that were open both periods. RevPAR growth at HPT's hotels was below industry average growth by 1.1 percentage points due to two factors.

First, 16 hotels are being rebranded as Hyatt Place hotels during the quarter and were under construction. Second, the New Orleans Residence Inn, that is part of our 19 hotel Marriott portfolio, suffered significant negative year-over-year performance comparisons.

Specifically in the first quarter of 2006 the Coast Guard used our hotel as a command center following Hurricane Katrina. So the hotel had RevPAR of $179 compared to $84 in the 2007 first quarter.

If these 17 hotels are excluded from HPT's results this quarter, RevPAR at our hotels would have been 5.3%, or just above industry average performance. Importantly, our absolute occupancy average daily rate and RevPAR continued to exceed industry averages this quarter and all of HPT's RevPAR growth during the first quarter was driven by rate increases, which rose 7.1% and offset a 2 percentage point drop in average occupancy.

RevPAR increased across all of our portfolios except Hyatt and Crestline, as noted previously, and Homestead due to difficult disaster related comparisons in Florida and Georgia and continued weak demand in northern Virginia suburbs. RevPAR was up for all of our brands except Hyatt, due to the conversion disruption, Homestead, due to the weak performance in Florida, and Residence Inn due to the New Orleans impact as previously discussed.

RevPAR performance this quarter improved in most regions except the New England, East North Central and West South Central regions. The modest RevPAR declines in the two Central regions were largely due to Hyatt Place conversions and the New Orleans Residence Inn.

East North Central performance was also negatively impacted by the fact that 11 of our 36 hotels in that region are in and around Detroit and saw weaker performance without the Super Bowl and with the struggling auto sector. New England RevPAR was modestly down due to reduced demand from key accounts for training and more difficult competition.

The Mountain, West North Central and Pacific regions each showed strong RevPAR growth. Our Arizona hotels led the mountain states to double-digit RevPAR growth.

During the quarter our managers continued to effectively control operating expenses and as a result across our hotel portfolio profit margins improved 50 basis points this quarter versus last year. However, cash available to pay HPT's minimum rents and returns declined slightly this quarter versus last year as a result of FF&E reserves ramping up at two of our IHG portfolios as well as increases in insurance and property taxes.

Nonetheless, HPT's annual minimum return and rent coverage ratios have generally remained strong with below one-time coverage only in the Hyatt portfolio and the IHT's (inaudible) portfolio where two hotels are still in ramp up and the effective increase to FF&E reserves had a negative impact.

During the first quarter three more Hyatt Place conversions were completed in Cumberland, Georgia, Hendersonville, Tennessee and Sterling, Virginia. Performance at these assets post conversion continues to be quite strong and the concept is being well received by guests. Within the last couple of weeks Hyatt launched its national marketing campaign for the Hyatt Place brand and this should provide further support for the post conversion performance.

In addition to the Hyatt Place activity during the first quarter we also converted a Park Plaza hotel in Chandler, Arizona to a Radisson and a Holiday Inn Select in Houston to a Crowne Plaza.

The Chandler Radisson conversion was completed in mid January and its RevPAR index was up 21% in the first quarter. The Houston Crowne Plaza conversion was only completed in March so the impact this quarter was minimum.

Our managers have indicated that above average RevPAR gains, all rate driven, are expected to continue for the balance of 2007. These gains are expected to be more moderate in 2007 than they were in 2006, but still above historical averages.

Our operators were initially forecasting 7 to 9% RevPAR growth in 2007. Recently, Marriott reduced its RevPAR growth estimates for North America to 6 to 8% from 7 to 9%. And all but three of our 125 Marriott branded hotels are select service hotels so we may see more moderate growth than originally expected.

As we have noted previously, our operators were generally expecting a weaker first quarter on difficult comparisons, gradual improvement in the second quarter, and then stronger growth in the second half. In addition, despite some cost pressure, our managers are also expecting to continue to see margin expansion in 2007. Accordingly, we continue to be optimistic about 2007 for our hotel portfolios.

