**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, DC 20549**

** **

**FORM 10-K/A**

 

**Amendment No. 3**

 
| **x**                                                 | ** ** | **ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934**     |
|-------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------|
| ** **                                            | ** ** | ** **                                                                                              |
| **For  the fiscal year ended December 31, 2007** |
| ** **                                            | ** ** | ** **                                                                                              |
| **or**                                                |
|                                                  |       |                                                                                                    |
| **o**                                                 | ** ** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934** |

** **

**Commissionfile number 1-115272**

** **

**Hospitality Properties Trust**

(ExactName of Registrant as Specified in Its Charter)

 

| **Maryland**             | ** ** | **4-3262075**                      |
|--------------------------|------------|------------------------------------|
| (State  of Organization) |       | (IRS  Employer Identification No.) |

 

| **400  Centre Street, Newton, Massachusetts** | ** ** | **02458**   |
|-----------------------------------------------|------------|-------------|
| (Address  of Principal Executive Offices)     |       | (Zip  Code) |

 

Registrant’s TelephoneNumber, Including Area Code      **617-964-8389**

 

Securities registeredpursuant to Section 12(b) of the Act:

 

| **Title Of Each Class**                   | ** ** | **Name Of Each Exchange On Which Registered** |
|----------------------------------------------------------|------------|-----------------------------------------------------------------------------|
| Common  Shares of Beneficial Interest                    |       | New  York Stock Exchange                                                    |
| Series B  Cumulative Redeemable Preferred Shares of |       | New  York Stock Exchange                                                    |
| Beneficial  Interest                                     |       |                                                                        |
| Series C  Cumulative Redeemable Preferred Shares of |       | New  York Stock Exchange                                                    |
| Beneficial  Interest                                     |       |                                                                        |

 

Securities registered pursuant to Section 12(g) ofthe Act:  None

 

Indicate by check mark if the registrant is awell-known seasoned issuer, as defined in Rule 405 of the SecuritiesAct.  Yes x No o

 

Indicate by check mark if the registrant is notrequired to file reports pursuant to Section 13 or Section 15(d) ofthe Act.  Yes o No x

 

Indicate by check mark whether the registrant: (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90 days.  Yes x No o

 

Indicate by check mark if disclosure of delinquentfilers pursuant to Item 405 of Regulation S-K is not contained herein, and willnot be contained, to the best of registrant’s knowledge, in definitive proxy orinformation statements incorporated by reference in Part III of this Form 10-Kor any amendment to this Form 10-K. x

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, a non-accelerated filer, or a smaller reporting company. Seedefinition of “large accelerated filer,” “accelerated filer,” and “smallerreporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

| Large accelerated filer x                     |   | Accelerated filer o         |
|-----------------------------------------------|--------|-----------------------------|
|                                          |   |                        |
| Non-accelerated filer o                       |   | Smaller reporting company o |
| (Do not check if a smaller reporting company) |   |                        |

 

Indicateby check mark whether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act).  Yes oNo x

 

Theaggregate market value of the voting shares of the registrant held bynon-affiliates was $3.9 billion based on the $41.49 closing price per commonshare on the New York Stock Exchange on June 29, 2007. For purposes ofthis calculation, an aggregate of 334,756 common shares of beneficial interest$0.01 par value, held by the trustees and officers of the registrant have beenincluded in the number of shares held by affiliates.

 

Number of the registrant’sCommon Shares outstanding as of February 27, 2008: 93,892,719

 

 

 

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In this Amendment No. 3to Annual Report on Form 10-K*,*and unless the context otherwise requires,the terms “HPT,” ‘‘we,’’ ‘‘our’’ and ‘‘us’’ refer to Hospitality PropertiesTrust and its consolidated subsidiaries; and the term “TA” refers toTravelCenters of America LLC and its consolidated subsidiaries.

 

**DOCUMENTSINCORPORATED BY REFERENCE**

** **

**None.**

** **

**EXPLANATORY NOTE**

** **

We are filing thisAmendment No. 3 to our Annual Report on Form 10-K, or Form 10-K/A,to amend Item 7 and Item 15 in our Annual Report on Form 10-K for thefiscal year ended December 31, 2007, or the Annual Report, which was originallyfiled with the Securities and Exchange Commission, or the SEC, on February 28,2008, and previously amended by Amendment No. 1 filed with the SEC on April 3,2008 and Amendment No. 2 filed with the SEC on June 13, 2008.

 

Item 7 of the AnnualReport is amended and being filed in its entirety solely to include the rentcoverage ratios for our two lease agreements with TA for the year ended December 31,2007.  Item 15 of the Annual Report isamended and being filed in its entirety solely to include as a note in ourfinancial statements the summary financial information separately filed asAmendment No. 2 for TA for its fiscal years ended December 31, 2005,2006 and 2007, as reported by that company in its Annual Report on Form 10-Kfiled with the SEC for the fiscal year ended December 31, 2007.

 

In addition, we arefiling or furnishing, as indicated in this Form 10-K/A, as exhibitscertain currently dated certifications and a currently dated consent of Ernst &Young LLP.

 

This amendment islimited in scope to the rent coverage ratios and summary audited financialinformation described above and does not amend, update, or change any otheritems or disclosures contained in the Annual Report.  Accordingly, allother items that remain unaffected are omitted in this filing.  Except as described in the precedingparagraphs, we do not purport by this Form 10-K/A to update any of theinformation contained in the Annual Report.

 

2

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**Item 7. Management’s Discussion and Analysis of Financial Condition andResults of Operations (dollar amounts in thousands, except per share amounts)**

** **

**Overview**

** **

The followinginformation should be read in conjunction with our consolidated financialstatements and accompanying notes included in this Annual Report on Form 10-K.

 

**2007 Developments**

** **

On January 31, 2007, wecompleted our acquisition of TravelCenters of America, Inc., orTravelCenters, pursuant to the Agreement and Plan of Merger dated as of September 15,2006, as amended, among TravelCenters, us, one of our former subsidiaries andthe stockholders of TravelCenters. Upon completion of the acquisition, werestructured the business of TravelCenters and distributed all of the commonshares of our former subsidiary, or TA, to our shareholders in a spin offtransaction. The acquisition of TravelCenters, the restructuring of theTravelCenters business and the spin off transaction are collectively referredto herein as the TA Transaction.

 

Asa part of the restructuring of TravelCenters which occurred in connection withthe TA Transaction, on January 31, 2007:

 

·                  TravelCenters became a subsidiary of oursubsidiary, TA;

 

·                  certain real property interests of 146 travelcenters that were operated by TravelCenters and certain other assets used inconnection with the travel center business with an estimated total value of$1,697,221 were transferred to subsidiaries of ours that were not owned by TA;

 

·                  TA became the owner of all of the workingcapital of TravelCenters, including current assets (primarily consisting ofcash, receivables and inventory) and current liabilities (primarily consistingof trade payables and accrued liabilities);

 

·                  we contributed cash of $121,166 to TA so thatthe sum of its current assets, net of current liabilities, was $200,000;

 

·                  TA became the owner of one travel center inOntario, Canada, the operator of two travel centers leased from owners otherthan us, the manager of one travel center for an owner other than us, thefranchisor of 13 travel centers owned and operated by third parties and theowner of certain other assets historically owned and used by TravelCenters;

 

·                  we entered into a lease of the 146 travelcenters we acquired (one travel center was subsequently disposed of) andcertain related assets to TA; and

 

·                  TA commenced operating the travel centerbusiness formerly conducted by TravelCenters.

 

Afterthis restructuring, on January 31, 2007, we distributed all of the sharesof TA to our common shareholders of record on January 26, 2007. The bookvalue of this distribution was $337,250. Shareholders were entitled to receiveone TA common share for every ten of our common shares owned on the recorddate. Fractional shares were issued as necessary. TA’s common shares are listedon the American Stock Exchange under the symbol “TA”. We expensed $2,711 ofcosts in connection with the spin off transaction.

 

Ourlease with TA is a “triple net” lease, which requires TA to pay all costsincurred in the operation of the leased travel centers, including personnel,utilities, inventories, services to customers, insurance, real estate andpersonal property taxes and ground lease payments, if any. The annual minimumrent due to us under this agreement is scheduled to increase to $158,962 in2008, $162,625 in 2009, $166,638 in 2010, $171,613 in 2011 and $176,620 in2012.  The annual straight line rentcurrently reported by us under Generally Accepted Accounting Principles, orGAAP, is $171,389. Starting in 2012, the lease requires TA to pay us certainpercentages of increases in gross revenues at the leased travel centers. Wehave agreed to provide up to $125,000 of funding during the first five years ofthe lease for certain specified improvements to the leased travel centers. Thisfunding may be drawn by TA from us in subsequent years until December 2015.There will not be any adjustment in our minimum rent as we fund these 

 

3

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amounts.All improvements funded by us will be owned by us. As of December 31,2007, we have funded $25,000 under this agreement. TA is required to maintain,at its expense, the leased travel centers in good order and repair, includingstructural and non-structural components, but may request that we fund amountsin addition to the $125,000, in return for minimum annual rent increases equalto a percentage of the amount we fund. Our lease agreement with TA expires on December 31,2022.

 

OnMay 30, 2007, we acquired Petro for approximately $630,000 plus certaincosts. Petro owns 40 travel centers located in 25 states. In connection withour acquisition of Petro, we acquired certain Petro properties which secure debtthat was previously issued by Petro Stopping Centers, L.P., or Petro Centers, aformer subsidiary of Petro acquired by TA on May 30, 2007. Upon closing ofour acquisition of Petro, the Petro Centers debt assumed by TA was covenantdefeased and funds were escrowed by TA at closing and used to redeem the PetroCenters debt on February 15, 2008. We agreed to pay certain costsassociated with our acquisition of Petro, including those relating to thedefeasance and prepayment of the Petro Centers debt, and customary closingcosts, which totaled approximately $25,000. We funded the purchase price andcosts by borrowing under our revolving credit facility. Simultaneous with ouracquisition of Petro, we leased the 40 travel centers which Petro owned to TAfor an initial minimum rent of $62,225 per year. Starting in 2013, the leaserequires TA to pay us additional rent calculated as certain percentages ofincreases in gross revenues at the leased travel centers. This lease agreementwith TA expires on June 30, 2024, and TA has two renewal options of 15years each exercisable for all, but not less than all, of these 40 leasedtravel centers.

