Service Properties Trust (SVC) 2008 Q2 法說會逐字稿

Good day, everyone and welcome to the Hospitality Properties Trust second quarter 2008 earnings 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 morning, everyone. Joining me on today's call are John Murray, President and Mark Kleifgas, 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, August 12, 2008. The company undertakes no obligation to revise or publicly or publicly release the results of any revisions to the forward-looking statements made in today's conference call, other than through filings with the Securities and Exchange Commission or SEC 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 our Web site. Actual results may differ materially from those projected in forward-looking statements.

Additional information concerning factors that could cause those differences is contained in our forms 10-K, and 10-Q filed with the Securities and Exchange Commission and our Q2 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 morning, and welcome to our second quarter 2008 earnings call.

Yesterday, HPT reported FFO per share for the second quarter of $1.04. FFO includes $19.6 million or $0.21 per share noncash reserve for the straight line rent receivable relating to our lease with TA for 145 travel centers. In addition, in the second quarter we made the decision to stop accruing straight line rent of $3.5 million or $0.04 per share under the TA lease.

Both HPT and TA's quarterly results were announced yesterday. And accordingly, unlike previous quarterly calls, today we can discuss TA's results through second quarter 2008, and also the agreement which we announced to provide TA liquidity, flexibility, to weather this economic downturn. Many of you may have listened to TA's second quarter 2008 conference call this morning.

During previous earnings calls, and conference presentations, we discussed what we described as the perfect storm of rapidly increasing diesel prices, and decreasing levels of economic activity. And the combined negative impact it has had on the trucking industry and TA. To put this in perspective, diesel prices increased 138% since our January 2007 TA acquisition through June 30, 2008.

We have also told you that TA's management team has taken a number of steps to maintain or grow fuel margins and appropriately match staffing and other expenses with the lower level of business activity they're experiencing. They have implemented staff reductions, stopped discretionary capital spending, renegotiated contracts with suppliers, reduced restaurant hours of operation, and taken other initiatives to address the changed operating environment.

On the expense side, much of the savings were implemented beginning in late March, so the impact was only noticeable in the second quarter. Yesterday, TA reported much improved financial performance, in quarter two, versus what was experienced in the past three quarters. TA was able to cover our rent in both HPT leases at the property level and at the corporate adjusted EBITDA level.

Although these are challenging times for TA and the trucking industry, TA's second quarter results show that this is a viable business, even at substantially reduced fuel volumes. While many of TA's operating issues appear to have been addressed, liquidity risks remain.

Fuel price increases directly impact TA's working capital requirements, and a prolonged recession may create receivable collection or other issues. At June 30, TA had approximately $106 million of cash on hand, availability under its line of credit of approximately $30 million, and access to additional CapEx reimbursement of about $23 million from HPT.

The rent deferral of up to $5 million per month for up to 30 months, should enhance TA's ability to address the liquidity risks from the present market conditions and to meet working capital needs during an extended economic slump. This is not a current liquidity crisis, but a proactive effort by HPT to address possible future TA liquidity issues before there is is a problem.

Last quarter, we told that you there were no discussions in process or plans regarding possible steps to help TA through this difficult period. At that time, as we said, it was important to HPT that TA first do everything under its control to right-size its business to match the current economic operating environment. We now believe, based on presentations from TA's management and as their results yesterday indicated, that steps taken and initiatives currently under way have been effective.

Perhaps the full deferral will not be needed. But in the current economic environment, it seems prudent to create a short-term mechanism to provide additional liquidity if necessary before any issues arise. The agreement announced yesterday, which was negotiated by the independent trustees of HPT and independent directors of TA, provides that mechanism. I would add that it was important to our trustees that whatever agreement was achieved, would be sufficient so that we would only go through this process once.

