Service Properties Trust (SVC) 2007 Q4 法說會逐字稿

Good day everyone. Welcome to the Hospitality Properties Trust fourth quarter 2007 financial results conference call. Today's 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 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, February 13, 2008. 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 cain non-GAAP numbers including FFO. In addition this call may contain non-GAAP numbers including fund from operations or FFO. 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 filings with the Securities and Exchange Commission and in our Q4 supplemental operating and financial data found on our Web site at www.hptreit.com. Investors are cautioned not to the 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 fourth quarter 2007 earnings call. Earlier today HPT reported FFO per share for the quarter of $1.15. This represents quarter over quarter FFO per share growth of approximately 15%. Fourth quarter RevPAR growth averaged 6.2% across our 292 hotels. RevPAR goes at HPT's hotels exceeded industry average growth and was once again driven largely by rate growth which accounted for 84% of the RevPAR increase. Occupancy increased modestly to 68.9%. RevPAR growth this quarter benefited from strong higher placed perform, double-digit growth at Spring Hill Suites, the strong performance from our Radisson, Staybridge Suites and Courtyard hotels. Balancing these results was what the performance at our Candlewood and Residence Inn extended stay hotels which had reduced occupancy and impact of renovation projects at several of our Crown Plaza hotels. Our hotels continue to generate strong performance versus their competitive sets during the quarter with an average RevPAR index of over 117. We believe this reflects a combination of strong locations, respected brands, attractive physical assets and high levels of service. All these attributes should serve us well going forward regardless of the economic climate. RevPAR increased across all of our portfolios expect the IHG (inaudible) portfolio where we had six Crown Plaza hotels under renovation during the quarter. RevPAR was up for all brands except at our two Park Plaza hotels. Earlier this month we sold one of those Park Plaza hotels for approximately $8 million. The RevPAR increase across several brands including Candlewood Suites and residence in was weaker than we would have liked. This appears to be due to lower levels of extended stay business travel. Although three of the hotels in the higher placed portfolio were under renovation during some or all of the fourth quarter, RevPAR for the portfolio was up 33% versus last year. For the 18 hotels which completed renovations prior to September 30, 2007, fourth quarter RevPAR was up 34% and NOI was up 25% versus comparable pre renovation periods. RevPAR performance this quarter performance improved in all regions. Our hotels in Canada and the East North Central New England and Pacific regions showed the strongest gains this quarter while the two west central regions had more restrained growth.

Profit margins for our hotels improved 133 basis points this quarter versus last year. Cash available to (inaudible) hotel minimum rents and returns increased by 9.7% this quarter versus last year, despite defied FF&E reserves ramping up at two of our IHG portfolios and renovations at our Hyatt and Crown Plaza hotels. HPT's annual minimum return and rent coverage ratios have generally remained strong with only the Hyatt portfolio below one times coverage. During the fourth quarter three more Hyatt place conversions were completed. Of the remaining three former Ameri Suites in this portfolio, our current expectation is that one in Orlando will be converted to Hyatt Place during the first half 2008. We are currently marketing for sale the remaining two properties, one in Florida and one in North Carolina, which we do not believe will generate sufficient returns on invested capital if converted. That marketing process began in early January, so, its too early to predict if acceptable pricing will be achieved or what the timing will ultimately be to closing. The 2008 budget process for our hotel was wrapped up in early January. Since that time, we have become somewhat less optimistic about the US economy. While we are hopefull recent interest rate reductions by the Fed and other possible government economic stimulus efforts will enable to us avoid a recession or at least reduce it's severity and duration, it is possible that our managers may fall short of their RevPAR growth targets. During uncertain economic periods such as this we believe it is important to remind investors of the safety and stability of HPT's minimum returns and rents.