On January 31, 2007 we purchased TravelCenters of America, or TA, from a group of private equity investors for approximately $1.9 billion and spun out TA as a separately traded public company listed on the American Stock Exchange. TA operates a cross-country network of fuel service and hospitality areas along the U.S. interstate highway system.

Substantially all of TA's real estate, 146 TravelCenters, is now owned by HPT and leased to TA under a long-term lease agreement. We are optimistic about the prospects for investment growth in the TravelCenters business as this is a fragmented business that may benefit from consolidation and branding.

Today 70% of our portfolio is hotels and 30% is TravelCenters. In addition, we now have 12 portfolio agreements with six well-respected operators and no single operator represents more than one third of our portfolio.

In summary, given HPT's positive results for the first quarter of 2007 we are optimistic about continued strong performance for 2007 and we intend to continue growing both our hotel and TravelCenters businesses.

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

Thanks John.

During the first quarter RevPAR at our 109 leased hotels increased .4% and profit margins increased 60 basis points, however, cash flow available to pay rent decreased 1.4%. RevPAR and operating profit margins at our leased hotels for the quarters were constrained by difficult Katrina comparisons, especially for our New Orleans Residence Inn, and our Homestead portfolio which experienced a 2.7% RevPAR decline and a 7.4% decrease in cash available to pay rent.

Even with this weaker performance, rent coverage for the Homestead portfolio remained strong at 1.48 times for the quarter and 1.43 times for the last 12 months. For the last 12 months return coverage ratios for our leased hotel portfolios ranged from 1.18 times to 1.51 times.

During the first quarter RevPAR out of 199 managed hotels that were open for both periods increased 6.3% and profit margins increased 60 basis points. Cash flow available to pay our minimum returns increased less than 1% due to contractual steps in the FF&E reserve requirements at two of our Intercontinental portfolios during the first quarter.

As John mentioned earlier, 16 of the 24 hotels in our Hyatt portfolio were in the process of conversion to Hyatt Place Hotels during the quarter, and as a result, coverage declined to .41 times for the quarter. Our expectation is for this portfolio to continue to be below one times coverage for the next several quarters as a result of the conversion process. Although coverage for this portfolio is below one times we will continue to be paid our minimum return by Hyatt under the terms of our management agreement.

The strongest performance this quarter was from Carlson portfolio which continues to benefit from the early 2006 completion of renovations at 11 of the portfolio's 12 hotels. In addition, as John noted, the Chandler, Arizona Park Plaza hotel was converted to a Radisson in mid January.

For the first quarter RevPAR for the Carlson portfolio was up 23.1%, cash flow available to pay HPT's returns was up 46.5% and coverage was 1.85 times. For the last 12 months return coverage ratios for our managed portfolios, excluding the Hyatt portfolio, ranged from 1.07 times to 1.48 times.

Turning to our TravelCenters portfolio everyone should be aware that we will be unable to discuss current quarter operating results for TA or our leased TravelCenters on this and future earnings calls.

As you know, our properties represent a substantial part of TA's business and TA has not yet released first quarter operating results. As a result, in this and future quarters, our disclosures regarding performance of our TA portfolio will be reported one quarter in arrears.

On a pro forma basis rent coverage for TA portfolio for the 12 months ended December 31, 2006 was 1.47 times. We calculate coverage for our TravelCenters portfolio consistent with our hotel portfolios. Property level revenues less property level expense divided by the rent or return due to us.

For the 2006 year performance at our 146 TravelCenters was strong with fuel volumes up 7.2% and non-fuel revenues up 4.1% year-over-year. On a pro forma basis cash flow available to pay rent increased 13.5% in 2006.

HPT's EBITDA in the first quarter of 2007 was $130.3 million which is a 39.8% increase over 2006 first quarter EBITDA of $93.2 million. Funds from operations for the first quarter were $95.8 million compared to $72.8 million for the first quarter of 2006.