Turning to the larger portion of our business, comprised of hotel investments, second quarter 2008 RevPAR growth averaged 2.1% across our 290 comparable hotels, driven entirely by rate increases, which rose 2.1% and flat average occupancy of 75.1%. RevPAR growth was aided by continued impressive improvement at our Hyatt Place hotels which increased 31% over easy comparisons in 2007 when renovations were under way.

Although we are pleased that our portfolio has continued to have rate change without sacrificing occupancy, we are concerned about reduced business in leasure transient demand in a number of markets. However, we believe our hotels are well positioned to compete in a weak economic cycle as evidenced by the local market level -- at the local market level by our average RevPAR index for HPT's hotels, which have increased 390 basis points during the second quarter 2008 to over 117.

RevPAR performance this quarter increased in most regions with the strongest regional performance seen at our hotels in the two west central regions. Driven by strong results at our hotels in Texas and at our Hyatt Place properties. Balancing these strong results were the mid Atlantic and mountain regions which felt the impact of reduced demand in the suburban New Jersey and Philadelphia markets an Phoenix and Las Vegas markets, respectively.

The strongest portfolio performance came from a newly converted Hyatt Place portfolio against the 2007 construction period comparison. Nonetheless, our Hyatt Place hotels continued to attract both business and leisure travels. Profit margins improved at Hyatt Place properties from approximately 30% in the 2007 quarter to over 42% in the 2008 quarter. Recently, JD Powers reported that Hyatt Place rated highest in the midscale segment of it's hotel guest satisfaction index study, edging out both Hilton Garden Inn and Courtyard.

In other portfolio changes, in June, we sold the AmeriSuite Hotel in Atlantic beach North Carolina for $3.65 million. We continue to market one AmeriSuites hotel in Tampa, Florida for sale and expect to convert our remaining AmeriSuites at Orlando airport to a Hyatt Place later this year. Despite slower revenue growth and increased operating costs our hotel managers maintain margins close to 2007 levels, softer by ten basis points in the 2008 second quarter.

HPT's hotel annual minimum return and rent coverage ratios have generally remained strong. Our managers continue to reduce their projections for RevPAR growth as the economy remains weak. While there is substantial variability, most are expecting full-year RevPAR to be flat rather than up 1% to 3% as was predicted earlier in the year. Rate increases are unlikely to off-set occupancy declines for the balance of 2008 as they did in the first half of the year.

The impact of economic concerns, including high fuel costs, a weak housing market, and airline capacity reductions, are weighing heavily on expectations for the balance of 2008 and 2009, for both revenues and profit margins. Each of our operators has implemented contingency plans in an effort to increase demand for new course sources and to maintain current business, while also closely monitoring and controlling costs to the extent possible without impacting the guest experience.

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

Thanks, John. During the 2008 second quarter, RevPAR for our hotel portfolio was up 2.1%, led by our Hyatt, Carlson, and Staybridge Suites portfolios, with increases of 31%, 3.3%, and 3.2% respectively. These increases were partially offset by a 5.2% decline in our at our Marriott Kauai hotel and a 2% decline for our Residence Inn portfolio where our downtown Chicago hotel was under renovation during the quarter.

Hotel gross margins were essentially flat for the quarter, declining ten basis points to 46%. We experienced a significant increase in gross profit margins at our Hyatt portfolio, driven by a 14.4-point increase in average occupancy and a 5.1% rise in ADR. Consistent with hotel gross margins, cash flow available to pay our minimum returns and rents was also flat quarter over quarter. Once again, our Hyatt portfolio turned in a strong performance with cash flow increasing approximately 129%, to $6.4 million in the quarter.

However, seven of our hotel portfolios experienced quarter over quarter declines in cash flow available to pay our returns and rents, offsetting the Hyatt portfolio's performance. Rents and return coverage ratios remain strong for our hotel portfolios. On a trailing 12-month basis, only two of our operating agreements have coverage below one-times at June 30, 2008. Our Marriott Kauai lease and our Marriott management contract.