Every year we reinvest significant sums in our hotels both through the FF&E reserves and by additional HPT investment for which our minimum rents and returns are generally increased. In 2007 HPT funded improvements totaling over $64 million in addition to the FF&E reserve escrows. In the past 12 to 18 months, major investments were made in the Carlton and Hyatt portfolios and in our Crown Plaza assets. Not withstanding deteriorating economic conditions, we are expecting strong growth from these newly renovated assets. The recent disruption in that Capital Markets has impacted lodging real estate transaction activity. Both the cost and availability of capital have been affected and mortgage underwriting standards have become more conservative for potential hotel investors. Through year end, actual hotel performance observed by existing owners and possible sellers remains healthy. Accordingly, we expect a pause in the pace of hotel transaction activity for a couple of quarters as both buyers and sellers take a "wait and see" approach to the current uncertainty.

Longer term we expect acquisition cap rates to rice, acceptable leverage levels to be reduced and the number of active hotel investor to decline as a result of more prudent lending standards. We believe these more challenging times in the Capital Markets and reduced transaction activity may create greater opportunities for HPT in 2008 versus the last two years because of our financial flexibility and the ability to offer sellers certainty of closure. 2007 has been a very challenging year for the travel centers business. This year we have seen a collapse in residential construction, a decrease in automobile production, and a general decline in economic activity. The impact of this on the trucking industry, TA's primary customer, has been dramatic with the ATA trucking tonnage index down in 18 of the last 24 months. As a result of these slowing industry conditions, rolling twelve-month property level rent coverage through the third quarter was down for each of our travel center portfolios. We believe TA, with its strong brands, well located sites and superior service offering is positioned to outperform its competition in what we expect to be a difficult economic environment in 2008. We also believe that TA is sufficiently well capitalized to weather a downturn.

This year we have funded $26.4 million of capital projects at our travel centers. Most of these funds have been invested in bathroom and shower upgrades and the addition of truck service bays and quick service restaurants. We remain excited about the travel center business and the growth opportunities and relative returns it provides. With its greater scale, we expect TA to continue to identify opportunities to seek better volume, purchasing contracts and otherwise increased efficiencies and margins. At the same time, TA's size has created interest among owners of travel centers around the country in becoming part of the TA system. We are optimistic, therefore, that this may lead to future growth opportunities for HPT. I will now turning the presentation over to Mark Kleifges, our CFO.

Thanks John. During the fourth quarter, RevPAR at our three leased hotel portfolios increased 4.9%, profit margins increased 150 basis points and cash flow available to pay rent increased 9.2%. Performance this quarter for our leased hotels was led by our 53 hotel Courtyard portfolio, for the 6.9% RevPAR increase and a 13.7% increase in cash flow available to pay rent. RevPAR and operating profit margins at our leased hotels for the quarter were constrained by the performance at our Residence Inns where RevPAR was up only 4.1% due to the higher levels of transient versus extended stay business. For 2007, rent coverage ratios for our leased hotel portfolios, ranged from 1.22 times to 1.63 times. Performance was slightly stronger during the fourth quarter for our seven managed hotel portfolios with a RevPAR increase of 7%, a profit margin increase of 128 basis points and 10% increase in cash flow available to pay our minimum returns. As John mentioned earlier, the Hyatt Place re-branching process is nearing completion and as you would you expect, growth in the portfolios cash flow available to pay our minimum return, was significant during the fourth quarter, at approximately 64%. Coverage increased to 0.56 times for the quarter. While we expect coverage for this portfolio to be greater than one times in 2008, we do not expect to earn income above our minimum return as Hyatt will retain any excess cash flow until they recover short falls funded during the renovation process.

The strongest performance this quarter for our managed hotels was from our 31 hotel Staybridge Suites portfolio and 14 hotel inter Continental portfolio. Our Staybridge portfolio had a 9.3% increase in RevPAR, a 110 basis points improvement in profit margins, and an 8.4% increase in cash flow available to pay our minimum return. Performance of our inter Continental portfolio was equally strong, with a 7.4% RevPAR increase, 180 basis points improvement in profit margins, and a 9.7% increase in cash flow available to pay our minimum return. This portfolios performance was led by our inter Continental hotels in Houston, Baltimore and Toronto. For 2007 return coverage ratios for our managed portfolios, excluding the Hyatt portfolio, ranged from 1.09 times to 1.63 times.

