Service Properties Trust (SVC) 2009 Q3 法說會逐字稿

Good day, and welcome to the Hospitality Properties Trust third quarter 2009 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 Vice President of Investor Relations, Mr. Tim Bonang. Please go ahead.

Thank you Clayton, 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, November 9, 2009. The company undertakes no obligation to revise or publicly release the results of any revision to the forward-looking statements made in today's conference call other than through filings with the Securities and Exchange Commission or SEC.

In addition, this call may contain non-GAAP numbers, including funds from operations or FFO. A reconciliation of FFO to net income, as well as components to calculate AFFO, CAD or FAD are available in our supplemental package found in the Investor Relations section of the company's website. Actual results may differ materially from those projected in any forward-looking statements. Additional information concerning factors that could cause those differences is contained in our Forms 10-Q and 10-K filed with the SEC and in our Q3 supplemental operating and financial data found on our website at www.hptreit.com. Investors are cautioned not to place undue reliance on any forward-looking statements. And with that, I would like to turn the call over to John Murray.

Thank you, Tim. Good afternoon, and welcome to our third quarter 2009 earnings call. Today, HPT reported FFO per share for the 2009 fourth quarter of $0.77 which excludes $0.09 per share of gains resulting from our debt repurchases during the quarter. Focusing first on HPT's hotel investments, third quarter 2009 RevPAR declined 22.1% across our 289 hotels driven by a 6.6 percentage point decline in average occupancy to 68.2% and a decline in average daily rate of 14.6% to 91.43. RevPAR was weak across all regions, all brands and all price points compared with the 2008 third quarter. Our Hyatt Place hotels showed the smallest RevPAR declines, down 11%. And our upscale extended stay Staybridge Suites and Residence Inns performed relatively well. RevPAR at our Marriott Kauai Country Inn Suites, Candlewood Suites and Courtyard by Marriott hotels dropped by more than 25%.

As you know, HPT's hotels tend to be upscale and all suite midpriced hotels without food and beverage is focused primarily on the business traveler. Our hotel portfolios are geographically diverse and tend to be located in and around suburban office parks near top 25 markets. This geographic diversity primarily transient business guest focused has caused our RevPAR performance to trail the industry. Although there may be signs that the economy is beginning a recovery, and despite soft year-over-year comparisons for the next couple of quarters, we don't expect improvement in RevPAR for our hotels until the second half of next year. Ultimately, the cycle will change and our hotels will once again be generating strong cash flow. We are confident of this because of their attractive locations, quality management and preferred brands. Our hotels continue to be the local market leaders based on Smith Travel RevPAR indices with an average premium to their competitive sets of 20%.

While we never envisioned industry circumstances like we now face, remember that when HPT entered into our hotel agreements, we structured our transactions with credit support from our operators and the calculated balance between upside participation during strong markets and downside protection during weaker markets. While none of our hotel portfolios generated positive coverage of our minimum rents or returns this quarter, we were paid our full contractual returns and rents under each hotel agreement, except from two Marriott portfolios. We continue to be paid less than the required periodic minimum return and rent amounts required under the Marriott Number 3 and Marriott Number 4 agreement and have drawn on the related security deposits for the deficient amount. Based on current forecasts for the remainder of 2009, we expect to draw between $11 million and $12 million on the Marriott Number 3 deposit and between $9 million and $10 million on the Marriott Number 4 deposit in 2009. Combined, this amounts to approximately 4% of HPT's 2009 total minimum rents and returns, assuming full rent deferral by TravelCenters of America, or TA. We believe the remaining security deposits, which total $51.1 million today, will be adequate to offset the expected cash flow shortfalls from these two portfolios in 2010.

Turning to our TravelCenter investments, this morning TA reported third quarter 2009 financial performance, which reflects continued weakness in the US economy but which, based on fuel volume trends, may indicate a bottom has been reached. Fuel volumes this quarter were down less than 3% quarter-over-quarter across HPT's TravelCenters compared to a 9.7% decline last quarter. More encouraging is the fact that September volumes at HPT sites were down less than 1% year-over-year. Volumes are down 9.4% year-to date and 10.3% for the last 12 months. These smaller declines in fuel volumes may be just an example of improvement in the second derivative. However, it's a welcome trend.

