Service Properties Trust (SVC) 2012 Q4 法說會逐字稿

Good day and welcome to the Hospitality Properties Trust fourth quarter and year end 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 Senior Manager, Carlynn Finn -- I'm sorry, Senior Manager of Investor Relations, Carlynn Flynn. Please go ahead.

Thank you and good morning. 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. The recording and re-transmission of today's call is strictly prohibited without the prior written consent of HPT. Before we begin today's call, I would like to read our safe harbor statement set some ground rules concerning certain questions. Today's conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other securities laws. These forward-looking statements are based on HPT's present beliefs and expectations as of today March 1, 2013.

The Company undertakes no obligation to revise or publicly release the result of any revisions to the forward-looking statements made in today's conference call other than through filings within the Securities and Exchange Commission, or SEC. In addition, this call may contain non-GAAP financial measures including normalized funds from operations or normalized FFO. A reconciliation of normalized FFO and adjusted EBITDA 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 these forward-looking statements. Additional information containing factors that could cause those differences is contained in our form 10K filed with the SEC and in our Q4 supplemental operating and financial data found on our website at www.HPTReit.com.

Investors are cautioned not to place undue reliance upon any forward-looking statements. Before I turn the call over to John and Mark, you should be aware that Travel Centers of America has not yet completed its year end reporting and, accordingly, the Company's remarks today will not refer to TA's fourth quarter or full year 2012 results, and we will be unable to take questions related to TA's fourth quarter or full year 2012 performance.

Now I would like to turn the call over to John Murray.

Thank you, Carlynn. Good morning and welcome to our fourth-quarter 2012 earnings call. At the outset I would like to apologize for changing our call from Wednesday to today -- appreciate you joining us. Today HPT reported fourth quarter normalized FFO of $0.76 per share. As Carlynn mentioned, we are not yet able to update you on TA's performance for the fourth quarter or full year. Because TA is considered an accelerated filer under SEC reporting rules, it has until March 15 to report. As you may recall, TA's performance was very strong for the first three quarters of 2012 with EBITDA up $16.9 million or 8% year over year.

Year-to-date through September TA's business had reflected modest declines in fuel volumes due to the slow growth economy, driver conservation efforts and fuel lane renovations, but the negative effect of the volume declines was more than offset by strong per gallon diesel margins. As a result, TA's fuel margins had increased almost 10% year-to-date through September compared to 2011. Non-fuel revenues and gross margin were up 5.9% and 3.1%, respectively, year-to-date through September compared to 2011. Focusing on HPT's hotel investments, our fourth quarter was negatively impacted by 33 hotels that were being renovated causing rooms to be out of service. Also, although Wyndham and Sonesta have been working to gain back occupancy and rate at their rebranded hotels, the rebrandings continue to make -- negatively impact our RevPAR performance.

RevPAR growth for our 214 comparable hotels, not under renovation and not rebranded in 2012, increased 8.4%. The result of a 1.5 percentage point increase in occupancy, to 68.8% and 6.1% increase in ADR to $101. Our expectations is that operations will not fully stabilize at the rebranded hotels until after renovations are completed in 2013 and early 2014. Please remember these rebranded hotels count for only about 9% of HPT's minimum returns, and we have credit support for the Wyndham branded component of that. We expect 43 hotels will be under renovation during all or part of the first quarter and 39 in the second quarter of 2013. Renovation activity is expected to continue throughout 2013, principally at our Sonesta and Wyndham hotels, but also to a lesser extent in our Marriott 234 and IHG portfolios.

Also during the second half of 2013, a greater percentage of the hotels being renovated will be larger full-service hotels, so the impact of renovations will continue to be significant throughout 2013. We have tried to schedule renovation projects for periods when they may create the least disruption to our hotel performance. Our managers' 2013 RevPAR forecasts for our hotels are generally in the 5% to 7% increase range, with Sonesta expecting flat RevPAR due to renovation activity and IHG expecting growth in the teens following substantial completion of renovations. GOP margin percentage increases are generally forecast to be in the 100 to 200 basis point improvement range, but the Wyndham and IHG portfolios are more than twice the high end of that range.