As we discussed last quarter, the Kauai lease, which is subject to a Marriott guarantee, is not expected to show significant improvement until after its renovation is completed. The 12-month coverage number for the Hyatt portfolio includes operating results for periods when certain of the hotels experienced significant disruption due to the Hyatt Place rebranding process. We expect coverage for the Hyatt portfolio to be greater than one-times for the 2008 year. Our remaining nine hotel portfolios have coverage ratios of 1.61-to-1.14 times, for the trailing 12 months.

Turning to our travel centers portfolio, as John mentioned, TA made significant progress this past quarter, despite record high diesel prices and continued weakness in the trucking industry. Cash flow available to pay rent at our 184 comparable travel centers, increased $4.5 million, or 5.9% over the 2007 second quarter. This compares to quarter over quarter declines in cash flow of 32.8% in the fourth quarter of 2007, and 16.8% in the first quarter of 2008. The improved operating performance resulted primarily from a 5.7% increase in fuel gross margin, despite a 16.1% decline in volumes.

Non fuel revenues and gross margin were essentially flat between years, despite the lower fuel volumes. Property level coverage for the quarter was 1.43 times for our 145 property lease, and 1.51 times for our 40 property lease. More importantly, TA produced corporate level adjusted EBITDA in the second quarter sufficient to cover our rent.

HPT's EBITDA in the second quarter of 2008 was $142 million, which is a 7.2% decline from 2007 second quarter EBITDA of $153.1 million. This decline is attributable to the $19.6 million noncash charge to reserve the TA straight line rent receivable, as well as the impact of nonaccruing straight line rent of $3.5 million in the 2008 second quarter. Funds from operations for the second quarter were $97.5 million, compared to $111.5 million for the second quarter of 2007.

On a per share basis, FFO declined 12.6%, from $1.19 per share, to $1.04 per share in the 2008 second quarter. Again, the $19.6 million, or $0.21 per share, noncash charge to reserve the TA straight line rent receivable, and nonaccrual of $3.5 million, or $0.04 per share of straight line rent this quarter accounts for the reduction in FFO.

Both the reported EBITDA and FFO amounts, exclude a $53.2 million noncash loss on asset impairment, we recorded in the second quarter to reduce the carrying value of certain intangible assets arising from our January 2007 acquisition of TA, to their estimated fair market value.

Minimum returns and rents were $142.8 million in the 2008 second quarter, a 7.5% increase over the 2007 second quarter. This increase resulted primarily from our May, 2007 Petro acquisition and commencement of the related lease with TA. FFO for the second quarter includes approximately $9.9 million, or $0.11 per share of additional returns and percentage rent. This compares to approximately $9 million, or $0.10 per share, in the 2007 second quarter. The increase from 2007 resulted primarily from the increase in cash flows at our IHG3 portfolio and our Candlewood portfolio.

Even our lower expectations for RevPAR growth during the remainder of 2008, we would expect quarter over quarter comparisons of additional returns and percentage rent to be more challenging in the third and fourth quarters. In addition, the rent deferral agreement reached with TA and our decision to stop accruing straight line rents under the TA lease will have the impact of reducing FFO by $18.5 million, or $0.20 per share, in each of the 2008 third and fourth quarters.

Turning to our balance sheet and liquidity, cash and cash equivalents totaled $50.5 million, at June 30, 2008, which includes $37 million of cash escrowed for future improvements to our hotels. During the quarter, we made approximately $31.8 million of capital improvements to our hotels, and we expect to make additional improvements of between 40 and $50 million during the remainder of 2008.

During the quarter, we reimbursed TA for $67.7 million of capital improvements to our travel centers. HPT's debt to total capital on a book basis was approximately 50% at June 30, 2008, and our EBITDA to total fixed charges coverage ratio was 3.2 times in the 2008 second quarter. Before turning to the Q&A session of the call, I would like to discuss our common dividend.