As expected, per gallon fuel margins declined in the 2009 third quarter from the level experienced in the 2008 quarter when global fuel prices dropped precipitously from record highs. Despite the positive volume trends, GA is not out of the woods yet as cumulative diesel fuel volume declined since 2007 are in excess of 20%. Non-fuel revenues and gross profit at our TA sites declined 8.3% and 9.2% respectively, roughly comparable with year-to-date and last 12-month trends. Property level operating expenses at HPT's TravelCenters were down 6.6% compared to the 2008 third quarter. As a result of the lower, albeit stabilizing sales volume and declining margins, net cash flow from HPT's TravelCenters declined to $72.1 million and property level rent coverage was 1.25 times in the 2009 third quarter compared to 1.83 times in the 2008 quarter. At September 30, TA had over $185 million of cash on hand, availability under its line of credit, access to additional CapEx reimbursement from HPT and the ability to defer up to $5 million of rent per month through December 2010. We are hopeful TA's current liquidity, flexibility provided by the rent deferral agreement and the signs of stabilization and fuel volumes noted previously are indications that TA's working capital issues have been successfully addressed and that TA may be heading down the road to recovery.

HPT remains one of the most secure hotel REITs in the industry, and we have maintained our investment grade throughout this difficult economic environment. During the quarter, we continued to build on the progress begun earlier in the year of further strengthening our balance sheet and addressing near term maturities. As a result, we have an undrawn, fully available $750 million revolver, over $100 million of unrestricted cash, $6.4 billion of unencumbered property and no significant debt maturities until 2012. We are ready to take advantage of opportunities to grow and have begun selectively analyzing potential new investments. However, this is the most challenging economic environment HPT has faced and we intend to continue to aggressively asset manage our real estate portfolio and maintain our strong capital base and liquidity. I'll now turn the presentation over to Mark Kleifges, our CFO.

Thanks, John. The operating performance of our hotel portfolio continued to decline in the 2009 third quarter with cash flow available to pay our minimum rents and returns down 44% quarter-over-quarter due to a 22% decline in hotel revenues and a decrease in hotel gross margin percentage to 36.4%. As a result of this property level performance, all 11 of our hotel operating agreements had return rent coverage ratios below one times for the third quarter. Only the Marriott Number 1 portfolio had greater than one times coverage on a rolling 12-month basis. As John noted, we did not receive payment during the quarter of all amounts due under our Marriott Number 3 and Number 4 agreements. For all of our remaining hotel agreements, we received payment of all amounts due to us in the third quarter and it is our expectation that this will continue for the balance of the year.

Turning to our TravelCenter portfolio, cash flow available to pay rent at our TravelCenters decreased $31.3 million, or 30% from the 2008 third quarter. For the last 12 months, cash flow available to pay rent at our TravelCenters increased $14.8 million, or 5%. Property level coverage for the last 12 months was approximately 1.3 times for each of our TravelCenter leases. Both of these coverage amounts have been calculated based on contractual cash rents and exclude the impact of the rent deferral agreement. TA's corporate level third quarter 2009 adjusted EBITDAR was $60.4 million and TA's adjusted EBITDAR coverage of rent at the corporate level for the third quarter was approximately one times. Adding back the $15 million rent deferral during the quarter, coverage of cash rent was 1.3 times.

Turning to HPT's operating results for the third quarter, this morning we reported FFO of $91.1 million, or $0.77 per share, which excludes $11.2 million, or $0.09 per share of gains resulting from our repurchase of convertible senior notes during the quarter. Total minimum rents and returns in the third quarter were $130.3 million versus $127.9 million in the prior year. Percentage rent and additional returns totaled only $180,000 in the 2009 third quarter versus $6.4 million in the 2008 quarter.