 

On July 26, 2007, we sold 18 Homestead Studio Suites hotels for$205,350 and recognized a gain on sale of $95,711. Seventeen of these hotelswere sold to an unrelated party. One hotel was purchased by a subsidiary ofHRPT, a publicly traded real estate investment trust that is our former parentcompany, and which is managed by RMR, which is also our manager. We used thenet proceeds from these sales, totaling $189,309 after the refund of a $15,960security deposit and payment of closing costs, to reduce amounts outstandingunder our revolving credit facility.

 

**ManagementAgreements and Leases**

 

At December 31,2007, each of our 292 hotels is included in one of ten combinations of hotelsof which 201 are leased to one of our wholly owned taxable REIT subsidiaries,or TRSs, and managed by an independent hotel operating company and 91 areleased to third parties.  Our 185 travelcenters are leased to TA under two agreements. Our consolidated statement of income includes operating revenues andexpenses of our managed hotels and rental income from our leased hotels andtravel centers. Additional information regarding the terms of our managementagreements and leases is included in the table on pages 56 and 57.

 

4

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**Results of Operations (dollar amounts in thousands, except per shareamounts)**

** **

**Year Ended December 31, 2007 Compared to Year Ended December 31,2006**

 
| ** **                                                                              | ** ** | **For the year ended December 31,**                    | ** ** |
|-----------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------|------------|
| ** **                                                                              | ** ** | **2007**                                                                        | ** ** | **2006** | ** ** | **Increase   (Decrease)** | ** ** | **% Increase   (Decrease)** | ** ** |
| ** **                                                                              | ** ** | **(amounts in dollars, except number of shares)** | ** ** | ** ** | ** ** |
| Revenues:                                                                               |       |                                                                            |       |   |   |   |   |   |   |
| Hotel operating revenues                                                                |       | $                                                                               | 941,455    |   | $ | 879,324 |   | $ | 62,131 |   | 7.1 | % |
| Rental income:                                                                          |       |                                                                            |       |   |   |   |   |   |   |
| Minimum rents - hotels                                                                  |       | 117,193                                                                         |       | 115,461 |   | 1,732 |   | 1.5 | % |
| Minimum rents - travel centers                                                          |       | 193,571                                                                         |       | — |   | 193,571 |   | — |   |
|                                                                                    |       | 310,764                                                                         |       | 115,461 |   | 195,303 |   | 169.2 | % |
| Percentage rent - hotels                                                                |       | 6,055                                                                           |       | 5,188 |   | 867 |   | 16.7 | % |
| Total rental income                                                                     |       | 316,819                                                                         |       | 120,649 |   | 196,170 |   | 162.6 | % |
| FF&E reserve income - hotels                                                        |       | 22,286                                                                          |       | 20,299 |   | 1,987 |   | 9.8 | % |
| Interest income                                                                         |       | 4,919                                                                           |       | 2,674 |   | 2,245 |   | 84.0 | % |
|                                                                                    |       |                                                                            |       |   |   |   |   |   |   |
| Expenses:                                                                               |       |                                                                            |       |   |   |   |   |   |   |
| Hotel operating expenses                                                                |       | 657,000                                                                         |       | 618,334 |   | 38,666 |   | 6.3 | % |
| Interest expense                                                                        |       | 140,517                                                                         |       | 81,451 |   | 59,066 |   | 72.5 | % |
| Depreciation and amortization - hotels                                                  |       | 147,401                                                                         |       | 141,198 |   | 6,203 |   | 4.4 | % |
| Depreciation and amortization - travel  centers                                         |       | 69,287                                                                          |       | — |   | 69,287 |   | — |   |
| Total depreciation and amortization                                                     |       | 216,688                                                                         |       | 141,198 |   | 75,490 |   | 53.5 | % |
| General and administrative                                                              |       | 37,223                                                                          |       | 25,090 |   | 12,133 |   | 48.4 | % |
| TA spin off costs                                                                       |       | 2,711                                                                           |       | — |   | 2,711 |   | — |   |
| Loss on asset impairment                                                                |       | 1,332                                                                           |       | — |   | 1,332 |   | — |   |
| Income tax expense                                                                      |       | 2,191                                                                           |       | 372 |   | 1,819 |   | 489.0 | % |
|                                                                                    |       |                                                                            |       |   |   |   |   |   |   |
| Income from continuing operations                                                       |       | 227,817                                                                         |       | 156,501 |   | 71,316 |   | 45.6 | % |
| Discontinued operations:                                                                |       |                                                                            |       |   |   |   |   |   |   |
| Income from discontinued operations                                                     |       | 7,440                                                                           |       | 12,538 |   | (5,098 | ) | (40.7 | )% |
| Gain on sale of real estate from  discontinued operations                               |       | 95,711                                                                          |       | — |   | 95,711 |   | — |   |
| Net income                                                                              |       | 330,968                                                                         |       | 169,039 |   | 161,929 |   | 95.8 | % |
| Net income available for common  shareholders                                           |       | 304,199                                                                         |       | 161,383 |   | 142,816 |   | 88.5 | % |
| Weighted average shares outstanding                                                     |       | 93,109                                                                          |       | 73,279 |   | 19,380 |   | 27.1 | % |
| Income from continuing operations available  for common shareholders per common share   |       | $                                                                               | 2.16       |   | $ | 2.03 |   | $ | 0.13 |   | 6.4 | % |
| Income from discontinued operations  available for common shareholders per common share |       | $                                                                               | 1.11       |   | $ | 0.17 |   | $ | 0.94 |   | 552.9 | % |
| Net income available for common  shareholders per common share                          |       | $                                                                               | 3.27       |   | $ | 2.20 |   | $ | 1.07 |   | 48.6 | % |

 

The increase in hoteloperating revenues in 2007 versus 2006 was caused by the increase in revenuesat our managed hotels and our acquisition of four managed hotels in April 2006.  Revenues increased at most of our managedhotels from 2006 due to higher average daily room rates, or ADR, partiallyoffset by slightly lower occupancy rates. Additional operating statistics of our hotels are included in the tableon page 58.

 

5

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The increase in hoteloperating expenses from 2006 was caused primarily by the general increase inthe cost of labor, real estate taxes and insurance in 2007 and increasedmanagement fees due to the growth in hotel revenues in 2007 described above.

 

Our share ofthe operating results of our managed hotels in excess of the minimum returnsdue to us, or additional returns, under our hotel management agreements isrecognized as income at year end when all contingencies are met and the incomeis earned. We recognized additional returns of $24,181 and $20,029 in thefourth quarter 2007 and 2006, respectively. The increase in additional returns from 2006 is due to the improvedoperating performance of our managed hotels in 2007 described above.

 

As a result of renovationswhich required hotel rooms to be taken out of service in 2007 and 2006, certainof our managed hotels had net operating results that were $9,780 and $3,542less than the minimum returns due to us in 2007 and 2006, respectively. Theseamounts are reflected in our consolidated statement of income as a netreduction to hotel operating expenses in these years because the minimumreturns were funded by our managers.

 

The increase in rentalincome - hotels is a result of our funding of improvements at certain of ourleased hotels in 2006 and 2007 that caused in increases in the annual minimumrents due to us.

 

The increase in rentalincome - travel centers is a result of our acquisition of 146 travel centersand commencement of our lease with TA on January 31, 2007 and ouracquisition of an additional 40 travel centers and commencement of our secondlease with TA on May 30, 2007. Rental income - travel centersincludes $15,813 of adjustments necessary to record rent on the straight linebasis for the twelve months ended December 31, 2007.

 

 The increase in percentage rent - hotels isthe result of increased sales at our leased hotels.

 

FF&Ereserve income - hotels represents amounts paid by our third party hoteltenants into restricted accounts owned by us, the purpose of which is toaccumulate funds for future capital expenditures. The terms of our hotel leasesrequire these amounts to be calculated as a percentage of total sales at ourhotels. The increase in FF&E reserve income - hotels is primarily due toincreased levels of hotel sales in 2007 versus 2006 at our leased  hotels.We do not report the amounts which are escrowed as FF&E reserves for ourmanaged hotels and for leased hotels where the FF&E reserve is owned by ourtenants as FF&E reserve income.

 

The increase in interestincome is due to higher average cash balances and higher average interest ratesduring 2007.

 

The increase in interestexpense is primarily due to higher average borrowings as a result of our 2006and 2007 acquisitions, which was partially offset by a lower weighted averageinterest rate during 2007 than in 2006.

 

The increase in depreciationand amortization - hotels is due principally to the depreciation andamortization of assets acquired in our 2006 acquisitions and the purchase ofdepreciable assets with funds from FF&E reserve accounts owned by us in2006 and 2007.  The increase was offsetsomewhat by the sale of our Homestead Studio Suites hotels in July 2007.

 

The increase in depreciationand amortization - travel centers is due to the depreciation and amortizationof assets acquired in our 2007 travel center acquisitions described above.

 

The increase to general andadministrative expense is due principally to the impact of additional propertyinvestments during 2006 and 2007.

 

We recorded a$1,332 loss on asset impairment in the 2007 fourth quarter to reduce thecarrying value of a  hotel heldfor sale to its estimated net realizable value less costs to sell.

 

The increase in income taxexpense is primarily due to increased Canadian income taxes at one of our TRSsand higher state income taxes as a result of a change in tax laws in the stateof Texas.