On average, across the hotel portfolio, GOP margin percentages are expected to increase by 310 basis points. These may sound like lofty expectations given the soft RevPAR and margin performance during most of the renovation and conversion late in 2012, however, hotels renovated in 2011 and in the first three quarters of 2012, have fourth quarter RevPAR and gross margin percentage growth of a 8.1% and 330 basis points and 12.5% and 430 basis points, respectively. In addition, in January of 2013, our comparable hotels, excluding the 30 under renovation, grew RevPAR 11.7% and, excluding renovations and conversion hotels, grew RevPAR by 16.2%. There is modest optimism about the lodging cycle due to continued [lowest] room supply growth and steady demands. This allows for increases in room rates, and expansion of GOP margins particularly as we move towards a fully renovated hotel portfolio.

In terms of acquisitions, on November 1, 2012, we closed on the acquisition of the 348 room Hotel 71 in Chicago for $85 million which we discussed in our third-quarter call. It was added to our Wyndham portfolio management agreement. On December 19, 2012, we acquired the least fee interest in the 372 room Clift Hotel in San Francisco for $120 million. The Clift is long-term leased to Morgans Hotel Group under a triple net lease that runs to 2103. Current rent is approximately $6 million annually, and there are CPI-based increases every five years subject to certain limits. The next schedule rent increases is in 2014, when rent will increase by a minimum of 20% and a maximum of 40%. Well known for its classic elegance since its development in 1915, the Clift Hotel is a luxury 372 room lodge style hotel in the Union Square section of San Francisco.

On January 17 we signed a purchase agreement to buy the 426 room Atlanta Marriott Gwinnett Place for $31 million. We are currently in the midst of completing our diligence procedures. Assuming the acquisition closes, it is our plan to rebrand this hotel as the Sonesta Gwinnett Place and combine this hotel with the existing 20 hotel Sonesta portfolio. On Wednesday this week HPT announced it reached agreement on a letter of intent with NH Hotels of Spain for hotel investment in Latin America, Europe and New York totalling approximately $375 million. There are three components to the terms outlined in the letter of intent including the purchase of five hotels in Latin America, from NH for $70 million, the mortgage financing of four NH owned and managed hotels in Europe for EUR170 million, and a joint venture to acquire and renovate hotel in New York for up to $80 million.

The Latin American hotels are located in Mexico, Chile, Uruguay and Columbia. The European hotels are in Spain, Belgium and the Netherlands. The New York hotel is located midtown on Madison Avenue. HPT's minimum return in Latin America and interest rate on the European mortgage loans is 10% of its investment. It's return in New York is 8%.

NH Hotels will continue to manage the hotels in Europe and Latin America, and Sonesta and NH will jointly brand and operate the New York hotel. We have agreed to a letter of intent. The binding transaction agreements remain to be negotiated, and the entire transaction is subject to diligence. Assuming these steps are completed without issue, the closing of the three components are expected to occur later in 2013. We are hopeful this becomes a long-term strategic relationship that enables us to enhance our growth, especially in South and North America.

We continue to see a healthy pipeline of hotel acquisition opportunities and are looking at both single property transactions and portfolios. We face a competitive landscape with other REITs and institutional investors also seeking acquisitions. But we are optimistic that we will continue to generate steady acquisition growth to our existing and new portfolio relationships in 2013. We are also optimistic about anticipated 2013 operating results as a large and growing number of renovations are completed at our hotels.

I will now turn the presentation over to Mark to provide further detail on our financial results.