Our current expectation is that neither the rent deferral agreement we entered with TA, nor the anticipated downturn in the hotel industry, will impact HPT's common dividend. In fact, because of HPT's conservative financial profile, and the strength of our hotel operating agreements, we expect to generate cash flow available for distribution in the third and fourth quarters of 2008 sufficient to cover our common dividend. That concludes our prepared remarks. Operator we are ready to take questions.

Thank you. (OPERATOR INSTRUCTIONS) Our first question today is from Nap Overton from Morgan Keegan.

Good morning. You answered my first question. And the second one would be, would you just summarize for us, all of the agreements you have in place to fund, effectively fund TA. There's the new rent deferral agreement and then also the agreement to accelerate the portion of the $105 million that you originally agreed to. Are there other things in place there to help fund TA?

The 125 million that relates to acquiring capital improvements made by TA at our Travel Centers locations at 145 leased Travel Centers locations was in the original lease, and we agreed to allow TA to request -- originally it was agreed that we would fund 25 million a year over a five-year period. We allowed TA to accelerate that to help with liquidity, since they had embarked on an aggressive CapEx improvement plan at their sites.

So there's 23, roughly $23 million remaining available on that -- under that agreement, which TA would first need to approach us and demonstrate that they had made the capital improvements. And then the only other agreement separate from the lease is the deferral agreement that was announced yesterday, which allows them to defer up to $5 million per month of rent for up to 30 months.

It is a noncumulative deferral mechanism, so each month, they need to make a decision as to whether they're going to defer. If they decide not to defer the full amount, or not to defer at all, that amount doesn't carry forward. The following month they would just have the $5 million option. In the first 18 months, there is no interest on the deferred amounts, but after that, the full amounts deferred, if any, or have not been repaid by that point will be -- accrue interest at 12%.

Okay. And then in thinking about this rent deferral agreement, after -- I judge that deferrals are highly probable based on TA's conference call and the current third quarter of '08 and the fourth seasonally weaker fourth or first quarters.

Would you concur that next year, the second and third quarters are going to be interesting in determining the company's real ability to get back on its feet with these rent deferral agreements in terms of whether they continue the rent deferral options in the second and third quarters next year?

Well, we're not operating TA's business so I'm not going to go so far as to comment on what their second and third quarter of next year is going to look like. But I can tell you that it was very important to us to see that this quarter that TA had right-sized its business, and was able to operate in a manner where they were generating positive fuel margins and fairly attractive margins on a cents per gallon basis, and that they were maintaining their expense levels at a point where they could not only pay -- afford to pay rent at the property level but on an adjusted corporate level.

And -- but the concern was that although they have achieved that and they have made great strides, the fourth quarter of this year, an the first quarter of next are likely to be challenging, because those are typically the two weakest quarters for trucking. And so, we expect to see improvement in the third quarter, over the second quarter, but we -- and we expect that probably the -- over the prior year, and we expect to see -- well, we would hope that a lot of the initiatives that they've undertaken will make the fourth quarter and first quarter less negative than they were this past year.

But nonetheless, we thought it was important that we make sure that TA had the liquidity to weather the fourth and first quarters, which are typically more challenging. So we looked at a lot of different scenarios. TA did a tremendous amount of analysis in modeling and projections for our independent trustees. And we believe that where we came out provides the necessary cushion.

Okay. And then can you outline for us the reasoning, basic reasoning behind the stock issuance from TA to HPT?

There are I guess several factors. One is that in that first 18 months period, there is no interest on the deferred amounts, so it is in effect a compensation for that. There is also a claw-back provision in there that if they don't make use of the full deferral, they can get back part of the shares.

And so I think that that coupled with the 12% interest in the latter periods provides an incentive for them to pay us back, to only defer what they need to defer and to pay back what they've deferred as quickly as possible. I would say those are the two main concepts.

Okay. And then my last question is this, I did certainly appreciate Marks comments on the dividend. And would you -- could you just remind us what the company's kind of stated dividend policy is and perhaps share some color on what set of circumstances could cause you to -- that you believe would cause the board to reconsider the dividend?