On a per share basis FFO increased 7% from $1.01 to $1.08 per share in the 2007 first quarter. FFO for the quarter included the add back of $2.7 million, or $0.03 per share of one-time costs related to the spin-off of TA.

The weighted average number of common shares outstanding totaled 90.8 million in the 2007 first quarter compared to 71.9 million in the 2006. In early April we raised our regular quarterly common dividend by $0.02 to $0.76 per share, or $3.04 a share per year. Our FFO pay out ratio was 70.4% in the first quarter.

Minimum returns and rents were $117.4 million in the 2007 first quarter, a 39.6% increase over the 2006 first quarter. This increase resulted primarily from our TravelCenters acquisition and commencement of our new lease with TA, the impact of hotel acquisitions we completed in 2006, and increased annual minimum returns in rents due to our funding of capital improvements to our Carlton, Hyatt, and Marriott branded hotels in 2006 and 2007.

FFO for the first quarter also includes $7.2 million, or $0.08 per share of additional returns and percentage rent. This compares to approximately $4.1 million, or $0.06 per share in the 2006 first quarter.

In 2006 our additional return in percentage rent income in the second quarter was significantly higher than the third quarter. In 2007 we expect this income to be more evenly distributed between the second and third quarters.

Turning to our balance sheet and liquidity, cash and cash equivalents totaled $60.2 million at March 31, 2007, which includes $32.4 million of cash escrowed for future improvements to our hotels. During the quarter we made approximately $34 million of capital improvements to our hotels and we expect to make additional improvements of between 70 and $90 million during the remainder of 2007.

On the liability sides of the balance sheet, debt to total capital on a book basis was approximately 43%, and on a market basis debt to total capital was approximately 32% at March 31, 2000. Our EBITDA to total fixed charges coverage ratio was four times in the 2007 first quarter.

As John mentioned, on January 31st we completed our acquisition of TravelCenters. Upon completion of the acquisition we restructured and capitalized the TravelCenters business and distributed all the common shares of our subsidiary, TravelCenters of America LLC, or TA, to our shareholders.

The value of this distribution was $3.23 per HPT common share on the date of the spin-off. In connection with the acquisition and restructuring we retained 146 TravelCenters located in 39 states and certain related assets with a total value of approximately $1.7 billion which we now lease to TA.

The total cost of the TravelCenters acquisition and the capitalization of TA was approximately $2 billion, which we financed with approximately $1.1 billion of common and preferred equity and approximately $875 million of debt which we raised in a series of offerings in December 2006 and the 2007 first quarter.

In summary, the first quarter of 2007 was highlighted by the closing of the TravelCenters acquisition, continued RevPAR increases, strong coverage ratios in our portfolios, and solid FFO per share growth. Looking ahead for the balance of 2007 we are optimistic about the lodging industry fundamentals and are excited about the benefits and opportunities presented by the TravelCenters acquisition.

That concludes our prepared remarks. We're now ready to take questions.

Thank you. (OPERATOR INSTRUCTIONS) We will go first to Jeff Donnelly from Wachovia Securities.

Good morning guys.

John, I think you touched on this in your comments, but maybe I just want to slice it a different way, but why again did you see the quarter-over-quarter decline in lease coverage on the Marriott number four lease, I guess I'll call it, and the year-over-year drop in the Intercon number three lease?

The Marriott portfolio declined because of dramatic drop off in the performance of the Residence Inn in New Orleans.

Okay. It was that asset.

Yes, it was, gone beyond that spot in the script, but it was about $189 RevPAR in, or $179, in that range in RevPAR in the first quarter of last year because it was 93% occupied. This quarter its RevPAR is $84, and so that's almost $100 of RevPAR decline quarter-over-quarter. And that one, that portfolio would have been positive RevPAR growth and positive coverage otherwise.