 

6

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The decrease in income fromdiscontinued operations is the result of the sale of our 18 Homestead StudioSuites hotels in July 2007.

 

The gain onsale of real estate from discontinued operations in 2007 reflects the sale ofour 18 Homestead Studio Suites hotels in July 2007 for $205,350.

 

The increasesin income from continuing operations available for common shareholders, incomefrom discontinued operations available for common shareholders, net incomeavailable for common shareholders and the corresponding per common shareamounts are primarily due to the investment and operating activity discussedabove. On a per share basis, the percentage increases in income from continuingoperations available for common shareholders, income from discontinuedoperations available for common shareholders and net income available forcommon shareholders was lower due to our issuance of common shares in July andDecember 2006 and February 2007.

 

**Year Ended December 31, 2006 Compared to Year Ended December 31,2005**

 
| ** **                                                                              | ** ** | **For the year ended December 31,**                    | ** ** |
|-----------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------|------------|
| ** **                                                                              | ** ** | **2006**                                                                        | ** ** | **2005** | ** ** | **Increase   (Decrease)** | ** ** | **% Increase   (Decrease)** | ** ** |
| ** **                                                                              | ** ** | **(amounts in dollars, except number of shares)** | ** ** | ** ** | ** ** |
| Revenues:                                                                               |       |                                                                            |       |   |   |   |   |   |   |
| Hotel operating revenues                                                                |       | $                                                                               | 879,324    |   | $ | 682,541 |   | $ | 196,783 |   | 28.8 | % |
| Rental income:                                                                          |       |                                                                            |       |   |   |   |   |   |   |
| Minimum rent - hotels                                                                   |       | 115,461                                                                         |       | 110,869 |   | 4,592 |   | 4.1 | % |
| Percentage rent - hotels                                                                |       | 5,188                                                                           |       | 3,463 |   | 1,725 |   | 49.8 | % |
| Total rental income                                                                     |       | 120,649                                                                         |       | 114,332 |   | 6,317 |   | 5.5 | % |
| FF&E reserve income - hotels                                                        |       | 20,299                                                                          |       | 19,767 |   | 532 |   | 2.7 | % |
| Interest income                                                                         |       | 2,674                                                                           |       | 1,373 |   | 1,301 |   | 94.8 | % |
|                                                                                    |       |                                                                            |       |   |   |   |   |   |   |
| Expenses:                                                                               |       |                                                                            |       |   |   |   |   |   |   |
| Hotel operating expenses                                                                |       | 618,334                                                                         |       | 476,858 |   | 141,476 |   | 29.7 | % |
| Interest expense                                                                        |       | 81,451                                                                          |       | 65,263 |   | 16,188 |   | 24.8 | % |
| Depreciation and amortization - hotels                                                  |       | 141,198                                                                         |       | 127,242 |   | 13,956 |   | 11.0 | % |
| General and administrative                                                              |       | 25,090                                                                          |       | 22,514 |   | 2,576 |   | 11.4 | % |
| Loss on asset impairment                                                                |       | —                                                                          |       | 7,300 |   | (7,300 | ) | (100.0 | )% |
| Income tax expense                                                                      |       | 372                                                                             |       | 57 |   | 315 |   | 552.6 | % |
|                                                                                    |       |                                                                            |       |   |   |   |   |   |   |
| Income from continuing operations                                                       |       | 156,501                                                                         |       | 118,779 |   | 37,722 |   | 31.8 | % |
| Discontinued operations:                                                                |       |                                                                            |       |   |   |   |   |   |   |
| Income from discontinued operations                                                     |       | 12,538                                                                          |       | 11,124 |   | 1,414 |   | 12.7 | % |
| Net income                                                                              |       | 169,039                                                                         |       | 129,903 |   | 39,136 |   | 30.1 | % |
| Net income available for common  shareholders                                           |       | 161,383                                                                         |       | 122,247 |   | 39,136 |   | 32.0 | % |
| Weighted average shares outstanding                                                     |       | 73,279                                                                          |       | 69,866 |   | 3,413 |   | 4.9 | % |
| Income from continuing operations available  for common shareholders per common share   |       | $                                                                               | 2.03       |   | $ | 1.59 |   | $ | 0.44 |   | 27.7 | % |
| Income from discontinued operations  available for common shareholders per common share |       | $                                                                               | 0.17       |   | $ | 0.16 |   | $ | 0.01 |   | 6.3 | % |
| Net income available for common  shareholders per common share                          |       | $                                                                               | 2.20       |   | $ | 1.75 |   | $ | 0.45 |   | 25.7 | % |

 

The increase in hoteloperating revenues from 2005 was caused by the increase in the number ofmanaged hotels in 2006 due to our January and April 2006 hotel acquisitionsand the general increase in hotel revenues at most 

 

7

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of our managed hotels due toimprovements in the lodging market that resulted in ADR increases at most ofour managed hotels.  The increasedrevenues resulting from the higher ADR was partially offset by lower revenuesat certain of our managed hotels in 2006 which were under renovations in 2006which required hotel rooms to be taken out of service. Additional operatingstatistics of our hotels is included in the table on page 58.

 

The increase in hoteloperating expenses was caused by the increase in the number of managed hotelsin 2006 due to our January and April 2006 hotel acquisitions and thegeneral increase in the cost of labor and utilities in 2006.

 

We recognizedadditional returns from our managed hotels of $20,029 and $13,568 in the fourthquarter of 2006 and 2005, respectively. The increase in additional returns from 2005 is due to the improvedoperating performance of our managed hotels in 2006 described above.

 

As a result of therenovations described above, certain of our managed hotels had net operatingresults that were $3,542 and $2,491 less than the minimum returns due to us in2006 and 2005, respectively. These amounts are reflected in our consolidatedstatement of income as a net reduction to hotel operating expenses in theseyears because the minimum returns were funded by our managers.

 

The increase in minimumrental income- hotels is primarily a result of the increased minimumrents resulting from our funding of improvements at certain of our leasedhotels in 2006 and our acquisition of a hotel in January 2006.

 

The increasein percentage rent - hotels is the result of increased sales at our leasedhotels.

 

The increasein FF&E reserve income- hotels is primarily due to increased sales in 2006versus 2005 at our leased  hotels.

 

The increasein interest income is due to higher average cash balances and higher averageinterest rates during 2006.

 

The increasein interest expense is primarily due to higher average borrowings as a resultof our hotel acquisitions, which was partially offset by a lower weightedaverage interest rate during 2006 than in 2005.

 

The increasein depreciation and amortization- hotels is due principally to the depreciationof 12 hotels acquired during 2006 and the impact of the purchases in 2006 and2005 of depreciable assets with funds from FF&E reserve accounts owned byus. This increase was offset to some extent by the sale of a hotel in September 2005and certain assets becoming fully depreciated in 2006 and 2005.

 

The increaseto general and administrative expense is due principally to the impact ofadditional hotel investments during 2006.

 

In 2005, werecorded a $7,300 loss on asset impairment to reduce the carrying value of ahotel held for sale to its estimated net realizable value less costs to sell.

 

The increase to income taxexpense is primarily due to higher state income taxes as a result of our hotelacquisitions and increased Canadian income taxes at our TRS which owns hotelsin Canada.

 

The increasein income from discontinued operations is the result of increasedpercentage rent at our 18 Homestead Studio Suites® hotelsdue to higher sales in 2006.

 

The increases in income fromcontinuing operations available for common shareholders, income fromdiscontinued operations available for common shareholders, net income availablefor common shareholders and the corresponding per common share amounts areprimarily due to the investment and operating activity discussed above.On a per share basis, the percentage increase in income from continuingoperations available for common shareholders, income from discontinuedoperations available for common shareholders and net income available forcommon shareholders was lower due to our issuance of common shares in July andDecember 2006 and in June 2005.

 

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**Liquidity and Capital Resources**

** **

Our Managers and Tenants

 

All 477 of ourproperties are operated under management agreements or leases with third partyoperating companies. All costs of operating and maintaining our properties arepaid by the third party hotel managers as agents for us or by tenants for theirown account. These managers and tenants derive their funding for propertyoperating expenses, FF&E reserves, and returns and rents due to usgenerally from property operating revenues and, to the extent that thesemanagers and tenants fund our minimum returns and minimum rents, from theirseparate resources.

 

We definecoverage for each of our combination management agreements or leases as totalproperty sales minus all property level expenses that are not subordinated tothe minimum returns and minimum rents due to us and the required FF&Ereserve contributions, divided by the aggregate minimum payments due to us.More detail regarding coverage, guarantees and other security features of ouroperating agreements is presented in the table on pages 56 and 57.Assuming our twelve operating agreements as of December 31, 2007, had beenin place during the twelve months ended December 31, 2007, elevencombinations, representing 453 properties, generated coverage of at least 1.0xusing historical operating results. The remaining combination, representing 24hotels, generated coverage of 0.54x in 2007; twenty of the hotels in thiscombination were undergoing significant renovations that had a negative impacton the operating results of this combination during 2006 and 2007.  We expect to complete renovations at thesehotels in the first half of 2008.

 

Three hundredfifty two (352) of our properties, representing 75% of our total investments atcost as of December 31, 2007, in eight combinations are operated undermanagement agreements or leases which are subject to full or limitedguarantees. These guarantees may provide us with continued payments if thetotal sales less total expenses and required FF&E reserve payments fail toequal or exceed guaranteed amounts due to us. Our managers and tenants or theiraffiliates may also supplement cash flow from our properties in order to makepayments to us and preserve their rights to continue operating our properties.Guarantee or supplemental payments to us, if any, made under any of ourmanagement agreements or leases, do not subject us to repayment obligationsbut, under some of our agreements, these guarantee or supplemental payments maybe recovered by the manager or tenant from the future cash flows from ourproperties after our future minimum returns and minimum rents are paid.