By my calculations quickly the payout ratio increases from about mid-70s percent-range, on 2009, to the mid to upper 80s range. How high will that payout ratio have to go before you'd seriously reconsider adjusting the dividend?

I can tell that you we're not seriously considering adjusting the dividend. We don't have a formal stated dividend policy. Historically, we've tried to raise the dividend, at least annually.

In the current capital market environment, I'm not sure that there is any value to be necessarily had by raising the dividend. We're certainly not planning on reducing the dividend. I think the math you've done in terms of the payout ratios is probably reasonably accurate.

We have run at CAD payout ratios in the upper 80s, many times in the past, I think after 9/11, and the 2001, 2002 periods, we were up in the 90s. And we have never cut our dividend and we're not presently anticipating considering that.

Yes, Nap. This is Mark. I guess I would just add that I think the way our hotel operating agreements are structured and the stability of our cash flows under those agreements, probably allows us to be -- to operate a little more comfortably at a higher payout ratio than maybe some of the other REITs would be.

Okay. Thank you very much.

Our next question today will come from Michael Salinsky from RBC Capital Markets.

The deferrals, were there any deferred amounts in July, just to be clear?

No, there were no deferrals in July. But we -- I think that has more to do with the timing of when we got the independent trustees and independent directors were able to reach agreement.

But the agreement is effective July 1, but since they had already paid the July rent, in August, they have the option, one-time option to defer $10 million. So effectively, we will find out at the end of -- at the end of August if they want to defer both July and August, $5 million for each of those months.

Okay. Given that we -- that you mentioned that TA has -- that these are the strongest two quarters for TA, the second quarter and the third quarter, and that they're covering the rent, would you expect to see a deferral then in August?

Well, I think the idea here is to create a cash flow cushion, and since it is not a cumulative type of deferral, I expect that the real concern was about what the future holds for the fourth quarter and the first quarter.

We don't know exactly where the economy is going, we don't know exactly where fuel prices are going, and so my expectation is that TA will start deferring up through -- effectively -- they will start effective immediately, and until they get into the fourth quarter, and first quarter, and see what the real -- what the reality of the world is at that time.

So I think that if they wait until they really have a liquidity crisis, to draw on the deferrals, it will be too late. So I think that they will build up a cushion between now and November and December, so that if there is -- if things remain bad, or get worse, that they do have the cushion if they need it.

Okay. Just from an accounting standpoint, the way that the deferral is structured in a lease, you booked the full amount of revenues that are due to you and then create a reserve or how does that work? Will you just recognize the amount of cash that is collected?

Yes, we will essentially, Mike, be on a cash basis going forward with that deferral piece. Unless circumstances change, and our assessment is that there is a high probability that we will collect those amounts. So it will be -- each quarter we will analyze it and for now, I would say at least for the first and third quarters we would only recognize that revenue to the extent it was paid to us.

Switching gear, looking at the lodging portfolio, do you expect -- you mentioned you expect softness here in the second half of the year, yet this past quarter were you able to maintain margins, despite the lower drop in RevPAR. What level do you think RevPAR can fall to before you start to see margin erosion within your portfolio right now?

Well, we had 2% RevPAR, 2.1% RevPAR growth this quarter and margins slipped overall, about ten basis points. Obviously, that was helped quite a bit by Hyatt Place, with very strong performance, and it was hampered somewhat by a major renovation at our downtown Chicago Residence Inn. But I think if we -- if we have RevPAR growth that is less than 2%, our managers will be hard-pressed to keep margins steady.

That said, I don't think that any of them are going to have any difficulty paying the returns or rents that they're obligated to pay us, and in most cases, they are guaranteed, or the security deposits or other, we're not expecting any Draconian situations on the hotel front. Just some weakness to the cycle.