The IHG three portfolio, it had, in terms of costs it had increased utility and real estate taxes and insurance this quarter that were fairly significant, but also the important thing that were different this quarter is that that's one of the transactions that we recently completed and we have a ramping up of the FF&E reserve, it didn't start out at 5%, so it went from no FF&E reserve because we were funding capital to a 3% FF&E reserve this year. So that also took a chunk out of the coverage.

This is Mark, Jeff.

Just to clarify, in calculating coverage we treat FF&E reserve requirements similar to operating expenses for coverage purposes.

Okay.

And then, John, I think, you know, at least going back a few years at some point you guys have had interest in, you know, companies such as Innkeepers, or at least their assets. Did you guys look at their assets this time around?

And related to that, what do you think about, you know, pricing there considering that like Innkeepers you guys also own a significant number of, I believe, older Residence Inns and some former Summerfield Suite properties?

Well, there's a lot of pieces to that. If we have at different times in our history looked at Innkeepers we were not looking at it recently. Frankly, we thought a lot of the hotel REITs share prices had run up with an expectation that there might be M&A activity, so, you know, we thought they were pretty full values out there.

So in terms of the valuation I think that the pricing they achieved was very attractive. I don't know all the details on how they're dealing with the management contract with Jeff's management company and so, you know, I'm certainly not an expert on their transaction, but on a price per key basis it looks like they got a good value. Our Residence Inns and Summerfields aren't nearly as old as Jeff's, so I think, you know, ours are probably worth more.

And if I could switch gears, last question or two on TA.

Since HPT is something of a preferred capital provider for TA, can you give us any indication what traction they might be having in identifying additional acquisition opportunities that you guys might be able to participate in?

I can't comment on specific opportunities as you know, but they've been capital constrained because of the type of ownership they had with an opportunity fund in the past. But they have looked at potential individual travel center acquisitions as well as possible portfolio acquisitions, you know, over the years and including recently.

And so there's been a little bit of catching up on HPT side, but I think we're very optimistic about the opportunities there. I think that the TravelCenters guys are on top of their industry very, very will.

And just one point of clarification there, I think you were saying in your comments that the lease coverage TA on a pro forma basis was 1.47 times for 2006. Correct me if I'm wrong, but I thought when you structured that transaction you were trying to structure it such that the lease coverage was much closer to, wasn't it like around 21.1 times? Am I recalling that incorrectly?

I think, Jeff, this is Mark.

I think you're referring back to comments we made in the initial conference call we had after we announced the transaction. I think at that time we were talking about entity level coverage when we threw out that 1.15 number. This is, you know, property level coverage that we were talking about today.

But results of that company, is it fair to say are close to your underwriting?

Yes, for 2006, yes. I can't comment to 2007 since I haven't seen them yet.

Okay. Thanks guys.

Yes.

And we will go next to Nap Overton from Morgan Keegan.

Good afternoon.

Hi, Nap.

The, I heard your comments about the second and third quarter percentage rents and additional returns being more even this year than last year. Looking at the first quarter the additional returns were nearly double what they were last year and though I know you don't provide guidance could you comment on that? Could you just comment on that at all?

Yes, I guess my only comment would be you're right, we don't provide guidance, but I will say that, you know, if you look at last year we had a year-over-year increase in percentage rent and additional returns of just slightly less than 50%, and as you noted, this quarter's basically double. I expect for the year, you know, 2007 it's going to be more moderate growth than we experienced in 2006.

Okay. That's helpful. Thanks.

And we will take a question from Will Truelove from UBS.

Just to sort of follow-up on nap's question there. Can you sort of tell us which of the portfolios contributed the most to that deferred hotel operating income and the amounts, or just some highlights by portfolio type?

Sure. I'll give the three largest, which make up a big portion of it. It was the Candlewood portfolio at $2,090,000, the Intercontinental number four portfolio, the ten hotel Intercontinental portfolio at $1,022,000, and then our Carlson portfolio which had a tremendous first quarter which was at $1,252,000.