 

As of February 26,2008, all payments due, including those payments due under the combinationmanagement agreement whose hotels generated less than 1.0x coverage during2007, are current. However, the effectiveness of our various security featuresto provide uninterrupted payments to us is not assured. If any of our property operators, tenants or guarantors default intheir payment obligations to us, our revenues and cash flows will decline.

 

**Our OperatingLiquidity and Capital Resources**

** **

Our principalsource of funds for current expenses and distributions to shareholders areminimum returns from our managed hotels and minimum rents from our leasedhotels and travel centers. We receive minimum returns and minimum rents fromour managers and tenants monthly. We receive additional returns, percentagereturns and rents and our share of the operating profits of our managed hotelsafter payment of all management fees and other deductions either monthly orquarterly. This flow of funds has historically been sufficient for us to payour operating expenses, interest and distributions to shareholders. We believethat our operating cash flow will be sufficient to meet our operating expenses,interest and distribution payments for the foreseeable future.

 

We maintainour status as a real estate investment trust, or REIT under the InternalRevenue Code of 1986, as amended, or IRC, by meeting certain requirements. As aREIT, we do not expect to pay federal income taxes on the majority of ourincome. In 1999, federal legislation known as the REIT Modernization Act, orthe RMA, was enacted and became effective on January 1, 2001. The RMA,among other things, allows a REIT to lease hotels to TRSs if the hotels aremanaged by an independent third party. The income realized by our TRSs inexcess of the rent they pay to us is subject to income tax at corporate taxrates.  Also, the income we receive fromour hotels in Canada, Puerto Rico and certain states is subject to taxes inthose jurisdictions.

 

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**Our Investment andFinancing Liquidity and Capital Resources**

** **

Variouspercentages of total sales at most of our hotels are escrowed as FF&Ereserves to fund future capital improvements at our hotels. During 2007, ourmanagers and tenants contributed $57,476 to these accounts. As of December 31,2007, there was approximately $28,134 on deposit in these escrow accounts,which was  held directly by us and isincluded on our balance sheet as restricted cash.

 

Our hoteloperating agreements generally provide that, if necessary, we will provide ourmanagers and tenants funding for capital improvements to our hotels in excessof amounts available in escrowed FF&E reserves. To the extent we make suchadditional FF&E reserve fundings, our annual minimum returns or minimumrent generally increase by a percentage of the amount we fund. During 2007, wefunded $64,241 for capital improvements to our hotels in addition to FF&Ereserve fundings from hotel operations.

 

During 2007,$122,138 was spent from the FF&E reserve escrow accounts to renovate andrefurbish our hotels.

 

FF&Eescrow deposits are not required under our travel centers leases with TA.However, TA is required to maintain the leased travel centers at its expense,including structural and non-structural components.  Under our TA lease for 145 travel centers, wehave agreed to fund up to $25,000 per year for certain specified capitalimprovements to the leased properties during the first five years of the leaseterm or thereafter on a cumulative basis. All of the capital improvements funded under this agreement will beowned by us.  As of December 31,2007, we have funded $25,000 under this agreement and we expect to fund $25,000in 2008, using funds from our existing cash balances or borrowings under ourrevolving credit facility.  Under bothleases, TA may request that we fund additional amounts for capital improvementsto the leased facilities in return for annual minimum rent increases.  In 2007, we funded $1,438 of such additionalamounts under these agreements.

 

During 2007, we funded$8,020 for improvements to our Marriott International branded hotels using cashon hand and borrowings under our revolving credit facility. We expect tofund approximately $90,000 for improvements to our four Marriott branded hotelportfolios throughout 2008 with funds from our existing cash balances orborrowings under our revolving credit facility. Our minimum annual rent forthese hotels is increased by approximately 10% of the amounts we fund, whichamounts are in addition to recurring FF&E reserve funding from hoteloperations.

 

Pursuant to an April 2005agreement we entered with a subsidiary of Hyatt for management of 24AmeriSuites® hotels, we agreed to provide funding to Hyatt forrebranding of these hotels to the Hyatt PlaceTM brand and for otherimprovements. To the extent our fundings exceed $8,000, the minimum returnpayable by Hyatt to us increases as these funds are advanced by approximately10% of the funded amounts per year.  Asof December 31, 2007, $71,500 has been funded.  During 2007, we funded $42,000 of this amountand we expect to fund approximately $4,000 in 2008, using funds from ourexisting cash balances or borrowings under our revolving credit facility.

 

Pursuant to anApril 2005 agreement we entered with a subsidiary of Carlson, formanagement of 12 PrimeSM hotels, we agreed to provide funding toCarlson for rebranding these hotels to Carlson brands and for otherimprovements at these hotels.  To theextent our payments exceed $12,000, the minimum return payable by Carlson to usincreases as these funds are advanced by approximately 10% of the fundedamounts per year.  As of December 31,2007, $26,408 has been funded.  During2007, we funded $553 of this amount and we expect to fund $400 in 2008,using funds from our existing cash balances or borrowings under our revolvingcredit facility.

 

Pursuant to a December 2004agreement we entered to purchase 13 hotels from InterContinental, we agreed topay $25,000 during the three years following closing to fund improvements tothe hotels. We paid $10,000 of this amount in 2005 and paid the remaining$15,000 in December 2007.

 

Pursuant to a January 2006agreement we entered with InterContinental for the management of the HarborCourt Complex in Baltimore, Maryland, we agreed to fund $2,300 for rebrandingand other improvements during the two years following closing. We paid$1,000 of this amount in 2006 and funded the remaining $1,300 in December 2007.

 

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Pursuant to January andApril 2006 agreements we entered with InterContinental for the managementof ten hotels, we agreed to fund $24,228 for capital improvements to thesehotels during the three years following closing. We funded $9,691 in January 2007,$9,691 in January 2008 and expect to fund $4,846 in January 2009,using funds from our existing cash balances or borrowings under our revolvingcredit facility.

 

On January 16,2007, April 16, 2007, July 16, 2007 and October 15, 2007, wepaid a $0.5546875 per share distribution to our Series B preferredshareholders with respect to the periods ended January 14, 2007, April 14,2007, July 14, 2007 and October 14, 2007, respectively. On December 3,2007, we declared a $0.5546875 per share distribution to Series B preferredshareholders of record on December 31, 2007 with respect to the periodended January 14, 2008.  We paidthis distribution on January 15, 2008, using existing cash balances andborrowings under our revolving credit facility.

 

On May 15, 2007, wepaid a $0.40833 per share distribution to our Series C preferredshareholders with respect to the period ended May 14, 2007.  On August 15, 2007 and November 15,2007, we paid a $0.4375 per share distribution to our Series C preferredshareholders with respect to the periods ended August 14, 2007 and November 14,2007, respectively. These distributions were funded using cash on hand andborrowings under our revolving credit facility. On January 3, 2008, wedeclared a distribution of $0.4375 per Series C preferred shareholderswith respect to the period ending February 14, 2008. We paid thisdistribution on February 15, 2008, using existing cash balances andborrowings under our revolving credit facility.

 

On February 15,2007, May 17, 2007, August 16, 2007 and November 15, 2007, wepaid a $0.74, $0.76, $0.76 and $0.77 per share distribution to our commonshareholders, for the quarters ended December 31, 2006, March 31,2007, June 30, 2007 and September 30, 2007, respectively.  On January 3, 2008, we declared a $0.77per share distribution to our common shareholders of record on January 14,2008.  We paid this distribution on February 15,2008, using existing cash balances and borrowings under our revolving creditfacility.

 

On January 22, 2007, weentered into a new $2,000,000 interim loan agreement, or the AcquisitionFacility, with a group of institutional lenders that became effectiveconcurrently with our acquisition of TravelCenters. We funded the acquisitionof TravelCenters and the capitalization of TA with a $1,400,000 borrowing underthe Acquisition Facility and with our existing cash balances. We subsequentlyrepaid all borrowings under the Acquisition Facility during the first quarterof 2007 with net proceeds from certain of the financing transactions describedbelow.

 

In January 2007, wesold 1,800,000 of our common shares at a price of $47.51 per share pursuant toan over allotment option granted to the underwriters of our December 2006common share offering. Net proceeds from this sale of $81,775 (afterunderwriting and other offering expenses) were used to partially fund ouracquisition of TravelCenters.

 

In February 2007, wesold 5,750,000 of our common shares at a price of $47.67 per share in a publicoffering. Net proceeds from this sale of $261,677 (after underwriting and otheroffering expenses) were used to reduce borrowings under our AcquisitionFacility.

 

Also in February 2007,we sold 12,700,000 Series C cumulative redeemable preferred shares at aprice of $25.00 per share in a public offering. Net proceeds from this sale of$306,833 (after underwriting and other offering expenses) were used to reduceborrowings under our Acquisition Facility.

 

In March 2007, wesold $575,000 of 3.8% convertible senior notes due 2027 to initial purchasersfor resale to qualified institutional buyers pursuant to the exemption fromregistration provided by Rule 144A under the Securities Act of 1933, asamended, or the Securities Act. Net proceeds from this sale of $562,525 (afterplacement and other offering expenses) were used to repay amounts outstandingunder the Acquisition Facility and for general business purposes. Resales ofthese notes and any underlying common shares were registered on behalf ofcertain selling security holders on April 5, 2007.

 

In March 2007, wesold $300,000 of 5.625% senior notes due 2017 to initial purchasers for resaleto qualified institutional buyers pursuant to the exemption from registrationprovided by Rule 144A under the Securities Act. We used net proceeds fromthis sale of $296,468 (after placement and other offering expenses) to reduceborrowings under 

 

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our Acquisition Facility.In June 2007, we issued $300,000 of 5.625% senior notes due 2017 that wereregistered with the Securities and Exchange Commission in exchange for all ofour privately placed 5.625% senior notes due 2017.