As John mentioned 2007 has been a difficult year for the trucking industry and our travel center properties. During the first nine months of 2007, our TA portfolio experienced a 1.5% decline in fuel volumes and a 5.6% decline in fuel gross margin. Which were only partially offset by increases of 1.7% and 2.1% in non-fuel sales and gross margin respectively. The lower total gross margin combined with higher site level operating expenses resulted in a 7.9% decrease in cash flow available to pay our rent during the period. The performance of our petro portfolio was weaker with declines in both fuel and non-fuel sales and related gross margin. For the first nine months of 2007, fuel volumes declined 5.3% and fuel gross margin was down 15.9%. Non fuel sales and gross margin declined 0.8% and 1.6% respectively. s a result, cash flow available to pay rent declined 23.6% between years. Despite the declines in cash flow, coverage remains positive at 1.39 times for our TA portfolio and 1.14 times for our petro portfolio, for the 12 months ended September 30, 2007. Turning to HPT's consolidated operating results, EBITDA in the fourth quarter of 2007 was $154.3 million, representing a 58% increase over 2006 fourth quarter EBITDA of $97.8 million. For the year, EBITDA was $597.6 million, a 51% increase from 2006. FFO for the fourth quarter were $108.2 million compared to $75.6 million for the fourth quarter of 2006. On a per share basis, FFO increased 15% from $1.00 per share to $1.15 per share in the 2007 fourth quarter. The weighted-average number of common shares outstanding totaled $93.9 million in the 2007 fourth quarter, compared to $75.6 million in the 2006 quarter. Our FFO pay out ratio was approximately 67% for the fourth quarter.

Minimum returns and rents were $144.6 million in the 2007 fourth quarter, a 72 % increase over the 2006 fourth quarter. This increase resulted primarily from our two travel center leases which commenced in January and May of 2007 and increased annual minimum returns in rents due to our funding of capital improvements at our properties in 2006 and 2007. These increases were partially offset by the elimination after July of rent from the Homestead portfolio which we sold in the third quarter. FFO for the fourth quarter also includes $5 million or $0.05 per share of additional returns in percentage rent. This compares to approximately $3.7 million or $0.05 per share in the 2006 fourth quarter. For the year, additional returns and percentage rent totaled $30.5 million, a 19% increase over 2006. Because of the slowing economy and the ramping of FF&E reserves at several of our portfolios in 2008, we would expect significantly less growth in additional returns and percentage rent in 2008.

Turning to our balance sheet and liquidity, cash and cash equivalents totaled $51.5 million at December 31, 2007, which included $28.1 million of cash escrowed for future improvements to our hotels. During 2007 we made approximately $123 million of capital improvements to our hotels and $26 million of improvements to our travel centers. In 2008 we expect to make improvements to our properties of between $150 and $175 million. As of December 31, 2007, our debt to total capital on a book basis was approximately 48% and on a market basis, debt to total capital was approximately 43%. Our EBITDA to total fixed charges coverage ratio was 3.4 times in the 2007 fourth quarter.

In summary. the fourth quarter of 2007, was highlighted by continued RevPAR and FFO per share increases and strong coverage ratios in our portfolio. We believe that our operating agreement structure and balance sheet strength, will serve us well should the US economy experience a further downturn in 2008. That concludes our prepared remarks. Operator, we are ready to open it up for questions.

Thank you. The question and answer session will be conducted electronically. (OPERATOR INSTRUCTIONS) And we'll take our first question from William Truelove with UBS financial.

Hello guys. Questions about the Travel Centers of America number two. In the first quarter of '07 it had only a coverage ratio of 1.04. Given the trends that you continue to see in that business, is it likely that that's going to go under one times you think in the first quarter of this year? And if that's the case, have had you any overtures from the management teams over their at TA to talk about rent going forward? Thanks.