Turning to our balance sheet and liquidity, cash and cash equivalents totaled $77.7 million at September 30, which includes $25.7 million of cash escrowed for future improvements to our hotels. HPT's debt to total capital on a book basis was approximately 42% at September 30. HPT's EBITDA was $133.9 million in the third quarter and our EBITDA to total fixed charges coverage ratio remains strong at 3.2 times.

With respect to our common dividend, it remains the board's plan to determine in early December the amount, if any, of additional common dividends to be paid for the 2009 tax year and whether the dividend will be paid in cash or a combination of cash and common shares. We currently expect that the aggregate amount of dividends HPT will pay for the 2009 tax year will equal the minimum amount required in order for HPT to remain a REIT for federal tax purposes and avoid paying federal taxes on our 2009 income. We are currently evaluating several tax planning strategies that would significantly lower HPT's 2009 taxable income and therefore, the amount of any required distribution. We plan to present these strategies and other alternatives to the board for consideration at their December meeting. Our current expectation is that we will also announce our 2010 dividend policy at the time we make our announcement regarding any additional 2009 dividends.

In closing, I would like to summarize HPT's recent financing activities and our current financial position. During the third quarter, we repurchased $175.4 million of our convertible notes for approximately $159.5 million. In July, the underwriters of our June 2009 common share offering exercised their over allotment option to buy an additional 2.6 million common shares, generating net proceeds of approximately $29 million. In August, we issued $300 million of 7.875% senior unsecured notes, raising net proceeds of approximately $295 million. Also in August, we sold 9.2 million common shares generating net proceeds to HPT of approximately $152 million. The proceeds of these financings were used to repay all outstanding borrowings on our revolver and for general business purposes. HPT entered 2009 with debt maturities for the 2010 to 2012 period of approximately $1.1 billion.

Today, as a result of our debt repurchases and capital raising activities, this amount has been reduced to $419 million, of which only $53 million is due in 2010 and 2011. We believe HPT, with its manageable debt maturities, strong cash flow, $750 million of availability under its revolving credit facility and access to the unsecured debt markets is well positioned for future growth. Operator, that concludes our prepared remarks. We're ready for questions.

(Operator Instructions) Your first question comes from David Loeb with Baird.

Hi, John and Mark, Mark, you mentioned tax planning that could affect the amount of dividend. Could you give us just a little bit of an idea relative to last year, are you -- It's easy enough for us to track your net income and your FFO relative to last year, harder for us to track your taxable income. But what kind of order of magnitude are you talking about in terms of how much less dividend requirement you might have this year?

Well, David, we're still -- this is Mark. We're still working through the analysis. Obviously, one of the things that we're considering is something we've talked about on past calls and that's the ability under the tax code to defer gains realized on the repurchase of debt for a five year period and then amortize those gains in over a five year period. So that's one strategy that we'll be presenting to the board. Another strategy that we're in the middle of finalizing our analysis on is looking at ways in which we can accelerate depreciation of our real estate investments for tax purposes and thereby get a larger depreciation deduction for tax purposes than we have in prior years. And that number is potentially significant because the way the tax code works, you get cumulative catch up, if you will, in the year you make that change. So it could be rather significant.

Does that mean it's possible you may need no additional distributions?

That is in the range of possibilities after you consider the fact that we've already made one common distribution this year of about, I think $75 million, $77 million and then have -- have or will have made preferred distributions of about $30 million.

And John, philosophically, now that you've dramatically reduced your maturities over the next several years, what's the thought about cash dividend next year?

The -- there will be a formal announcement on that in December, but we do expect to generate taxable income in 2010 and based on current tax law, we expect to make cash distributions to our shareholders. I mean I -- this was an unusual year and -- from a variety of perspectives, but I do see us returning to a regular quarterly dividend.