 

In May 2007, wepurchased Petro for approximately $655,000, including acquisition costs, usingborrowings under our revolving credit facility.

 

In July 2007, wesold 18 Homestead Studio Suites hotels for $205,350.  We used the net proceeds of approximately$189,309 to reduce amounts outstanding under our revolving credit facility.

 

On September 24,2007, we sold $350,000 of 6.7% unsecured senior notes due 2018.  We used net proceeds from this offering of$344,226 (after placement and other offering expenses) to reduce borrowingsunder our revolving credit facility.

 

In order to fund capitalimprovements to our properties and acquisitions and to meet cash needs that mayresult from timing differences between our receipt of returns and rents and ourdesire or need to make distributions or pay operating expenses, we maintain arevolving credit facility with a group of institutional lenders. The maturity dateof our revolving credit facility is October 24, 2010 and we have theoption to extend the facility for one additional year upon payment of anextension fee. The annual interest rate payable for drawn amounts under thefacility is LIBOR plus a premium (5.41% per annum at December 31,2007).  We may borrow up to $750,000under the revolving credit facility and it includes a feature under which themaximum amount available for borrowing may be expanded to $1,500,000 in certaincircumstances. Borrowings under our revolving credit facility are unsecured. Wemay draw, repay and redraw funds until maturity, and no principal repayment isdue until maturity. As of December 31, 2007, we had a balance of $158,000outstanding under our revolving credit facility.

 

At December 31, 2007, we had $23,401 of cash and cash equivalents and$592,000 available from our revolving credit facility. We expect to useexisting cash balances, borrowings under our revolving credit facility and netproceeds of offerings of equity or debt securities to fund future propertyacquisitions and other general business purposes.

 

Our term debt maturities(other than our revolving credit facility) are as follows: $150,000 in 2008;$50,000 in 2010; $125,000 in 2012; $300,000 in 2013; $300,000 in 2015; $275,000in 2016; $300,000 in 2017; $350,000 in 2018; and $575,000 in 2027.  We expect to fund the redemption of our$150,000 of 7% senior notes due March 1, 2008, with existing cash balancesand borrowings under our revolving credit facility.  Our 3.8% convertible senior notes areconvertible if certain conditions are met (including certain changes incontrol) into cash equal to the principal amount of the notes and, to theextent the market price of our common shares exceeds the initial exchange priceof $50.50 per share, subject to adjustment, either cash or our common shares atour option with a value based on such excess amount. Holders of our convertiblesenior notes may require us to repurchase all or a portion of the notes on March 20,2012, March 15, 2017 and March 15, 2022, or upon the occurrence ofcertain change in control events.

 

As of December 31,2007, we had one mortgage note we assumed in connection with our acquisition ofone hotel with a current principal balance of $3,635. This mortgage noterequires monthly payments of principal and interest of $32 and is expected tohave a principal balance of $3,326 at maturity in 2011. None of our other debtobligations require principal or sinking fund payments prior to their maturitydate. In connection with our acquisition of Petro, we acquired certainPetro properties which secure debt that was previously issued by Petro Centers.Upon closing of our acquisition of Petro, the Petro Centers debt assumed by TAwas covenant defeased and funds were escrowed at closing by TA and used toredeem this debt on February 15, 2008.

 

When amounts are outstandingunder our revolving credit facility and as the maturity or repurchase dates ofour revolving credit facility and term debts approach over the longer term, wewill explore alternatives for the repayment of amounts due. Such alternativesin the short term and long term may include incurring additional debt andissuing new equity securities. We have an effective shelf registrationstatement that allows us to issue public securities on an expedited basis, butdoes not assure that there will be buyers for such securities. Although therecan be no assurance that we will complete any debt or equity security offeringsor other financings, we believe we will have access to various types offinancing, including investment grade debt or equity securities, with which tofinance future acquisitions and capital expenditures and to pay our debt andother obligations.

 

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As of December 31,2007, our contractual obligations were as follows:

 
| ** **                     | ** ** | **Payment due by period** | ** ** |
|--------------------------------|------------|------------------------------------------|------------|
| ** **                     | ** ** | **Total**                                | ** ** | **Less than  1 year** | ** ** | **1-3 years** | ** ** | **3-5 years** | ** ** | **More than  5 years** | ** ** |
| Long-Term Debt Obligations     |       | $                                        | 2,586,635  |   | $ | 150,077 |   | $ | 208,182 |   | $ | 128,376 |   | $ | 2,100,000 |   |
| Ground Lease Obligations (1)   |       | 175,818                                  |       | 13,846 |   | 26,721 |   | 24,038 |   | 111,213 |   |
| Capital improvements (2)       |       | 208,937                                  |       | 129,091 |   | 54,846 |   | 25,000 |   | — |   |
| Projected interest expense (3) |       | 1,296,964                                |       | 143,542 |   | 274,937 |   | 247,547 |   | 630,938 |   |
| Total                          |       | $                                        | 4,268,354  |   | $ | 436,556 |   | $ | 564,686 |   | $ | 424,961 |   | $ | 2,842,151 |   |

 

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(1)   14 of our hotels and 26 ofour travel centers are on land leased partially or in its entirety.  In each case the ground lessors are unrelatedto us. Generally, payments of ground lease obligations are made by our managersor tenants. However, if a manager or tenant fails to perform obligations undera ground lease or elects not to renew any ground lease, we might have toperform obligations under the ground lease or renew the ground lease in orderto protect our investment in the affected hotel or travel center.

 

(2)   Represents amounts we expectto fund for capital improvements to our properties in addition to recurringFF&E reserve funding from hotel operations.

 

(3)   Projected interest expense isattributable to only the long term debt obligations listed above at existingrates and is not intended to project future interest costs which may resultfrom debt prepayments, new debt issuances or changes in interest rates.

 

As of December 31,2007, we had no off-balance sheet arrangements, commercial paper, derivatives,swaps, hedges, guarantees, joint ventures or partnerships. As of December 31,2007, our secured debt obligations were limited to one mortgage note of $3,635secured by a single property. None of our debt documentation requires us toprovide collateral security in the event of a ratings downgrade.

 

**Debt Covenants**

** **

Our debtobligations at December 31, 2007, consist of our revolving creditfacility, our $2,425,000 of unsecured term debt and convertible notes and our$3,635 mortgage note. Our unsecured term debt and convertible notes aregoverned by an indenture. This indenture and related supplements and ourrevolving credit facility agreement contain a number of financial ratiocovenants which generally restrict our ability to incur debts, including debtssecured by mortgages on our properties, in excess of calculated amounts,require us to maintain a minimum net worth, restrict our ability to makedistributions under certain circumstances and require us to maintain variousfinancial ratios. As of December 31, 2007, we were in compliance with allof our covenants under our indenture and its supplements and our revolvingcredit facility agreement.

 

Neither our indenture andits supplements, nor our revolving credit facility contain provisions foracceleration which could be triggered by our debt ratings. However, under ourrevolving credit facility agreement, our senior debt rating is used todetermine the fees and interest rate applied to borrowings.

 

Our public debt indentureand its supplements contain cross default provisions to any other debts of$20,000 or more. Similarly, a default on our public debt indenture would be adefault on our credit facility.

 

**Related Person Transactions**

** **

As more fullydescribed above, on January 31, 2007, we acquired TravelCenters and, inconnection with the acquisition, restructured the business of TravelCenters soas to place its operating business in our subsidiary, TA, distributed all ofthe common shares of TA, to our shareholders in a spin off transaction, andleased 146 travel centers to TA for an average minimum rent of $170.7 millionper year during the lease term.  In orderto effect the reorganization and spin off, we entered into a transactionagreement effective as of January 29, 2007, with TA and RMR. Thatagreement provided for certain of the steps in the restructuring of theTravelCenters business and the spin off. In addition, under this agreement TAentered into a management and shared services agreement with RMR, TA granted tous a right of first refusal to purchase, lease, mortgage or otherwise financeany interest it owns or acquires in a travel center before it is purchased,sold, leased, mortgaged or otherwise financed with another party, and TA agreed

 

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to indemnifyus for liabilities relating to its business and operations for periods beforeand after the spin off and for liabilities relating to the ownership andoperation of the leased travel centers which arise during the term of our leasewith TA.  On May 30, 2007, wepurchased Petro and simultaneously leased the 40 travel centers owned by Petroto a subsidiary of TA for an initial minimum rent of $62.2 million peryear.  Starting in 2013, the leaserequires TA to pay us additional rent calculated as certain percentages ofincreases in gross revenues at the leased travel centers.  As a result of the transaction in January 2007and the Petro lease in May 2007, we have on-going business dealings withTA, including funding improvements to the leased properties and adding orremoving properties from the leases.  RMRprovides management services to us and to TA. Barry M. Portnoy, one of our managing trustees, is an owner and directorof RMR and a managing director of TA. Adam D. Portnoy, our other managing trustee, is an owner, a director andpresident of RMR.  Thomas M. O’Brien is asenior vice president of RMR and a managing director and president of TA.  Because of the potential for conflicts ofinterests between the responsibilities of Messrs. Barry Portnoy, AdamPortnoy and Thomas O’Brien to us, RMR and TA, all transactions between us andTA are approved by our trustees who are independent of TA and RMR, and by TA’sdirectors who are independent of us and RMR, respectively.

 

RMR presentsinvestment and divestment opportunities to us and provides management andadministrative services to us under an agreement. RMR is compensated at anannual rate equal to 0.7% of our average real estate investments, as defined,up to the first $250,000 and 0.5% thereafter, plus an incentive fee based uponincreases in cash available for distribution per share, as defined. Theincentive fee payable to RMR is paid in our common shares. On January 6, 2006, we entered into amanagement agreement with RMR to operate the office building component of oneof our properties. Fees paid to RMR under this management agreement arebased on a formula, generally 3% of gross collected rents as a propertymanagement fee and 5% of gross construction costs as a construction managementfee. Aggregate fees earned by RMR from us during 2007 were $31,799, whichincludes an incentive fee of $1,862 which we plan to pay later in 2008 throughthe issuance of 53,541 of our common shares. RMR also provides the internal audit function for us and for otherpublicly traded companies to which it provides management or other services.Our audit committee appoints our director of internal audit and ourcompensation committee approves his salary and the other internal audit costswe pay.  Our pro rata share of RMR’s costs in providing that function was $169in 2007.  All transactions between us and RMR are approved by our compensationcommittee. Both our audit and compensation committees are solely composed ofindependent trustees.