We don't give guidance for our own numbers. I don't want to predict on this call where we think TA's numbers are going. We have numbers up through the third quarter, which is what we included in our statistics today. But it's -- clearly the economy is going through a weak phase and we are not really seeing any statistics from the ATA or other statisticians on the transportation business that would lead us to believe that the sector is anything but weak right now. So we don't -- we are not expecting a dramatic increase in coverage. We think the current malaise is going to continue. As we said in the script, we believe that TA is well capitalized and they are -- the first and fourth quarters of the year are typically the weakest two quarters of the year for the travel center business and so we are confident that even if there is a decline in coverage that TA can still pay the rent.

But just to clarify it, have you guys already had discussions about changing the rent going forward or -- ?

No, we don't think there's any reason to have those discussions.

Okay. Great. Thanks.

We'll take our next question, David Bragg with Merrill Lynch.

Good afternoon. Just another question on Travel Centers. Can you provide your take on why the Petro portfolio is underperforming -- the original TA portfolio?

We believe that a lot of it has to do with a different mix of customers. TA, Travel Centers of America had a greater waiting towards fleet relationships and Petro had a mix that was more balanced between fleets and independent truckers. And we believe that when the industry -- the trucking industry has been squeezed, that that has impacted the independent truckers more significantly than it impacts the fleets who have longer term contracts with -- for shipments. So, and also not only does that cause a reduction in the amount of -- or the volume, the large fleets that do a tremendous amount of volume can negotiate for more competitive rates on fuel based on a margin over an index whereas independent truckers essentially pay more of a rack rate. And so not only is the volume down when you have less independent truckers but your margins are impacted as well. So, I think those are the what -- I believe are the two key reasons.

And could you remind me, are there any key differences between the service -- services that are available at those two portfolios?

I think they are fairly similar. Frankly, I think that the Petro sit down restaurant, The Iron Skillet, has -- actually a better reputation in the industry for sort of -- in terms of trucker satisfaction, if you will.

Also, John, you mentioned your expectations for cap rates to rise. Could you frame that in terms of the movement, the degree of that movement?

I can tell you where I'm hopeful it will go. It's hard. I think it's going to take awhile for us to tell where it really shakes out but I think that the talk that we've seen in the marketplace on potential deals seems to be 50 to 100 basis points higher than where it was say nine months ago. And my sense is that for buyers to be -- to be more comfortable that we'd like to see it go another 100 basis points. So, I think we are seeing a lot of transactions in the 6 to 8 range and I think that we'd hope that they'd be in the 7 to 9 -- or 7.5 to 9.5 range going forward. Obviously it depends on transaction size and markets and hotel type and things.

Sure. And then finally on the GA side, given that there are limited transactions there as well what sort of pricing movements have you seen recently there?

I think mostly we've only seen our own transactions there. So it's, I don't see any reason why -- I mean I would think the cap rates would remain north of 9%. We did our transactions in the 9.5% range and I think that we are certainly not going to be buying additional properties below that.

Okay. Thank you.

(OPERATOR INSTRUCTIONS) We'll go next to Smedes Rose with KBW.

Hi, guys, you mentioned you had about $30 million of incremental profit participation in '07 that you don't expect to grow in '08 -- or you would see less growth in '08. Can you just help us think about what just one point of RevPAR does -- a change in RevPAR do to that number? That for us has been a harder part of your earnings story to model and it would be helpful I think given that there is a lot of concern about growth rates and RevPAR to kind of understand the sensitivity around that?

Yes, Smedes, this is Mark. It is difficult to model. It's difficult for us to model, also, because a 3% change in RevPAR can have a different impact on each of our seven managed portfolios depending on where you happen to be in the cash waterfall at that given time. By that I mean, is the next dollar of incremental cash -- does the next dollar of incremental cash flow all go to HPT, does it get split with the manager, what percentage does it get split at? So, I don't think it would be fair, it would just be inaccurate to give a standard answer as to what a 3% change in RevPAR has. You really have to look at it portfolio by portfolio and where we are in the cash waterfall. And I think those types of discussions, if it's an area that you're struggling with, are probably best done off-line where we can talk about specific portfolios and what's happening there.

Okay, and is 3% -- maybe you said this and I missed it, but is 3% about what you're maybe seeing cross your portfolios for this year?