Right. And just remind us on an annual basis, are any of those capped out? I think the Candlewood's capped out at, what, $10 million per year?

Unfortunately it's not that simplistic. I mean the Candle, that, you know, it's each contract has a waterfall and at that particular stopping point in the waterfall we are capped out at $10 million and then IHG has an opportunity to earn some additional fees and then we can participate, we participate once again after that.

Okay. Great. Thank you.

Yes.

We will go next to Smedes Rose of Calyon Securities.

Hi.

I think I ask you this every quarter, but could you just talk a little bit about the acquisition environment in terms of what you're seeing in pricing, in cap rates, and kind of what your level of interest is in the lodging, a lodging portfolio, I guess, as another, you know, making an acquisition in that area?

We are actively and have been actively looking at a number of portfolios and a couple of individual property assets. The market is very competitive, cap rates remain lower than we would like.

On your last call you had sort of said that they remained low, or pricing is high, but that you felt like it had pretty much, you know, flattened out, I guess, you know, overall. I mean do you feel, is that still kind of case or --

Yes, I don't see cap rates coming down further because I think there's starting to be some concern with, particularly with people moderating their RevPAR assumptions for the balance of this year. I think that people are wondering how close we may be to the top of the cycle and whether they should, you know, how many years they have to turn properties around and exit.

So I mean, I think a lot of the investment activity that has pushed cap rates down has been investors who have a much shorter term horizon than HPT does, some of them are looking to be only in for a year or two and then flip. So their valuations have a lot more to do with the timing and valuation on exit than the timing of when they get into a property.

And it also has a lot to do with, you know, how much debt, how much secure debt they can put on properties and we're still looking at portfolios that are coming around with offering memorandums that have a section in the booklet that discusses the 80% loan to value financing that, you know, the investment bank that's leading the offering is willing to provide.

You know, I think when an entity like Lightstone can buy Extended Stay America for $8 billion and only have to put up $300 million of equity, you're going to see, you know, you're going to continue to see aggressive cap rates.

Thank you.

(OPERATOR INSTRUCTIONS) We will go next to Rob Whittemore from BB&T Capital Markets.

Good afternoon guys.

I guess question more for Mark, and I apologize if I missed it, but the large increase in interest income for the quarter, can you guys comment on that?

Yes, Rob, that was really, if you recall back in December we had a common equity offering in anticipation of closing the TravelCenters acquisition in January, so we were sitting on a large amount of cash for, really, all of January, about $565 million if I recall.

Great. Thank you guys.

Yes.

And we will take a question from Dennis Forst from KeyBanc.

Good morning.

I wanted to clarify something on the Hyatt Places. You said you had 16. Were those the AmeriSuites that are converting to Hyatt Places?

Yes, that's correct.

Okay. And you said out of a total of 24, what are the other eight Hyatts?

They're AmeriSuites right now.

Okay. You're not going to convert eight of them?

No, they just were, we're planning to convert the entire portfolio of AmeriSuites to Hyatt place hotels, but during the quarter 16 of the 24 were in the process of that conversion.

Okay.

Those are going to go under the knife later in the year and one is already, in the fourth quarter of last year completed its renovation.

Okay. So there's a total of four then that have been totally completed one in the fourth quarter, three in the first quarter?

That's correct. And, you know, by the end of this week if they stick to the schedule there'll be another four that are complete.

By the end of this week.

Yes.

So that's moving pretty rapidly. How much are you spending on each conversion?

It's between 3 and $3.5 million per hotel, somewhere, you know, a little bit north of $25,000 per key.

Okay. And the four that have been completed, can you give us an idea of what has happened to RevPAR?

The three that were completed this quarter, it's still a little early to tell, but I can tell you that the property that was completed in the fourth quarter, which is in College Park, Georgia, just outside of Atlanta airport, which isn't, by the way, the strongest hotel market in the world, it went from a RevPAR index in the low 80s up to in January its RevPAR index was about 108, in February it was 116, and March 119.