 

**Critical Accounting Policies**

** **

Our critical accounting policies are those that havethe most impact on the reporting of our financial condition and results ofoperations and those requiring significant judgments and estimates. We believethat our judgments and assessments are consistently applied and producefinancial information that fairly presents our results of operations. Our fivemost critical accounting policies are as follows:

 

Classification of Leases. Certain of our properties are leased ona triple net basis, pursuant to non-cancelable, fixed term, operating leases.Each time we enter a new lease or materially modify an existing lease weevaluate its classification as either a capital lease or operating lease. The classificationof a lease as capital or operating affects the carrying value of a property, aswell as our recognition of rental payments as revenue. These evaluationsrequire us to make estimates of, among other things, the remaining useful lifeand market value of a leased property, appropriate present value discount ratesand future cash flows. Incorrect assumptions or estimates may result inmisclassification of our leases.

 

Allocation of PurchasePrice and Recognition of Depreciation and Amortization Expense. The acquisition cost of each propertyinvestment is allocated to various property components such as land, buildingsand equipment, and each component generally has a different useful life. Forreal estate acquired, we allocate the purchase price among building, land,furniture, fixtures and equipment, and, if applicable, the value of in-placeleases, the fair market value of above or below market leases and customerrelationships. Acquisition cost allocations and the determination of the usefullives are based on our estimates or studies from independent experts. Wecompute related depreciation expense using the straight line method overestimated useful lives of up to 40 years for buildings and improvements, and upto 12 years for personal property. The value of intangible assets is amortizedover the shorter of its estimated useful life, or the term of the respectivelease or the affected contract. The allocated cost of land is not depreciated.Inappropriate allocation of acquisition costs or incorrect 

 

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estimates of useful lives could result in depreciationand amortization expenses which do not appropriately reflect the allocation ofour capital expenditures over future periods required by accounting principlesgenerally accepted in the United States.

 

Impairment of Long LivedAssets. Weperiodically evaluate our real estate investments and intangible assets forimpairment indicators. These indicators may include weak or declining operatingprofitability, cash flow or liquidity, our decision to dispose of an assetbefore the end of its estimated useful life or market or industry changes thatcould permanently reduce the value of our investments. If indicators ofimpairment are present, we evaluate the carrying value of the relatedinvestment by comparing it to the expected future undiscounted cash flows to begenerated from that investment. If the sum of these expected future cash flowsis less than the carrying value, we reduce the net carrying value of theproperty to its estimated fair value. Estimated fair value is determinedthrough an evaluation of recent financial performance and projected discountedcash flows using standard industry valuation techniques. This analysis requiresus to judge whether indicators of impairment exist and to estimate likelyfuture cash flows. If we misjudge or estimate incorrectly or if futureoperating profitability, market or industry factors differ from ourexpectations we may record an impairment charge which is inappropriate, fail torecord a charge when we should have done so or the amount of such charges maybe inaccurate.

 

VariableInterest Entities.  Under Financial Accounting Standards BoardInterpretation No. 46, “Consolidation of Variable Interest Entities”, ifan entity is determined to be a variable interest entity, it must beconsolidated by the primary beneficiary. The primary beneficiary is theenterprise that absorbs the majority of the entity’s expected losses, receivesa majority of the entity’s expected residual returns, or both. Generally,expected losses and expected residual returns are the expected negative andpositive variability, respectively, in the fair value of the variable interestentities’ net assets. When our TRS enters a new operating agreement ormaterially modifies an existing operating agreement with a third party hotelmanager we are required to assess if  ourTRS is or continues to be the primary beneficiary. This assessment requires usto make estimates of the future cash flows of our TRS. Incorrect assumptions orestimates of, among other things, occupancy, average daily room rate andoperating expenses of our hotels may result in an inaccurate determination ofthe primary beneficiary.

 

Income Taxes. We account for incometaxes in accordance with SFAS 109 “Accounting for Income Taxes.”  Under this method deferred tax assets andliabilities are recognized for the estimated future tax consequencesattributable to differences between the financial statement carrying amounts ofexisting assets and liabilities and their respective tax bases.  Deferred tax assets and liabilities aremeasured using enacted tax rates in effect for the year in which thosetemporary differences are expected to be recovered or settled.  Valuation allowances are established toreduce deferred tax assets to the amounts that are expected to be realized whennecessary. We have elected to be taxed as a REIT under the IRC and aregenerally not subject to federal and state income taxation on our operatingincome provided we distribute our taxable income to our shareholders and meetcertain organization and operating requirements.  We are subject to income tax in Canada,Puerto Rico and in certain states despite our REIT status.  Further, we lease our managed hotels to ourwholly owned TRS that, unlike most of our subsidiaries is generally subject tofederal, state and foreign income tax. Our consolidated income tax provision (or benefit) includes the incometax provision (or benefit) related to the operations of the TRS and state andforeign income taxes incurred by us despite our tax status as a REIT.  In June 2006, the FASB issuedInterpretation No. 48, “Accounting for Uncertainty in Income Taxes”, orFIN 48.  FIN 48 prescribes how we shouldrecognize, measure and present in our financial statements uncertain taxpositions that have been taken or are expected to be taken in a taxreturn.  Pursuant to FIN 48, we canrecognize a tax benefit only if it is “more likely than not” that a particulartax position will be sustained upon examination or audit.  To the extent the “more likely than not”standard has been satisfied, the benefit associated with a tax position ismeasured as the largest amount that has a greater than 50% likelihood of beingrealized upon settlement.  As required,we adopted FIN 48 effective January 1, 2007 and have concluded that theeffect is not material to our consolidated financial statements.  Accordingly, we did not record a cumulativeeffect adjustment related to the adoption of FIN 48.  We classify interest and penalties related touncertain tax positions, if any, in our financial statements as a component ofgeneral and administrative expense.

 

These policies involvesignificant judgments based upon our experience, including judgments aboutcurrent valuations, ultimate realizable value, estimated useful lives, salvageor residual values, the ability of our tenants and 

 

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operators to performtheir obligations to us, and the current and likely future operating andcompetitive environments in which our properties operate. In the future we mayneed to revise our assessments to incorporate information which is not nowknown, and such revisions could increase or decrease our depreciation expenserelated to properties we own, result in the classification of our leases asother than operating leases or decrease the carrying values of our assets.

 

**Property Management Agreements, Leases and Operating Statistics**

** **

As of December 31,2007, we owned 292 hotels and 185 travel centers which are grouped into twelvecombinations. Our ten hotel combinations are managed by or leased tosubsidiaries of hotel operating companies including InterContinental, Marriott,Host Hotels & Resorts Inc., or Host, Barcelo Crestline Corporation, orBarcelo Crestline, Hyatt and Carlson. Our 185 travel centers are leased to andoperated by subsidiaries of TA under two agreements.

 

The tables onthe following pages summarize the key terms of our leases and managementagreements as of December 31, 2007, and include statistics reported to usor derived from information reported to us by our managers and tenants. Thesestatistics include coverage of our minimum returns or minimum rents andoccupancy, average daily rate, or ADR, revenue per day per available room, orRevPAR, for our hotel properties.  Weconsider these statistics, and the management agreement or lease securityfeatures also presented in the tables on the following pages, to be important measuresof our managers’ and tenants’ success in operating our properties and theirability to continue to pay us. However, none of this third party reportedinformation is a direct measure of our financial performance and none of it hasbeen independently verified by us.

 