Okay. That's helpful. And finally, several of your competitors have mentioned the cap rates have backed up significantly. Can you talk about what you're seeing with regard to cap rates, and as a corollary to that, when do you expect to re-enter the acquisition arena for hotel opportunities?

We continue to look at a number of transaction possibilities. But most sellers who don't have to sell are not really even bothering to test the water, because most buyers are expecting that there is going to be some continued weakness going in the balance of this year, and maybe going into 2009.

So the expectation is that cap rates are going to continue to come up, and so there is really no point in being the first guy out there to buy, because if you wait, you can probably buy at a better price. So I think that it is hard to point any evidence, because there have been so few transactions.

So we're watching closely, if a very attractive transaction comes along, we have the availability on our revolver, so we can take advantage of an opportunity, but there doesn't seem to be any reason to have to rush into a transaction.

Have you bid on anything in the past three months?

We have issued letters of intent in the last three months, but we don't have anything -- we don't have anything that is worthy of being announced or -- I'm not presently anticipating, based on our current pipeline, I'm not anticipating any transactions over the -- in this next quarter.

Okay. Thank you.

Our next question will come from [Michelle Cove] from UBS.

Hi. I was just wondering about the reserve for the straight line rent. You said that for the third and fourth quarter, we should probably expect a $0.20 decline in FFO. What are your expectations for next year?

Michelle, this is Mark, I think we really need to wait and see how TA's third and fourth quarters turn out. And as I said, this is something, recording the straight line rent, and recording the deferred amounts, as revenue, is something we will need to continuously evaluate, so I think that is just a little too far out right now, as to project.

Okay. And then also in terms of the issuance of the common stock of TA. Was there some sort of restriction where by you couldn't referred preferred instead or why the decision to receive common stock versus preferred?

I think we knew that this all came together in sort of the month of July, and TA had the ability to issue common shares. They didn't have preferred shares outstanding, and this was something that we could do most quickly, I think.

I think the other thing, Michelle, is preferred would create another cash outflow for TA in terms of having to pay some type of dividend and the common stock is really a noncash way of compensating HPT through this period, where there is no interest on the deferred amount.

Okay. And can you also give us a breakdown of the additional rent returns for the second quarter?

Yes, I will give you the larger components, Candlewood was $3.6 million, the intercontinental number three agreement was 2.3, and the Marriott management contract was 1.1 million.

Great. Thank you.

(OPERATOR INSTRUCTIONS) Our next question today comes from [Michael Aroyian] from Sun Capital Advisors.

Hi, guys. Two quick questions. One, was there any dialogue with the ratings agencies regarding the rent arrangement with TA? And if so, any sort of information on that?

And then secondly, I just want to get a better handle for the write down on intangible assets. You say it is rising from the HPT/TA transaction, but is that something that is sort of on other assets on the balance sheet? Or where does that fall, I guess, on the balance sheet?

This is Mark. I will take those. With respect to the rating agencies, we did provide both Moody's and S&P with an update on where we thought this deferral transaction was heading, as well as an update on TA's operating performance and we did that last week.

And at this stage, we don't have any feedback from them on the transaction. We would be hopeful that neither agency would take any action. But that is really all the color I can add on that at this time. In terms of the intangible assets, they are in other assets.

When we acquired TA, we acquired the entire operating business, and as part of the purchase accounting for that transaction, we recorded their allocated purchase price of about $142 million, to the various trademarks, and trade names associated with the TA business. And when we spun off the operating business, to our shareholders, we retained ownership of those trademarks and trade names.

Under GAAP, any time there is an indication of possible impairment, you need to evaluate those intangibles and write them down to their fair market value which is what we did by writing them down about $53 million during the second quarter.

Okay. So the maximum write down would be kind of what those are worth, which are 142 million?

Correct.

Okay. Thanks.

Moving on, we have a question from [Mark Roberts from Roberts and Company].

Thank you. Good morning. Most of my questions have been answered. But let me ask two market share questions, if I could.