So it's gaining market share in a pretty dramatic fashion. Year-over-year its RevPAR index is up about 62% versus the prior year. So, you know,

That's pretty impressive.

Yes. If they all, you know, do anywhere nearly that good then the returns on the additional investment will more than pay.

There's no reason to expect the three that have been completed to have a different trend?

No, not that I'm aware of.

Okay.

This hotel that was completed in the fourth quarter is at Atlanta airport, Cumberland, Georgia is another suburban Atlanta property. You know, we expect that they're going to gain market share even if they're in weaker markets.

Atlanta is a good hotel market, but it has had some difficulty with Katrina comparisons. So it does make it a little bit of a tough quarter.

Got you. Okay.

Judging off of. But we expect that, we expect it's going to be a very positive transaction in each market as it occurs.

Okay.

I just had a couple of housekeeping things about stock compensation expense. Was there much of that in the first quarter?

No.

Non-cash comp expense?

It's not a big number.

So not material enough to even break out.

Preferred dividend in the second quarter about how much will you spend on or pay on preferred dividends?

Well, our run rate on preferred dividends now with the Series B and Series C is running about $7,470,000 a quarter.

747 a quarter. And interest expense obviously spiked up for good reason, but you didn't have all that debt out for the whole quarter I don't think did you?

No, no.

So interest expense which was $30 million in the first quarter will be going up about how much going forward?

You know, I don't have the exact number in front of me, but it's pretty easy. If you go to Page 15 of our supplemental that we (inaudible).

Yes, I've got it.

It will lay out all the debt and the interest rate. It's a pretty easy calculation. But all that debt will be outstanding for a full quarter.

Got it. Thank you very much.

We will go next to Dan Sullivan from Wachovia.

Good afternoon guys. I had two quick questions.

When we look at the coverage, the lease coverage on the TA portfolio, and if I look back over the last, the three month periods ending first quarter through fourth quarter, it looks like it's, there's some variance there, there's some seasonality.

Is that typical seasonality that we'll see based upon the time of year? Does that have more to do with prices of fuel? If you guys can walk me through that, that'd be helpful.

No, it is, Dan, this is Mark.

It is a seasonal business with the first quarter typically the weakest. It actually sort of follows lodging in a lot of ways. So fourth quarter weak and then the second and third quarters are the two strongest quarters and it kind of plays out with the coverage numbers you see in the supplemental. You should see that trend ongoing.

Okay.

And then the other question is just a little bit of a balance sheet reconciliation. When I look at your, the real estate number, the land, buildings and improvement, the undepreciated real estate number goes up, you know, about $1.5 million and change while the investment in TA was more than that.

Is that, you know, it was closer to $1.7 billion? Excuse me, I think I said million instead of billion. Is the difference kind of intangibles or something you have (clumped) into the other asset line item?

You're exactly right. Yes, it's about 100, the biggest piece of it is the trade name and trademarks that we retained which have a value of about $140 million, and that's, those are classified in other assets on our balance sheet.

Okay.

So basically when I look at the investment number on Page 5 of the supplemental of just under $1.7 billion, that's going to be broken down other than that $140 million, the rest of that is kind of lumped up in real estate?

Yes, the majority, the rest of it. There may be another $20 million if I recall that's in other assets.

Then the final thing. On your income statement you include the TA revenues within the hotel operating revenues?

No, it's in rental income.

It's in rental income.

It's a triple net lease so it just comes through as rental income, similar to our hotel properties. And then going forward in our 10-Qs and 10-Ks we'll present segment information in the footnotes.

Okay. That's really what I was asking. Will that be segregated going forward?

Yes, in a footnote, yes.

Great. Interesting article in the Wall Street Journal the other day, by the way, about TravelCenters.

We thought so.

Thank you very much for your help, guys.