Okay. If I could just ask one more, can you just go through the amount of corporate guarantee remaining from IHG, Hyatt, Carlson and also the security deposit balances remaining on Marriott Number 1 and 2. You mentioned 3 and 4, but 1 and 2, I'm not sure if those are still fully available or if you've drawn some in the past.

Yes, David, this is Mark. I'll go through that. All of the guarantee amounts and the current status of those will be disclosed in our 10-Q, which we plan on filing later today and note 13 to that Q, but I'll go through them quickly. Under the InterContinental contracts, there's about $84.5 million of guarantee left. Under Hyatt, about $34 million and under Carlson, about $37 million. On security deposits, with respect to Marriott Number 1 and Marriott Number 2, there have been no drawdowns under those two security deposits, so they remain at about $50.5 million and $17.2 million, respectively.

That is very helpful. Okay. That's all I have for now. Thanks.

Thank you.

Next question comes from Michael Salinsky with RBC Capital Markets.

Good morning.

Good morning.

Just going back to the dividend for a second there, you have fixed the balance sheet. You have drastically reduced near-term maturities. And it doesn't seem like there's any significant acquisition opportunities in the immediate term. What's kind of the thought process in not reinstating the dividend process sooner than 2010 at this point?

Well, I guess what I would say is that the board's going to be considering a number of alternatives in December and so we don't know what their ultimate decision's going to be. As Mark said, we're in the process of finalizing some of the analysis. We did want to bring to everybody's attention that there were tax planning strategies that are among the options that we're providing to our board. We understood that based on investor questions and calls over the past couple of quarters that many investors don't want a substantial, or dividend of any kind in shares because it comes with a tax implication, but without cash to cover that tax implication, and there are some investors who think that there's dilution associated with a share distribution if we were to go in that direction. So trying to be responsive to those concerns. We're in the process of providing a number of different alternatives to our board for consideration, but we don't know if -- which direction they are going to go with respect to the final distribution for this quarter. Like I said, it's, it's our expectation that we will be paying a regular quarterly distribution next year, but we don't know what's going to be decided in December for this quarter. For this year.

Second question, there's been talk about increased acquisition opportunities in the space right now. What does the acquisition pipeline for you look like for you at this point? And also, are your operators willing to put in place guarantees at this point, and would you go after a portfolio if you could not get a guarantee?

We're not really seeing much in the way of portfolios right now. So clearly, we would prefer to have a guarantee or a security deposit. And to the extent that we talk about portfolios of select service type hotels, that is what we would be looking for. We have also been looking at individual asset transactions because pricing is becoming fairly attractive. I guess what we are -- what we are seeing first of all is that owners and lenders continue to delay and pray for a change in the cycle, and there's still a disconnect between buyers and sellers. I think the feeling I get is that a lot of the equity in a number of hotel transactions have come to the realization that they are out of the money, but in the capital stack, there's often first mortgage money and mezzanine debt as well, and not everybody in that mix has come to the realization, for instance, that maybe the mezzanine debt's not worth anything either and maybe the first mortgage may not be worth its face value. So there's still a process that is worked through. And so while there are a couple of assets that we're looking at, I would describe the pipeline as weaker than I would have expected at this point. The -- for a variety of reasons, a lot of leverage issues continue to be pushed further down the road. I think the government is encouraging it. There's a lot of reasons why it's happening. But I would have expected to see a more active pipeline at this point than we're actually seeing.

And then just a final question. Can you give us an update on where you stand on discussions with both Marriott and Barceló regarding the default in both of those?

Yes. There's really nothing new to report there in terms of discussions. We believe that our security deposits are sufficient to cover us during this downturn, and we think that if we were to replace Marriott as the manager our costs would increase, but the performance of the hotels otherwise might not necessarily increase. And so at the present time, it seems like keeping Marriott as the manager and keeping the Barceló Crestline in place as the tenant in that one portfolio at the present time seems like the most prudent course, and that's currently what we're doing.

Just as a follow-up, too. When Marriott Number 2 expires next year, that guarantee is gone, correct?