Thanks, John. In the fourth quarter operating results for our hotel properties continued to be negatively affected by our renovation and rebranding efforts. As John discussed, we had 33 of our hotels under renovation for all or part of the fourth quarter. In addition, results of the 39 hotels we rebranded during 2012 were down substantially versus last year's fourth quarter. During the fourth quarter, revenues at our 214 comparable hotels not under renovation and not rebranded during the year were up 8.4% versus the prior year quarter on strong ADR growth. On the other hand, we experienced quarter over quarter declines in revenue of 1.9% at hotels under renovation during the quarter and 17.8% at hotels rebranded during 2012. These declines were largely the result of lower occupancy.

Our portfolios with the highest revenue growth this quarter were our Carlson and Marriott No. 1 portfolios with quarter over quarter revenue increases of 11.3% and 10.2%, respectively. Although our renovation and rebranding activities also had a negative impact on hotel profitability this quarter, the positive results of recently renovated hotels more than offset these declines. Gross operating profit for our 285 comparable hotels was up $5.8 million or 5.5% quarter over quarter and GOP margin percentage increased 80 basis points to 35%. Results were much stronger at our comparable hotels not under renovation during the quarter or rebranded during 2012 with gross operating profit up $15 million for 18.4% for the quarter and GOP margin percentage up 340 basis points to 41.3%.

Turning to 2012 fourth quarter coverage of our minimum returns in rents, despite the impact of our renovation and rebranding activities, cash flow available to pay our minimum returns in rents increased approximately $7 million, or 10.4% from the 2011 fourth quarter. Our Marriott 234 and IHG portfolios had fourth quarter coverage of 0.87 and 0.73 times respectively. During the fourth quarter Marriott advanced $4.9 million under its guarantee, resulting in a remaining balance of $26 million at year end. During the quarter we utilized $11.9 million of the IHG security deposit to cover cash flow shortfalls, resulting in an available security deposit balance of $26.5 million at the end of the quarter. Information regarding all of our security deposit and guarantee balances at quarter end is included in our form 10K which will be filed later today.

At year end our lease with Host for our Marriott No. 1 portfolio expired, and, effective January 1, these hotels are managed by Marriott under a combined management agreement. The agreement does not provide credit support. As a result payment of our minimum returns going forward will be solely dependent on hotel cash flow and will also be impacted by seasonality. Our minimum return under the management agreement is the same amount as minimum rent was under the lease. The portfolio did have one times coverage in 2012, and, therefore, this change is not expected to have a material impact on our 2013 operating results.

Turning to HPT's consolidated operating results for the fourth quarter, this morning we reported normalized FFO of $93.9 million, or $0.76 per share. This compares to fourth quarter 2011 normalized FFO of $96.8 million, or $0.78 per share. The decline in normalized FFO from the 2011 quarter is due primarily to the temporary elimination of the FF&E reserve for our Marriott agreement and lower returns earned from certain of our hotels that were rebranded during 2012. These declines were partially offset by increased minimum returns and rents resulting from our funding of capital improvements to our hotels and travel centers, the impact of our 2012 acquisitions and lower income taxes expense. Adjusted EBITDA was $134.1 million in the fourth quarter, and our adjusted EBITDA to total fixed charges coverage ratio for the quarter remains strong at 3.2 times. We paid a $0.47 per share dividend in the quarter, and our normalized FFO payout ratio was 62%.

On the renovation front, I would like to provide an update on where HPT stands at the end of the year with its capital funding commitments and liquidity. We have agreed to fund up to $123 million for renovations to the 68 hotels in our Marriott 234 agreement. As of the end of 2012, we have funded $78 million, and we expect to fund the remaining $45 million in 2013. We have agreed to fund up to $290 million for renovations to the 91 hotels in our Intercontinental agreement. As of the end of 2012, we have funded $213 million, and we expect to fund the remaining $77 million in 2013.

We have agreed to fund up to $93 million for renovations to the 21 hotels in our Wyndham agreement. As of the end of 2012, we have funded $9 million, and we expect to fund the remaining $84 million in 2013. We have also agreed to fund up to $195 million for renovations to the 20 hotels included in our Sonesta No. 1 agreement. As of the end of 2012, we have funded $11 million. We expect to fund $127 million in 2013 and the balance in the first half of 2014.