Sounded like just what we've been saying.

And we will go next to Michael Salinsky from RBC Capital Markets.

Good afternoon guys. A quick question here.

With the TravelCenters of America portfolio I believe in the agreement you guys agreed to fund a certain amount of improvements within the portfolio. Can you guys talk about that 70 to $90 million how much you plan to basically inject into that portfolio this year?

Well, TA we committed to fund $125 million over the first five years of the agreement up to $25 million a year. So our expectation is that, you know, we'll fund somewhere between 15 and $25 million this year on that portfolio.

Okay.

We're still working through some of that with TA at this point, the timing of that.

Okay.

I believe one of my colleagues had mentioned about acquisitions, but can you give us a sense of kind of what the size of the pipeline you're looking at right now? How much product's out there and what you guys are bidding on essentially?

Well we look at just about everything, so, you know, there's billions, I guess, billions and billions there's a tremendous amount of activity out there ranging from, you know, individual properties that are full service and resort type properties to hotel operating companies and other hotel REITs and so there's just, it's a very big number.

Okay.

Then a couple of your peers that have already released had mentioned that they were expecting to see kind of a ramp up in the second half of the year. As you guys look out over the, I know you guys don't give guidance, but would you care to, are you seeing similar trends to that?

Yes, I think and I tried to mention it during the call, that, you know, we think the comparisons, the negative comparisons that we've seen related to Katrina with the possible exception of that Residence Inn, which really had a great year last year in New Orleans, we think that the comparisons will get easier.

They'll be less negative comps in Georgia and Florida and Texas in particular. And so we expect that the second quarter will improve from the first quarter and that the second half, you know, the third and fourth quarters will be better.

You know, we may not come out in the 7 to 9% range that we had stated the year thinking about, because our operators and other operators that we don't do business with have moderated their expectations, but I think we're still going to be in the, you know, instead of maybe 7 to 9 maybe it's somewhere 6 to 9. But I think it's, you know, by any stretch it's still going to be favorable relative to historic averages.

Okay. Then final question.

With the Hyatt Place conversions do you guys have any way to kind of quantify the amount of EBITDA loss you have related to those renovations?

Yes, we haven't really prepared something on that for this call.

You can get a rough idea by taking, comparing the first quarter '07 coverage to the first quarter of '06 coverage and that will give you a feel for how much the cash flow that portfolio dropped.

Okay. Thanks guys.

Yes.

And we will take a follow-up question from Will Truelove from UBS.

Hey guys, two questions.

Mark first, the $150 million debt, or senior debt coming due in March of next year which is right now at 7%, what's the likelihood that you can probably refinance that at something like 6% or something even lower than that?

Well, I can't, well, when we get around to refinancing that I don't know what interests rates are going to be. If we did it today we clearly could. But we did the most recent $300 million 10-year Senior Notes just inside of 6% so our current borrowing rate is less than that.

Okay. And are there any penalties to refinancing that sooner rather than later or?

Yes, there are. There's make whole payments at that debt.

And then the second question is, I know we talked about Katrina kind of areas ramping up sequentially. But outside of the Katrina areas are you seeing any kind of sequential changes or have the operators been accurate in forecasting for the past few months sequential changes outside of the obvious Katrina areas?

That's a tough one. You know, they've been pretty accurate in some markets and not accurate in others. You know, I don't think that any of our operators of our hotels in Arizona expected that they would do as well as they did. So, you know, we outperformed there.

But I don't, I also don't think that, you know, that our, the expectation for suburban Michigan and Illinois and Ohio properties, I think that our operators in those areas expected better performance. So there've been some surprises and there've been some, you know, but some of them have been positive and some have been negative.

Okay. Thank you so much.

That does conclude our question-and-answer session. At this time I'd like to turn the call back over to John Murray for any additional or closing remarks.

Thank you very much. I appreciate you joining us today.

That does conclude today's conference call. Thank you for your participation. You may now disconnect.