Yes, that's a security deposit and assuming there's no defaults between now and the end of next year, we will return that security deposit, that's correct.

Okay, thank you.

We go next to Jeffrey Donnelly with Wells Fargo.

Good afternoon, guys. Mark, I guess if I could circle back to one of the tax strategies you mentioned, I think you had one that you could accelerate depreciation, potentially negating the need to pay a dividend this year, but I would suspect this would decrease your depreciation for all future years, inevitably increasing the dividend payout obligation for all future years. Am I correct?

No, that's right. There's a finite amount of depreciation you're going to get on an asset over its useful life. So if you accelerate it, you increase -- or decrease I should say, the amount of depreciation in future years.

Are you able to give us just like an order of magnitude for how much would need to be brought into this year potentially rough number, or how much on a run rate basis it could decrease in future years?

Not at this time. Not -- we're not going to get into that. Until the board makes some decision, as John mentioned and I mentioned, they are being presented with a number of alternatives and we'll let them hear the specifics of all of those alternatives first before we share them with the general public.

Okay, and if I could stay with that, I guess I'm curious, are you able to frame for folks, I guess, maybe how aggressively you're pursuing this strategy, or if it's sort of your top recommendations? Because it seems -- frankly, it seems like a fairly significant reaction considering that you largely fixed your balance sheet at this point.

I think -- I don't think Mark or I feel comfortable handicapping where the board is going to come out or saying that there's a firm conviction that one strategy at this point deserves to be recommended over another. I think we're just going to put it all on the table and talk about it --

And the pros and cons as we see it, and I'm sure the board members will have their opinions as to the pros and cons of each of the alternatives and we'll move on from there.

Okay. The reason I mentioned it, just because I think in the past, a high cash dividend has been arguably, a support for the cost of capital you've enjoyed over the years in term enables HPT to be competitive for acquisitions. I just want to be sure that that is inevadibly is going to come back in some form.

Keep in mind I think we're talking about the final 2009 distribution. We're not talking about forever here. At the same time we make this announcement, we'll also make an announcement relative to our plans for 2010.

And one last question, and maybe this is in the same vein I earlier asked, or asked earlier, but based on your most recent board meeting, are you able to give us a feel for where the board's head is at right now, generally? Do they tent to be more, I guess cautious on the state of the company and the outlook for the economy? Is there -- call it liquidity preservation is paramount, or are they much more, I don't want to say aggressive, but more focused on the future in acquisitions in 2010 and 2011?

I think it's fair to say that they are very focused on what happens going forward, and so we spent a fair amount of time talking about where we see opportunities as we move into 2010, 2011 and 2012. But I don't want to underplay the fact that there's concern about how long it's going to take for the lodging sector to recover and what kind of recovery the economy generally is going to see, and there's a lot of concern about the pockets of weakness in various parts of the country that there's a lot of variability and there's very high unemployment. And we think that we're seeing stabilization on the TA side, but again, it's -- it hasn't been proved out for even a full year yet. So I would say there's a mix of conservatism in there as well. They are focused on maintaining liquidity.

Great. Thanks, guys.

We go next to Brian Mayor with Collins Stewart.

Good afternoon, guys.

Hi, Brian.

Just kind of following up on Mike Salinsky's comments on sort of the leases taking just a step further, do you feel that there's anything strategic in the way that Marriott is playing this game of not paying 3 and 4, but paying 1 and 2 because 1 and 2 come due sooner and they're more likely to get the security deposits back and they're basically kind of throwing away their security deposits on 3 and 4? Do you think there's something being thought out and played here, or is there something else going on?

I think every company that's involved in any way with lodging is trying to be careful about their liquidity and managing cash where they can. The deposits on host 1 and 2 are both hosts security, so those security deposits will go back to host Marriott, not to Marriott International, and -- because it was host Marriott who actually sold us those properties and came out of pocket for the -- for those deposits. So I think that -- I think it's, maybe it depends on how up to the define strategic, whether it's a strategic decision by Marriott. I think that they made an evaluation of whether they thought that we would terminate the management contracts, and they knew that they had the security deposits in place and so maybe so far, it's playing out the way they hoped it would.