Finally, we funded $77 million for improvements to our travel centers in 2012. We expect to fund approximately $80 million for improvements in 2013. With respect to our balance sheet and liquidity, at quarter end we had cash of approximately $20 million, which excludes $41 million in cash escrowed for improvements to our hotels, and had $430 million available under our $750 million revolving credit facility to fund our capital commitments and future acquisitions.

In closing, we remain optimistic about the prospect of continued strong operating results at our travel centers, as well as the positive impact our extensive renovation program will have on the long-term performance of our hotels. Operator, we are ready to open it up for questions.

Thank you.

(Operator instructions)

Jeff Donnelly, Wells Fargo.

A few questions on the NH transaction you guys did. Is the decision to invest more aggressively I guess outside the US a sign that you feel that asset prices in US are no longer as attractive as they maybe once were for investment?

Well, first I want to say that it's just a letter of intent. We have not documented the deal or closed any part of it. So, there is a lot of diligence and work to be done. But it is not a sign that we are losing faith or unhappy with pricing in the US. We have bought -- in the fourth quarter we bought a couple of hotels in Chicago and San Francisco and agreed to by one in the Atlanta area, so we are finding hotels that we think are attractively priced here. But we think there are opportunities to establish strategic relationships with other companies and sort of pave the way for enhanced growth opportunities down the road. So we think the NH opportunity gives us some growth here with the joint venture in New York but also opportunities in Latin America and possibly Europe going forward.

Yes, I recognize that these are not closed, but just as it relates to the loan that you contemplate on the European hotels, can you talk about or are you able to talk about what the agreed values are on the hotels or maybe what their earnings performance is? Because I'm just trying to understand how that EUR170 million loan pencils out on maybe like a loan to value or debt yield basis.

You know, right now we're in the diligence period, and we are subject to a confidentiality agreement, so, unfortunately, I can't talk about those sort of metrics at this point. Once we hopefully get through the documentation and close, then we will be able to provide full disclosure of that sort of information.

Because, like you said, you had mentioned getting a little more active on acquisitions in the fourth quarter, if -- does that lead you to think I guess if the activity has been picking up -- we have been hearing this from some brokers out there -- does that lead you to think that you might end up revisiting bringing some of the non-core assets that you had contemplated selling in 2011 back to the market as we move through 2013 and you begin to finish up some renovations?

Right now, we are not contemplating bringing any hotels to the market. The ones that we had on the market that were Marriott branded properties we've -- we're in the throes of renovating. We're expecting -- we have seen some pretty good post renovation growth coming out of the hotels we have renovated, and we are expecting to see the same out of those 18 hotels. So it is not our plan at this juncture to look to sell anything.

Just one last question, I know I recognize this pertains to I guess I'll call it a sister company, but given the corporate action that you've given, you're reading about it at Commonwealth, there is a guess one scenario out of many where the board at Commonwealth could be compelled to explore alternatives to avoid their own legal risk. I know this doesn't involve HPT directly, but have you guys considered that maybe an outcome on that side could have implications on governance for HPT down the road, or is this too premature to make those sort of decisions?

I do not really want to comment on that whole chain of events that transpired this week with our -- one of our affiliates. I would just say that we think we have good corporate governance at HPT and we are not at all fearful of challenges to it.

Thanks, guys.

David Loeb, Robert W. Baird & Company.

Good morning. A few kind of follow-up to Jeff's questions. John, given that you are only in letter and intent and you are not willing to talk about too much detail about the NHH deal, why did you announce it? Did NH -- was NHH going to announce it anyway?