No, I think --

I think on your last call you had mentioned 4% to 6%. Is there any update or thoughts around that?

We expect RevPAR to grow next year. And we don't expect it to grow as much as it did in 2007. But the environment -- it's unclear right now. So, we are not providing specific guidance.

Okay. And then is there any update just on the -- I think you have about 150 million of debt coming due in the first quarter and also there's a preferred, that I believe it's callable now. Is there any decisions made on either of those?

Well, the decision on the 150 -- we have 150 million of unsecured Senior Notes that are, we're required to redeem on March 1. So, that's an easy decision. We will be redeeming those and will likely use the revolver to do that. And we also have some perpetual preferred that became callable in December but we have made no decision whether to call or not call that at this time.

Okay, thank you.

We'll take out next question, Michael Solinsky with RBC Capital Markets.

Good morning, guys, in a follow up to Smedes question, can you discuss where you see pricing at right now in the unsecured market as well as the preferred market?

That's a difficult question because it's the debt capital markets and for all investment grade credits not just REITS have been pretty volatile and to be honest with you we really haven't gone out and tested the markets if you will to get quotes here recently. But clearly you've had spreads that have continued to widen and that's been partially offset by the continued decline in the ten-year treasury. I wouldn't be comfortable giving a specific quote of where I thought we could raise money today. The preferred REIT market -- you really haven't seen any transactions in that space. I heard a rumor that someone is out today with a -- REIT is out today with a preferred transaction, so, it will be interesting to see what type of pricing they get on that transaction. But the big financial services firms, the bank's have really been dominating the preferred market and I think they've squeezed out the REITS and some of the smaller issuers from a pricing standpoint.

Okay, I think in your comments you mentioned 150 to 175 million of improvements planned for 2008.

Yes.

Could you go into that in a little bit more detail, like maybe some of the projects you're looking at, maybe some of the larger scale projects essentially?

Yes, well we have 292 hotels. So, I don't think there are any very major renovations at any one property. Perhaps we are going to be putting some money into our Kauai Marriott for some -- it's due for a major renovation. We are going to be working on a spa with Marriott but I don't think that that's going to happen because of the timing of things in Hawaii, probably until maybe even 2009. We are doing room renovations and public space renovations in a number of our Courtyards and Residence Inns. Marriott has come out way new brand standard on sort of a great room style lobby. So, we'll be putting some money towards that. We've got one more Hyatt Place in Orlando, near the airport, that we'll be converting from an Ameri Suites to a Hyatt Place. We're going to spend about $25 million on travel centers, continuing to refresh those, focused on adding truck service bays, quick service restaurants and making sure that the bathrooms and showers are in good condition. And I think we are going to, in terms of the inter Continentals, I think we have plans to spend some more money on the San Juan inter Continental. We've done some work on some guest rooms but most of the money that we've spent there has been on HVAC systems, redo of their restaurants, a redo of the sort of pool area. So, some of the guest rooms still need to be -- go through a renovation.

So, nothing along the -- in terms of disruptions like you had with the Hyatt Place this year, from the --

No.

Okay.

No, there will be the occasional disruption here or there but they should all be balanced out by -- continued strong performance by the other hotels in their portfolios.

Okay. And finally you mentioned your marketing a property in North Carolina and a property in Florida, two former Ameri Suites assets. I think you'd mentioned you had sold an additional asset. Can you kind of give us a time line of what your -- can you provide us a detail of what your marketing right now and the timing on those sales?

Yes, there is an American Suites in Tampa in a business park called Sable Park. It's a non brand compliant 70-ish room hotel that we've -- our acquisition costs there is around $3.5 million. That's the marketing has begun there but we don't, we don't know exactly what the timing is going to be. I think the brokers this week and next week are taking prospective buyers through. And books are out. There is a -- on Atlantic beach in North Carolina, there is an Ameri Suite, it was billed as a Sumner Suite, converted to an Ameri Suite, it's just -- our decision is that its just too much of a seasonal location to be worth the magnitude of investment that it takes to become a Hyatt Place. So, that too is going through the marketing process. Our book value there is a little less than $7 million. So, it's not -- those are the only two properties that we are marketing. It's just not big dollars in the scheme of things.