Are you, or have you been approached by any other major lodging companies to potentially take over Marriott 1 and 2 as they come due in 2010 and 2012?

No, we have not had discussions like that. We -- the -- on the Marriott 2, which is the one that where the lease expires at the end of 2010, the Marriott management contract extends beyond that. So even though Barceló Crestline is the subtenant and host Marriott is the tenant, will ride off into the sunset, our expectation is that HPT will put a taxable REIT subsidiary in as the tenant and that will -- with the exception of the fact that there won't be a security deposit any longer, that portfolio will otherwise continue to function just as it does today.

Okay, and lastly, are you getting any body language or calls of concern from any of the other operators, Continental Hyatt or Carlson, regarding their concerns that the portfolio is not covering rent?

I think it's fair to say that none of them are happy that they are in this situation they are in in terms of having to fund under guarantees and also as they look longer term down the road at -- hotels are capital intensive entities and -- so I wouldn't say that there's a lack of concern. I think there's a great deal of concern, but we're not getting the impression that anyone aside from Marriott on those two portfolios is planning not to pay us. We're just getting into the budgeting season for capital budgeting and operating, the operating budgets, and so there's been a lot of body language.

Okay, thanks, John.

(Operator Instructions) We'll go next to Dan Cooney with KBW.

Hi, guys, (inaudible) is on the line, too. If we could just go back to the taxable income question, is one of the options that you guys are considering is kind of the way that you account for deferred TA rent for tax purposes?

No. Just to clarify that for everyone, for tax purposes, HPT recognizes as income the amounts of rent deferred by TA under the rent deferral agreement. Not until such time as that deferred rent qualified for a bad debt deduction or deduction under the tax code would we be in a position where we could exclude that deferred income from our taxable income, and we're not going to meet the requirements for a bad debt write-off at year end.

Okay. And then just if you guys, I don't know if it's too early, do you guys have kind of an initial read on CapEx for 2010?

It's still too early. We literally are just starting to get preliminary budgets in. We fully expect that the FF&E reserves, which are 5% of revenue, is basically across all the portfolios, will all be accounted for in terms of various projects, some life safety, some upgrades, a variety of different things. But in terms of capital projects beyond that, it's too early to say. Obviously, if HPT puts additional capital in over and above the FF&E reserves, our returns go up, and this is a tough time for that to be happening. So most of our operators are trying to keep the properties attractive without raising their rent too much.

Okay. That's all for me. Thanks.

Thanks.

We go next to David Loeb with Baird.

Hi, just a couple of follow-ups. Back to TA, there's a contractual rent bump scheduled for next year. Do you expect that TA will pay that? And do you also expect that they will start paying the interest that will be due on the deferred rent?

Yes, the contract -- there was a bump this past February, and they have been paying tha. And the contract is they can defer up to $5 million of rent a month, so they will have to fund the increase in rent. And then with respect to the interest, the deferral agreement requires that the interest be paid monthly in arrears. So our expectation is that we, assuming the deferral remains outstanding next year, that we get the first interest payment on February 1 of next year.

Let me ask it in a different direction. Are you having any discussions to defer additional rent amounts or to defer the increases or to defer the interest charges?

No.

No.

That's a good answer. And John, back to your consideration of one-off acquisitions, would you keep the triple net structure for those, or would you be looking at kind of a more traditional hotel REIT style with your own TRS as the tenant?

I think depending on where the pricing comes out, depends on what the answer to that is. But I think our first choice would be to have a taxable REIT subsidiary as the tenant and have a management contract with a owner's priority return that's senior to the management fee and has credit support.

So really kind of a hybrid between the traditional REIT structure, traditional hotel REIT ownership and your triple net structure? Maybe looking more like your triple net structure?

Yes, I would say similar to what we have with InterContinental or Hyatt or Carlson, but on an individual assets.