Yes, so our agreement with them is part of a larger series of transactions for NH, in particular NH reached agreement with a Chinese company that is in the airline and tourism business, called HNA, and HNA Group was making a 20% investment in the equity of NH. So that the combination of the HNA transaction and the HPT transaction, taken together, relatively transformative for NH at this stage, and they needed to make an announcement. So we were concerned that if they announced our deal there would be selective disclosure. So, typically, we would not have announced this transaction. We would have agreed to the letter of intent and then worked on our diligence and the documentation and then announced it once we had a binding agreement. But, because NH had to announce, we felt compelled to do so as well. That is principally the reason why our conference call was delayed a couple of days.

We knew there had to be some good reason even if you could not tell us then what it was. Can you talk -- if you can't talk about the specifics of the deal, can you talk a little bit about what your return hurdles are in different scenarios and what -- how you balance return hurdles and credit or corporate support?

Well, I think I mentioned in the remarks that the returns in Latin America and Europe are expected to be 10%. The returns in New York are expected to be 8%. When you do business outside of the US, there is -- there are taxes that you have to consider and foreign currency issues. We think that we have found ways to mitigate those so that our returns on this transaction will be as good as the returns we are getting on other transactions. But I guess I am reluctant to go further than that at this point.

I won't get any more out of you about risk or credit or that side of the equation?

We will be willing to talk in much greater depth on this transaction once it --if and when it becomes final.

I would say that these are all -- all of these hotels are in the capital cities of the countries where they are located, with the exception of one hotel in Mexico, which is in a market that is sort of like maybe their Houston. It is where their largest state-owned petrochemical company, Pemex, is based. It is a major port city, and so we think that all of these locations are very strong locations.

Okay, just kind of a broader general question, Mark, you mentioned you had ample room on the line to fund up coming transactions and CapEx. Recent and future acquisitions alone, assuming you close, were on the order of I guess $0.5 billion, $526 million. If your intention to fund all of that on the line? Or do you have a different idea about long-term funding and kind of the follow-up on that is, what is the impact that all of this would have on your distribution requirement and on the dividend?

Well, there's a few questions in there.

Yes.

Let's I guess step back first and kind of look at where we are from a commitment standpoint. As I outlined in my prepared remarks, we have about $415 million of funding requirements this year under our hotel and TA agreements. We have also got the $31 million Gwinnett Marriott acquisition, so it is firm commitments there of $400 -- call it $445 million. Then we have the possible NH transaction for $375 million, so that brings us to a total possible commitments of about $820 million. As we disclosed in the press release, the EUR170 million loan would be funded with a euro borrowing by us, so that takes call it $225 million of the $820 million off the table. That leaves us with $595 million. Let's say we generate $95 million of cash flow during -- free cash flow during the year. That leaves us with $0.5 billion of fundings. We have got $430 million available under the revolver at the end of the year, so, under that scenario, we are short.

So, I think it is pretty clear from that aspect that we're going to have to go and visit the capital markets at some point during 2013. If you look at our balance sheet and leverage, at year end, we are at about a 50% debt to total book capitalization, which is the high end of where we would like to operate the Company. We like to be in that 40% to 50%, debt to total book capitalization. So I think it is fair to say that, in all likelihood, assuming the NH transaction takes place, that during 2013 we will be accessing both the debt and most likely the equity markets.

That could be common or preferred, or you really mean common?

It could be either.

Okay. And impact on the dividend?

Yes, in terms of our distribution requirements, you know we haven't worked through all that yet. We have I think coming into the year, we have some cushion on our payout requirements, so I do not think that the tax side of it will drive our need to make distributions, however, we are in the business of making distributions. So our board will continue to evaluate the distribution level each quarter. And, as our renovation activity gets closer to its end game, and if we continue with our successful acquisition pace, then dividend increase would be something I could see them considering.

But it does seem like if you did the NH transaction, that is a big increment to taxable income. Am I missing something on that? Is there a disproportionate (multiple speakers)

No, it is. It's --

On a full year (multiple speakers)

We always evaluate the ability to make a distribution based on cash flow, right? And the tax requirements are based on taxable income where you get the large benefit in the real estate industry of depreciation. So, just because you are earning a lot of money, does not mean you are creating a lot of taxable income if you structure things right.