Good, okay.

We sold the one Park Plaza which was a former Wyndham Garden hotel in north Phoenix for about $8 million just a couple weeks ago

Great. Thanks, guys.

Next question, Troy Garner with Morgan Keegan.

Hello, John, Mark, I'm covering for Nap today. I had a couple of questions. On your fourth quarter G&A, were there any adjustments, true ups or anything, that would have impacted I think it was $9.4 million in the quarter?

No, there were no real unusual -- there were no unusual items in this quarters G&A.

So, is that a pretty good run rate going forward?

Yes, it should be a pretty good run rate.

Okay. Because it looks like it was down substantially versus Q2 and Q3. Is that accurate?

Let me --

There might have been a modest decline because of the stale of the Homesteads but you should have seen that also in Q3.

I don't have the prior quarters numbers in front of me. I know we did have -- we had some failed acquisition costs in one quarter this year. I think it was in the second quarter. And as John mentioned the G&A did go down as a result of selling the Homestead portfolio in July. But it bounces around a little bit between quarters. But the fourth quarter should give you a pretty decent run rate.

Okay, that's helpful. Thank you. And just to make sure I understood on your percentage rents and your additional returns in 2008, you said they are not going to grow -- or that they are not going to grow the at the same level they grew in '07.

They grew about a 19% clip in '07 and I think my statement was that it would be at a significantly lower growth rate this year.

Fine. And then I think it was '06 or maybe '07 they were a little bit lumpy, do you see anything, any quarterly kind of differentials kind of in '08 that we would be aware of?

I think they typically -- additional -- the additional returns in percentage rents typically follow the hotel cycle within a calendar year which means the strongest quarters, or the quarter where we have earned the highest amounts are the second and third quarters with lower amounts in the first and fourth.

Okay, and then on your Hyatt place portfolio, assuming that Hyatt was not recovering dollars that they had essentially fronted you during the renovations, I think you've got maybe 13 properties that are completed. What kind of coverage, if you could comment, would they be throwing off at this point?

Well, the portfolio didn't cover in the -- for the year and or in the fourth quarter, the coverage is starting to improve, we think it's probably going to be second quarter before that portfolio covers the rent.

First, quarter will be close to covering the cash flow -- cover the minimum rent but starting in the second quarter is probably a likelier bet -- we'll see the portfolio covering.

So, by that point Hyatt will, I guess, have recouped some of the short falls that they covered during the renovations.

No, once the coverage gets above 1.0, which let's say will be in the second quarter of 2008, that excess above our minimum return is when they will start to recover against the funds they advanced during the renovation.

So, and correct me if I'm wrong, I think your NOI, especially on the completed properties, was up pretty substantially maybe 19%? I would have thought I would have seen a bigger pop on your rent coverage in the quarter?

Well, don't -- remember we put substantial capital into those properties and as a result our minimum return went up. So, if you look at fourth quarter of '06 versus fourth quarter of '07, our minimum return was up about 22% year over year. So, the cash flow is up significantly. We are taking, we are taking all of the growth in that cash flow though through additional minimum returns.

Okay. Okay. That's helpful. That's it for me. Thank you very much.

Okay.

We'll take our next question from Jeff Donnelly with Wachovia.

Good afternoon guys. John, I was just curious, I mean since you''e fresh from the AL's convention or conference in late January, I was curious what you were hearing out there on, let call it deals out there in the pipeline? I apologize if you touched on that earlier in the call, I got on just a little bit late.