Okay. So you're not looking to -- necessarily to, other than perhaps the conversion of the Barceló lease, to have assets that are on balance sheet where you're riding up and down with the cycle? Is that fair?

I would say that's fair. But like I said, in the past, we haven't looked at one-offs. So this is a -- because of valuations, we think it's an opportune time to consider an asset class, the more four or five star type assets that we haven't acquired too many of in the past. So I don't think it's going to be tremendously material, that aspect of the business in any case. But we're not looking to change our business model dramatically.

Okay. That's helpful. Thank you.

We go next once again to Brian Mayor with Collins Stewart.

Yes, just a follow-up. Dave got my question pretty good on the TA dividend, but just to clarify, you are expecting them to pay you in cash every month for the interest on the deferred rent, is that correct?

Yes.

Okay, and then secondly, regarding acquisitions, do you feel that you have enough management in place to adequately spend time going after the assets that we all know are going to be coming to market in 2010? And to follow up on that, do you anticipate being able to buy portfolios, five, ten, 20 hotels at a time in order to move the needle, or are you going to consider going upper upscale or upscale from where you currently are in order to move the needle with fewer assets at a time, or because that's where the bargains are going to be had?

Well, I think that -- we think there are going to be bargains in the upper upscale segment, and we're not seeing that much in the way of portfolio activity today, that we are -- that's the type of asset that we would like to invest in. So, so I would say it's probably more likely that, looking at things today, that it would be a series of individual assets. But our portfolio growth has always been, over the years, been lumpy. Portfolios sometimes pop up when you least expect them. And so, we prefer to do large portfolio transactions over individual asset transactions. In terms of bench strength to take advantage of opportunities, I think we have tremendous capacity here because we do have an external management arrangement and, with REIT management and research, and RMR has more has, give or take, 20 offices around the country staffed with leasing experts and engineers, and we have a great deal of talent around the country to take advantage of opportunities and to run down diligence in a timely manner. So I'm not worried about being able to execute if the right portfolio or individual assets come along.

And suffice it to say, do you fully believe that you're seeing all of the assets that are being shopped around? Are you fully in the flow there?

I believe we are, but in fairness, probably there are some brokers out there who don't think of us initially on some upper upscale or sort of luxury tier assets that are one-offs because traditionally, we've been portfolio buyers. So where we're slowly getting the word out there, I do believe that even at that, at that price point, we see the majority of those assets. But we may not be seeing everything, but we're moving them in that direction of hopefully seeing everything.

Okay, thanks.

Thank you.

We go next to Jeffrey Donnelly with Wells Fargo.

Yes, just a -- one last question on TA. I guess I need to go after the deferred amounts and liability, deferred rents going forward from a different perspective. I know we probably won't agree on whether or not TA will ever be able to get to a point to pay the deferred amounts to date in the originally negotiated rent, but my question is, I'm figuring how to try to best ask it, my question's is that there's an overhang for HPT here in the sense that I think people question whether or not will be paid, but it's also significant liability for TA, that they owe to HPT. Have you ever considered swapping your deferred liability from TA for stock in the company? Because you could argue that would be a lift for them, something you guys could benefit from and bring some finality to this disparity, I guess you could say.

Jeff, this is Mark. That's not an option because under the tax code, we're precluded from owning 10% or more of any of our tenants. So that's the reason, when we did the rent deferral agreement last July, August, we capped the amount of shares that we received in TA at that time to about, I think it was about 9.6% of TA's total outstanding. So we -- that's just not an option that's doable under the tax code.

And I guess to put it differently, I guess maybe not straight common equity. It couldn't be structured in another way that could keep you below that threshold? Not likely?

Not likely.

Thank you, guys.

Yes, thank you.

There are no other questions in queue, so at this time, I'll turn it back over to Mr. Murray for closing remarks.

Thank you very much for joining us today. I hope you have a nice day. Thanks.

This concludes today's conference call. Thank you for your participation.