Okay. And one final question, maybe more for John, on the RevPAR response to the rebranding in the fourth quarter, what do think the prospects are once those assets stabilize? Do you think you grow some of that back, or are these just, are the new brands just different RevPAR kinds of hotels?

Our current expectation is we grow it back. They are heading in that direction. They have a ways to go. But that is our definite expectation is that they grow back to where they were before they were rebranded and then continue to grow from there. And I am optimistic that will happen.

Do you think that is a one-year trend, or does that take a couple of years?

I think you know it takes a couple, because most of the hotels are going to be under renovation for a decent part of this year, some of them -- some of the full-service hotels for both Wyndham and Sonesta will be renovated towards the end of this year, or beginning of 2014. And then there will be a ramp up period after that. Obviously Wyndham is a stronger better-known brand, so I would expect that their pace would be a little bit faster than Sonesta's, which is a smaller, perhaps less well-known brand today.

Okay, great, thank you.

Ryan Meliker, Morgan Stanley.

Just I guess a quick question a little bit of follow-up from what David had mentioned. And Mark, you indicated that you might have to tap into the capital market at some point this year just with your leverage levels at the high end of the current range. Can you give us an idea of, A, where you are comfortable or where you would like to see that level be at the -- after you tap into the capital markets? And then B, if there are more acquisition opportunities that maybe when you tap into the capital markets you might want to build in some -- I guess some buffer into that level? Just to give us an idea of what we could be expecting throughout the course of the year, thanks.

Yes, I guess first off I would say that we are in no -- we don't have a gun to our head to do anything in the near term given what we have available to us under the revolver today. As I have said, I think, many times in the past, we like to operate the Company with debt to total capitalization between 40%, 50%. Where we end up within that range is going to be influenced by the strength of the capital markets themselves, our view of where the capital markets are going in the near term, as well as what we think the horizon looks like in terms of additional acquisition opportunities. So, I can't -- I am not really in a position here to lock into where we want to end up 2013, except to say within that range of 40% to 50%. I think if you go back in time, we have been pretty consistent of running the Company along those metrics.

Sure, I guess what I'm trying to get at is, are you guys more inclined to do one large equity raise? Or maybe do one equity raise you know near-term to get you to the -- within the range that you are looking for as these acquisitions close but then be forced to do more equity raises if you guys do move forward with more acquisitions?

You know, Ryan, I think decisions -- capital -- decisions on capital market transactions are driven by the fact that, at the time you decide to execute on one, and, whether there even is an equity offering, is something that will be determined down the line.

Okay, fair enough. And then the second question, I apologize if I missed this, but it sounded like you said that the Clift Hotel was a $6 million lease payment that will have CPI step ups. That seems to be on the $120 million acquisition price, a 5% yield on your investment. What is going to get that to your target investment hurdles that I guess you look at, because I'm assuming 5% is way below what you guys are looking at certainly given your cost of equity?

That is a return that is currently below where we would like it to be. But there are built in adjustments to the rental rates and, in particular in 2014, there will be a minimum increase of at least 20%, which will move the return closer to -- from 5% to 6%, and then there will be subsequent increases after that. And we feel like it is a good investment in terms of cost per key, and it is a good investment in a very strong market in San Francisco. And we think we have got it at an attractive price. And, with interest rates low, we are willing to go a little bit below our normal hurdle rates to get a hotel of this quality. We think that it is being well operated by Morgans today.

I guess you mentioned it going up from a 5% yield to a 6% yield. That still seems drastically below what you are generally looking at from a yield perspective and certainly where your cost of equity is. I understand that it can be an attractive market and it can be a good deal, I guess so to speak. But at the same time, if your cost of funds outweighs your yield on those funds, I question how you guys think about whether that is a prudent investment for your shareholders and if you are going to be doing anything that will get that yield higher than the 5% to 6% that we just talked about.