In the current economic downturn, are you seeing in your numbers any market share shifts away from smaller brand names to larger brand names or vice versa? For example Candlewood moving to Marriott brands or vice versa?

I can tell you that we're seeing market share improvement at our hotels, which cover Hyatt, Marriott, IHG, and Carlson brands. But we can see when our occupancy index in the local market picks up, or when our rate improves and our RevPAR index picks up, but we're not told where it came from.

So we can't tell -- but intuitively, you would think that the most well respected brands that have the strongest, most well capitalized management companies, that have the best marketing programs and the best frequent guest programs are the ones that perform the best in those difficult times. And as Mark mentioned for instance, the Candlewood portfolio is one of the portfolios that contributed nicely to a percentage returns this quarter.

So we think that brand is doing reasonably well. So it may be a combination of some travelers trading down from larger full service hotels, to upscale select service hotels. It could be that our hotels, because of their strong brands, are attracting guests in weaker brands. We can't drill down to that level.

Okay. Let me ask a similar question on TA. A lot of times, when fuel prices rise, the trucking companies will try to consolidate their purchasing with volume-based discounting at the larger truck stops.

Are you seeing moves of some of the smaller trucking companies who have really allowed the drivers to purchase at the lowest price to more consolidated purchasing agreements? Or actually are you seeing, maybe vice versa, where companies that had volume discounting with TA, are allowing the drivers to search for cheaper fuel price?

That's a tough one. I think that the Travel Centers, the TA branded Travel Centers that we have, probably have a mix that is heavier in terms of fleet business. Maybe 70 to 75% of their trucking business comes from fleet-operated entities.

Where as the Petro locations, the 45 Petro locations, maybe it is more of a 50/50 mix between independent truckers and fleet drivers. And there are arrangements that TA has with certain fleets where they -- the pricing has -- of the diesel fuel has something to do with the volume of diesel that they acquire. But there are no agreements that require a trucker, whether it is a fleet trucker or an independent driver, to only use TA sites, or to only use Petro sites.

So it has been a very -- it is a very difficult time for truckers, and it has been a very difficult time for TA. And I think as between the two of them, they are all trying to stay within the agreements that they have, and I don't think -- as far as I know, I don't believe they're beating each other up. They're all trying to survive, though.

But you're not seeing any market share shifts for example, fleets not renewing agreements with the various brands?

I don't really have the data to answer that question. You might try asking the guys at TA that.

Okay. Thank you.

We will take our next question from [Vi Zing] from [Four Research Management].

Hi, good morning.

Good morning.

Just a quick question on your Marriott number one, number two contract that you leased to host. Host subleased to other independent companies. I was just curious, in case the third party, the subsidies, outperform the minimum rent, is the host still on the book?

Yes, they are.

Okay. And that's all I have. Thanks very much.

We will take a follow-up question from Nap Overton from Morgan Keegan.

Yes, Mark, you indicated that you thought that the comparisons for additional return percentage were [indiscernible - analyst faded out] in the second half.

I'm sorry, Nap, you faded out on me. I couldn't hear you.

Can you hear me now?

Yes.

Okay. You indicated that you thought the comparisons would be more difficult for percentage rents and additional returns in the second half. Would you care to quantify that at all?

No, I think I was just -- we don't give guidance, and since that is really the only variable piece of our income stream, I'm not going to get very specific. But I did want to -- if you look at Q2 over Q2, additional returns were up about 14% and percentage rent we was call it down 4%. I just wanted to make the point that that 14% quarter over quarter growth in additional returns is probably going to be tough to do, with the lower RevPAR expectations.

Okay. Thanks.

That's all the time we have for questions today. Mr. Murray, I will turn the conference back to you for any additional or closing remarks.

Thank you. I would like to thank you all for joining us on our conference call today and hope you have a good day. Thanks.

That does conclude our conference call today. Thank you for your participation.