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| **Property Brand:**                          | ** ** | **Courtyard by  Marriott****®**                                                                                            | ** ** | **Residence Inn by  Marriott****®**                                                                                   | ** ** | **Marriott****®****/  Residence Inn by  Marriott****®****/  Courtyard by  Marriott****®****/  TownePlace Suites  by Marriott****®****/  SpringHill Suites  by Marriott****®** | ** ** | **Residence Inn by  Marriott****®****/  Courtyard by  Marriott****®****/  TownePlace Suites  by Marriott****®****/  SpringHill Suites  by Marriott****®** | ** ** | **Staybridge  Suites****®**                 | ** ** | **Candlewood  Suites ****®**           |
|---------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|
| Agreement Reference  Name:                        |       | Marriott (no. 1)                                                                                                                     |       | Marriott (no. 2)                                                                                                                     |       | Marriott (no. 3)                                                                                                                                                                                                                          |       | Marriott (no. 4)                                                                                                                                                                                                 |       | InterContinental   (no. 1)                       |       | InterContinental   (no. 2)                       |
|                                              |       |                                                                                                                                 |       |                                                                                                                                 |       |                                                                                                                                                                                                                                      |       |                                                                                                                                                                                                             |       |                                             |       |                                             |
| Number of Properties:                             |       | 53                                                                                                                                   |       | 18                                                                                                                                   |       | 35                                                                                                                                                                                                                                        |       | 19                                                                                                                                                                                                               |       | 31                                               |       | 76                                               |
|                                              |       |                                                                                                                                 |       |                                                                                                                                 |       |                                                                                                                                                                                                                                      |       |                                                                                                                                                                                                             |       |                                             |       |                                             |
| Number of Rooms /  Suites:                        |       | 7,610                                                                                                                                |       | 2,178                                                                                                                                |       | 5,382                                                                                                                                                                                                                                     |       | 2,756                                                                                                                                                                                                            |       | 3,844                                            |       | 9,220                                            |
|                                              |       |                                                                                                                                 |       |                                                                                                                                 |       |                                                                                                                                                                                                                                      |       |                                                                                                                                                                                                             |       |                                             |       |                                             |
| Number of States:                                 |       | 24                                                                                                                                   |       | 14                                                                                                                                   |       | 15                                                                                                                                                                                                                                        |       | 14                                                                                                                                                                                                               |       | 16                                               |       | 29                                               |
|                                              |       |                                                                                                                                 |       |                                                                                                                                 |       |                                                                                                                                                                                                                                      |       |                                                                                                                                                                                                             |       |                                             |       |                                             |
| Tenant:                                           |       | Subsidiary of  Host   Subleased to   Subsidiary of   Barcelo Crestline.                                                              |       | Subsidiary of  Host   Subleased to   Subsidiary of   Barcelo Crestline.                                                              |       | Our TRS.                                                                                                                                                                                                                                  |       | Subsidiary of   Barcelo Crestline.                                                                                                                                                                               |       | Our TRS.                                         |       | Our TRS.                                         |
|                                              |       |                                                                                                                                 |       |                                                                                                                                 |       |                                                                                                                                                                                                                                      |       |                                                                                                                                                                                                             |       |                                             |       |                                             |
| Manager:                                          |       | Subsidiary of   Marriott.                                                                                                            |       | Subsidiary of   Marriott.                                                                                                            |       | Subsidiaries of   Marriott.                                                                                                                                                                                                               |       | Subsidiaries of   Marriott.                                                                                                                                                                                      |       | Subsidiary of   InterContinental.                |       | Subsidiary of   InterContinental.                |
|                                              |       |                                                                                                                                 |       |                                                                                                                                 |       |                                                                                                                                                                                                                                      |       |                                                                                                                                                                                                             |       |                                             |       |                                             |
| Investment (000s) (1):                            |       | $585,229                                                                                                                             |       | $193,059                                                                                                                             |       | $472,410                                                                                                                                                                                                                                  |       | $274,222                                                                                                                                                                                                         |       | $436,708                                         |       | $589,429                                         |
|                                              |       |                                                                                                                                 |       |                                                                                                                                 |       |                                                                                                                                                                                                                                      |       |                                                                                                                                                                                                             |       |                                             |       |                                             |
| Security Deposit (000s):                          |       | $50,540                                                                                                                              |       | $17,220                                                                                                                              |       | $36,204                                                                                                                                                                                                                                   |       | $28,508                                                                                                                                                                                                          |       | $36,872 (7)                                      |       | —                                           |
|                                              |       |                                                                                                                                 |       |                                                                                                                                 |       |                                                                                                                                                                                                                                      |       |                                                                                                                                                                                                             |       |                                             |       |                                             |
| End of Current Term:                              |       | 2012                                                                                                                                 |       | 2010                                                                                                                                 |       | 2019                                                                                                                                                                                                                                      |       | 2015                                                                                                                                                                                                             |       | 2031                                             |       | 2028                                             |
|                                              |       |                                                                                                                                 |       |                                                                                                                                 |       |                                                                                                                                                                                                                                      |       |                                                                                                                                                                                                             |       |                                             |       |                                             |
| Renewal Options (2):                              |       | 3 for 12 years   each.                                                                                                               |       | 1 for 10 years,   2 for 15 years   each.                                                                                             |       | 2 for 15 years   each.                                                                                                                                                                                                                    |       | 2 for 10 years   each.                                                                                                                                                                                           |       | 2 for 12.5 years   each.                         |       | 2 for 15   years each.                           |
|                                              |       |                                                                                                                                 |       |                                                                                                                                 |       |                                                                                                                                                                                                                                      |       |                                                                                                                                                                                                             |       |                                             |       |                                             |
| Annual Minimum Return /  Minimum Rent (000s) (3): |       | $58,379                                                                                                                              |       | $19,287                                                                                                                              |       | $49,034                                                                                                                                                                                                                                   |       | $28,508                                                                                                                                                                                                          |       | $37,882                                          |       | $50,000                                          |
|                                              |       |                                                                                                                                 |       |                                                                                                                                 |       |                                                                                                                                                                                                                                      |       |                                                                                                                                                                                                             |       |                                             |       |                                             |
| Additional Return:                                |       | —                                                                                                                               |       | —                                                                                                                               |       | $1,173 (6)                                                                                                                                                                                                                                |       | —                                                                                                                                                                                                           |       | —                                           |       | $10,000 (6)                                      |
|                                              |       |                                                                                                                                 |       |                                                                                                                                 |       |                                                                                                                                                                                                                                      |       |                                                                                                                                                                                                             |       |                                             |       |                                             |
| Percentage Return / Rent  (4):                    |       | 5.0% of revenues   above 1994/95   revenues.                                                                                         |       | 7.5% of revenues   above 1996   revenues.                                                                                            |       | 7.0% of revenues   above 2000/01   revenues.                                                                                                                                                                                              |       | 7.0% of revenues   above 1999/2000   revenues.                                                                                                                                                                   |       | 7.5% of revenues   above 2004/06   revenues.     |       | 7.5% of revenues   above 2006   revenues.        |
|                                              |       |                                                                                                                                 |       |                                                                                                                                 |       |                                                                                                                                                                                                                                      |       |                                                                                                                                                                                                             |       |                                             |       |                                             |
| Return / Rent Coverage (5):                       |       |                                                                                                                                 |       |                                                                                                                                 |       |                                                                                                                                                                                                                                      |       |                                                                                                                                                                                                             |       |                                             |       |                                             |
| Year  ended 12/31/07:                             |       | 1.63x                                                                                                                                |       | 1.33x                                                                                                                                |       | 1.24x                                                                                                                                                                                                                                     |       | 1.22x                                                                                                                                                                                                            |       | 1.09x                                            |       | 1.43x                                            |
| Year  ended 12/31/06:                             |       | 1.49x                                                                                                                                |       | 1.34x                                                                                                                                |       | 1.11x                                                                                                                                                                                                                                     |       | 1.21x                                                                                                                                                                                                            |       | 1.07x                                            |       | 1.35x                                            |
|                                              |       |                                                                                                                                 |       |                                                                                                                                 |       |                                                                                                                                                                                                                                      |       |                                                                                                                                                                                                             |       |                                             |       |                                             |
| Other Security Features:                          |       | HPT controlled lockbox  with minimum balance maintenance requirement; subtenant and subtenant parent  minimum net worth requirement. |       | HPT controlled lockbox  with minimum balance maintenance requirement; subtenant and subtenant parent  minimum net worth requirement. |       | —                                                                                                                                                                                                                                    |       | Tenant minimum net worth  requirement.                                                                                                                                                                           |       | Limited guarantee  provided by InterContinental. |       | Limited guarantee  provided by InterContinental. |

 

----

| (1) |   | Amounts exclude  expenditures made from FF&E reserves funded from hotel operations, but  includes amounts funded by us separately from hotel operations.                                                                                                                                                                                                                          |
|-----|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) |   | Renewal options may be  exercised by the tenant or manager (when the property is leased to our TRS)  for all, but not less than all, of the properties within each combination of  properties.                                                                                                                                                                                        |
| (3) |   | Each management  agreement or lease provides for payment to us of an annual minimum return or  minimum rent, respectively. Management fees are generally subordinated to  these minimum payment amounts and certain minimum payments are subject to  full or limited guarantees.                                                                                                      |
| (4) |   | Certain of our  management agreements and leases provide for payment to us of a percentage of  increases in total sales over base year levels. Percentage returns under our  management agreements are payable to us only to the extent of available cash  flow, as defined in the agreements. The payment of percentage rent under our  leases is not subject to available cash flow |
| (5) |   | We define coverage as  total property sales minus all property level expenses which are not  subordinated to minimum payments to us and the required FF&E reserve  contributions (which data is provided to us by our operators or tenants),  divided by the minimum returns or minimum rent payments due to us.                                                                  |
| (6) |   | These agreements  provide for annual additional return payment to us in the amount listed to  the extent of available cash flow after payment of operating costs, funding  of the FF&E reserve and payment of our minimum return and percentage  return.                                                                                                                          |
| (7) |   | A single $36,872  deposit secures InterContinental’s obligations under the InterContinental  No. 1, No. 3 and No. 4 portfolios.                                                                                                                                                                                                                                   |

 