We think that we take a long-term view of our acquisitions, and we expect that interest rates are going to be very low for the next couple, few years. We think that the returns on this hotel are going to grow, and, over the longer haul, it is going to have more impressive returns than what you are seeing today. What happens with the hotel going forward and what changes may occur, it would just be a matter of subjectiveness. Right now the hotel's triple net leased for long-term to Morgans Hotel Group, and they are current in their rent payments. And, unless that changes, there is not that much that we are going to do to change what is happening there.

Okay, but if they were not current in their rent payments at some point in time, you might be interested in choosing another path for that property?

I think it's a very attractive hotel in a good location, and that if there was ever a default that we would have various options. I don't have much doubt about that.

Sounds good. Thanks a lot. I appreciate the color.

Will Marks.

I just had some broad operating questions. First, I know you do not give guidance, but any thoughts, it seems like the range is kind of 5% to 7% for the industry, and do you concur with that, and will your re-developments cause much of a disparity from that?

We -- as I mentioned, most of our operators have come in in the 5% to 7% range, and we are very comfortable with those ranges. I think if you asked me, if I thought they were likely to come in towards the higher end or the lower end, I think I would probably say that we expect that they be more -- if they miss, they will miss towards the higher end, because, for instance, IHG is expected to be much higher, up in the teens, for RevPAR growth. The only portfolio that is below that sort of 5% to 7% range is on the Sonesta brands where virtually every one of their hotels will be under renovation during 2013. So they are expecting across the portfolio flat RevPAR. But otherwise, we are pretty optimistic, as I mentioned our January RevPAR growth has been very, very strong at hotels that have been renovated and those that have not been rebranded. So we feel pretty good about where our numbers are going to come out this coming year.

And --

But you never know, none of us have a crystal ball. So there is obviously there is changes going on in Washington and there is budget cuts happening. That may have some modest impact on performance, but because of the renovations, because of low supply growth, and because the economy continues to chug along which we expect will continue, we are optimistic.

And where do these type of ranges put your coverage?

Well, we are expecting RevPAR to increase and margins to increase, so we are expecting coverages to continue to improve. We do not typically provide guidance on where we expect coverage to come out.

Yes, but our expectation is that we would see, despite the continued renovation disruptions, that we would see improved coverage across all of our portfolios in 2013.

Okay, thank you very much.

(Operator instructions)

Bryan Maher.

I think you might have answered my question earlier on, but I wanted to talk a little bit about TA and, with what they are doing there, they are seeking out underperforming possibly distressed truck stops that they can renovate and reposition, rebrand as TA and get the EBITDA of those properties up as they build out their portfolio. So my question would be to you, as they do that, is there any interest on HPT's part to buy one or a basket of more mature, stabilized truck stops that TA has acquired on their own going forward, or do you think that you are pretty filled out on the acquisition front on the hotel site?

Our primary focus is on hotel acquisitions. However, if TA were to come to us with one or more mature travel centers that they had ramped up and that had proven cash flows, we would not be against acquiring those and adding those properties to existing leases or a new lease. But it is not really our focus right now. The properties that TA has bought as you mentioned, have been sort of underperforming turnaround opportunities, so they have got some work to do before that would become an issue for us.

And then secondarily, just on the NH Hoteles deal, can you tell us how that deal came about? Did the they approach? Did you approach them? Was it a brokered deal?

It came about over a long period of time. And there have been bankers involved at various points, but I think, if I remember back, that we approached them.

Thanks a lot and good luck with those.

There are no further questions in the queue. I would now like to turn the call back over to John Murray. Please go ahead.

Thank you all very much for joining us today, and, again I apologize for moving the date on you, but I appreciate you being with us.

That does conclude our conference for today. Thank you for your participation and using the AT&T executive teleconference service. You may now disconnect.