I didn't touch on it. So, that's fine. We are seeing a fairly active pipeline. We've looked at a couple of transactions that frankly we thought that we were getting a sort of a first look at or as -- we were the only once looking at it, we didn't like the pricing on a couple of the portfolios that we saw. Those portfolios have now -- starting to come back out with packages from brokers. So, sellers have tried to go to some selected buyers and see if they can get a deal done and when they haven't gotten the price that they hoped for, turned the portfolios over to some of the larger brokers in the industry. So, we are seeing a good mix of business. We are seeing portfolios. We are seeing a lot of individual one offs. But nothing that has been right for us either because of inability to change the brands to make it fit within one of our portfolios or because we found the existing secured debt that was in place unacceptable or -- in our transactions we structure -- we structure our contracts differently than a lot of other REITS and just because you have more than one hotel doesn't make it a portfolio from our perspective. We look for the ability to pool FF&E reserves. We look for the ability to have all our non renewals, we try and have single management contract as opposed to say 10 or 15 or 20 individual management contracts. So, there's a lot of nuances that factor into our underwriting and what we've seen so far at the asking prices that we've seen it, hasn't been the right fit.

And, just -- I'm curious about your take on one aspect of pricing I know this may not directly apply to you guys but there have been some hotels that were fortunate of locking up secured financing in the first half of 2007 and some of those folks would argue or the private guys would argue, that it's still like those assets will trade as if it is early 2007 because of that long-term in place financing. Is that something you are seeing from transactions that are getting done or maybe to the extent you encountered those do you agree with that?

Well, there are some sellers out there, some owners who put debt in place that was assumable and to the extent that they're trying to sell now, that's become a big marketing plus for the brokerage community to say, "listen, you just have to come up with the equity piece, we've already got a pretty significant amount of leverage that's assumable." The question is whether, how much -- well, the question is whether you just pay the 1% and you can really assume it or if you pay the 1% but the banks still have the ability to decide if they approve of the new borrower and their credit worthiness. So, we haven't seen any of those transactions actually close since the credit market got dicey, so I can't give you a definite answer on whether that's helping or not. But we've heard the unusual description of some owners debt as asset debt. And that -- we always get a chuckle out of that. Anyway. We -- I think it may help some deals get done but right now we're just not seeing that many deals getting done that weren't announced or agreed to before the markets got choppy.

And how are you guys, I'm curious, thinking about pricing yourself? To the extent you are out there trying to buy assets and say there is that portfolio where it does have the traits that you like, how do you think about the yields that you're looking for there versus maybe what you've got and I can't remember what the yield was in the last deal aside from TA that you did. But just given the credit markets have really kind of blown out as Mark said earlier, I guess I would say that on some level your pricing should too as well and how are you thinking about that?

Clearly our cost of capital has widened as the economy has weakened and as the credit -- the capital markets have gotten dicey. And so we have been seeking hire returns but we are also looking at it like, this isn't going to be a long-term situation. We do believe that we will be able to access the unsecured credit markets at attractive pricing during 2008 and we do think that the Capital Markets are going to get through the current disruption. It may take a couple of quarters. So, right now we are, as Mark said, we will take care of the current -- the maturity that's coming up in March of some Senior Notes using our revolver and right now we are just -- we're looking at transactions where we can use our revolver and expect to ride out the temporary uncertainty.

And just one last question, I'm curious, have you guys ever given any consideration or do you still give consideration to maybe doing deals in the hotel space in the future, kind of like you did with TA. Where rather than having a sale lease-back with an established brand like a Marriott or Hyatt or an Inter Con, that you instead sort of capitalize (inaudible) capitalized company that's independence of HPT? Is this something you've thought of or?

We think of about a lot of different opportunities and clearly as many of our existing relationships have gone asset light, we've had to think about what you just described more so than we have had to earlier in the life of HPT. But right now we don't have plans underway to set up a captive manager or to align with one in particular to -- that's a third party manager. But that some day we may do that because Marriott doesn't own very many hotels that they can do sale manage backs and sale lease backs. IHG doesn't, Hyatt has some. But over time I think that they may go in the asset -- well they are calling it asset right, but they will go more asset light than they are today. So, at some point in the future we may need to align ourselves a little bit differently in that regard.

Okay, thanks, guys.

And it appears we have no further questions at this time. I would like to turn the call back over to Mr. John Murray for any additional or closing remarks.

Thank you very much for joining us today. We look forward to speaking with you again in May with our first quarter call. Thanks.

Once again that does conclude today's call. We do appreciate your participation. You may disconnect at this time.