17

----

 
| **Property Brand:**                          | ** ** | **InterContinental****®****/  Crowne Plaza****®****/  Holiday Inn****®****/  Staybridge Suites****®** | ** ** | **Crowne Plaza****®****/  Holiday Inn****®****/  Staybridge Suites****®** | ** ** | **Hyatt PlaceTM  /Amerisuites****®**    | ** ** | **Radisson****®**** Hotels &  Resorts/ Park Plaza****®****Hotels & Resorts/  Country Inns &  Suites by Carlson****®** | ** ** | **TravelCenters of  America**                                          | ** ** | **Petro Stopping  Centers****®**                                  | ** ** | **Total/  Range/  Average  (all  investments)** |
|---------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------|------------|-------------------------------------------------|
| Agreement Reference  Name:                        |       | InterContinental   (no. 3)                                                                                                               |       | InterContinental   (no. 4)                                                                              |       | Hyatt                                                 |       | Carlson                                                                                                                                                                                            |       | TA (1)                                                                      |       | TA (2)                                                                      |       | 12                                              |
|                                              |       |                                                                                                                                     |       |                                                                                                    |       |                                                  |       |                                                                                                                                                                                               |       |                                                                        |       |                                                                        |       |                                            |
| Number of Properties:                             |       | 14                                                                                                                                       |       | 10                                                                                                      |       | 24                                                    |       | 12                                                                                                                                                                                                 |       | 145                                                                         |       | 40                                                                          |       | 477                                             |
|                                              |       |                                                                                                                                     |       |                                                                                                    |       |                                                  |       |                                                                                                                                                                                               |       |                                                                        |       |                                                                        |       |                                            |
| Number of Rooms /  Suites:                        |       | 4,139                                                                                                                                    |       | 2,937                                                                                                   |       | 2,895                                                 |       | 2,262                                                                                                                                                                                              |       | — (9)                                                                  |       | —                                                                      |       | 43,223 (2)                                      |
|                                              |       |                                                                                                                                     |       |                                                                                                    |       |                                                  |       |                                                                                                                                                                                               |       |                                                                        |       |                                                                        |       |                                            |
| Number of States:                                 |       | 7 plus Ontario  and   Puerto Rico                                                                                                        |       | 5                                                                                                       |       | 14                                                    |       | 7                                                                                                                                                                                                  |       | 39                                                                          |       | 25                                                                          |       | 44 plus   Ontario and   Puerto Rico             |
|                                              |       |                                                                                                                                     |       |                                                                                                    |       |                                                  |       |                                                                                                                                                                                               |       |                                                                        |       |                                                                        |       |                                            |
| Tenant:                                           |       | Our TRS and a   subsidiary of   InterContinental.                                                                                        |       | Our TRS.                                                                                                |       | Our TRS.                                              |       | Our TRS.                                                                                                                                                                                           |       | Subsidiary of   TA.                                                         |       | Subsidiary of TA.                                                           |       |                                            |
|                                              |       |                                                                                                                                     |       |                                                                                                    |       |                                                  |       |                                                                                                                                                                                               |       |                                                                        |       |                                                                        |       |                                            |
| Manager:                                          |       | Subsidiaries of   InterContinental.                                                                                                      |       | Subsidiaries of   InterContinental.                                                                     |       | Subsidiary of   Hyatt.                                |       | Subsidiary of   Carlson.                                                                                                                                                                           |       | TA.                                                                         |       | TA.                                                                         |       |                                            |
|                                              |       |                                                                                                                                     |       |                                                                                                    |       |                                                  |       |                                                                                                                                                                                               |       |                                                                        |       |                                                                        |       |                                            |
| Investment (000s) (1):                            |       | $512,300                                                                                                                                 |       | $230,649                                                                                                |       | $309,850                                              |       | $211,309                                                                                                                                                                                           |       | $1,747,962                                                                  |       | $654,288                                                                    |       | $6,217,415                                      |
|                                              |       |                                                                                                                                     |       |                                                                                                    |       |                                                  |       |                                                                                                                                                                                               |       |                                                                        |       |                                                                        |       |                                            |
| Security Deposit (000s):                          |       | $36,872 (6)                                                                                                                              |       | $36,872 (6)                                                                                             |       | —                                                |       | —                                                                                                                                                                                             |       | —                                                                      |       | —                                                                      |       | $169,344                                        |
|                                              |       |                                                                                                                                     |       |                                                                                                    |       |                                                  |       |                                                                                                                                                                                               |       |                                                                        |       |                                                                        |       |                                            |
| End of Current Term:                              |       | 2029                                                                                                                                     |       | 2030                                                                                                    |       | 2030                                                  |       | 2030                                                                                                                                                                                               |       | 2022                                                                        |       | 2024                                                                        |       | 2010-2031   (average 16   years)                |
|                                              |       |                                                                                                                                     |       |                                                                                                    |       |                                                  |       |                                                                                                                                                                                               |       |                                                                        |       |                                                                        |       |                                            |
| Renewal Options (2):                              |       | 2 for 15   Years each.                                                                                                                   |       | 2 for 15   years each.                                                                                  |       | 2 for 15   years each.                                |       | 2 for 15   years each.                                                                                                                                                                             |       | N/A                                                                         |       | 2 for 15 years  each                                                        |       |                                            |
|                                              |       |                                                                                                                                     |       |                                                                                                    |       |                                                  |       |                                                                                                                                                                                               |       |                                                                        |       |                                                                        |       |                                            |
| Annual Minimum Return /  Minimum Rent (000s) (3): |       | $42,873                                                                                                                                  |       | $20,306                                                                                                 |       | $23,050                                               |       | $11,890                                                                                                                                                                                            |       | $155,713 (10)                                                               |       | $62,225                                                                     |       | $559,147                                        |
|                                              |       |                                                                                                                                     |       |                                                                                                    |       |                                                  |       |                                                                                                                                                                                               |       |                                                                        |       |                                                                        |       |                                            |
| Additional Return:                                |       | $3,458 (7)                                                                                                                               |       | $1,750 (7)                                                                                              |       | 50% of cash flow   in excess of   minimum return. (8) |       | 50% of cash flow  in   excess of minimum   return. (8)                                                                                                                                             |       | —                                                                      |       | —                                                                      |       | $16,381                                         |
|                                              |       |                                                                                                                                     |       |                                                                                                    |       |                                                  |       |                                                                                                                                                                                               |       |                                                                        |       |                                                                        |       |                                            |
| Percentage Return / Rent  (4):                    |       | 7.5% of revenues   above 2006   revenues.                                                                                                |       | 7.5% of revenues   above 2006   revenues.                                                               |       | —                                                |       | —                                                                                                                                                                                             |       | 3% of non-fuel   revenues and .3% of   fuel revenues above   2011 revenues. |       | 3% of non-fuel   revenues and .3% of   fuel revenues above   2012 revenues. |       |                                            |
| Return / Rent Coverage (5):                       |       |                                                                                                                                     |       |                                                                                                    |       |                                                  |       |                                                                                                                                                                                               |       |                                                                        |       |                                                                        |       |                                            |
| Year ended  12/31/07:                             |       | 1.33x                                                                                                                                    |       | 1.39x                                                                                                   |       | 0.54x                                                 |       | 1.63x                                                                                                                                                                                              |       | 1.26x                                                                       |       | 1.09x                                                                       |       | 0.54x – 1.63x                              |
| Year ended  12/31/06                              |       | 1.37x                                                                                                                                    |       | 1.51x                                                                                                   |       | 0.80x                                                 |       | 1.36x                                                                                                                                                                                              |       | 1.47x                                                                       |       | 1.30x                                                                       |       | 0.80x – 1.51x                              |
|                                              |       |                                                                                                                                     |       |                                                                                                    |       |                                                  |       |                                                                                                                                                                                               |       |                                                                        |       |                                                                        |       |                                            |
| Other Security Features:                          |       | Limited guarantee  provided by InterContinental.                                                                                         |       | Limited guarantee  provided by InterContinental.                                                        |       | Limited guarantee  provided by Hyatt.                 |       | Limited guarantee  provided by Carlson.                                                                                                                                                            |       | TA parent guarantee.                                                        |       | TA parent guarantee.                                                        |       |                                            |

 

----

| (1)  |   | Amounts exclude  expenditures made from FF&E reserves funded from hotel operations, but  includes amounts funded by us separately from hotel operations.                                                                                                                                                                                                                                                                                                                                      |
|------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2)  |   | Renewal options may be  exercised by the tenant or manager (when the property is leased to our TRS)  for all, but not less than all, of the hotels within each combination of  properties.                                                                                                                                                                                                                                                                                                        |
| (3)  |   | Each management agreement  or lease provides for payment to us of an annual minimum return or minimum  rent, respectively. Hotel management fees are generally subordinated to these  minimum payment amounts and certain minimum payments are subject to full or  limited guarantees.                                                                                                                                                                                                            |
| (4)  |   | Certain of our  management agreements and leases provides for payment to us of a percentage  of increases in total sales over base year levels. Percentage returns under  our management agreements are payable to us only to the extent of available  cash flow, as defined in the agreements. The payment of percentage rent under  our leases is not subject to available cash flow.                                                                                                           |
| (5)  |   | We define coverage as  total property sales minus all property level expenses which are not  subordinated to minimum payments to us and the required FF&E reserve  contributions (which data is provided to us by our operators or tenants),  divided by the minimum return or minimum rent payments due to us. For some  combinations, amounts have been calculated using data for periods prior to  our ownership of certain properties and prior to commencement of operating  agreements. |
| (6)  |   | A single $36,872  deposit secures InterContinental’s obligations under the InterContinental  No. 1, No. 3 and No. 4 portfolios.                                                                                                                                                                                                                                                                                                                                               |
| (7)  |   | These agreements  provide for annual additional return payment to us of the amounts stated to  the extent of available cash flow after payment of operating costs, funding  of the FF&E reserve, payment of our minimum return and payment of certain  management fees.                                                                                                                                                                                                                       |
| (8)  |   | These agreements provide  for payment to us of 50% of available cash flow after payment of operating  costs, funding the FF&E reserve, payment of our minimum return and  reimbursement to the managers of working capital and guaranty advances, if  any.                                                                                                                                                                                                                                    |
| (9)  |   | 18 of the TA properties  include a hotel. The rooms associated with these hotels have been excluded  from total hotel rooms.                                                                                                                                                                                                                                                                                                                                                                      |
| (10) |   | The amount of minimum  rent payable to us by TA is scheduled to increase to $158,962, $162,625,  $166,638, $171,613 and $176,620 in 2008, 2009, 2010, 2011 and 2012,  respectively. The annual straight line rent for GAAP purposes is $171,389.                                                                                                                                                                                                                                                  |

 

18

----

 

The followingtables summarize the operating statistics, including occupancy, ADR and RevPAR,reported to us by our hotel operators by management agreement or lease for theperiods indicated:

 
| ** **                           | ** ** | **No. of** | ** ** | **No. of**  | ** ** | ** **      | ** ** | ** **      | ** ** | ** ** | ** ** |
|--------------------------------------|------------|-----------------|------------|------------------|------------|-----------------|------------|-----------------|------------|------------|------------|
| **Management Agreement/Lease**  | ** ** | **Hotels**      | ** ** | **Rooms/Suites** | ** ** | **2007****(1)** | ** ** | **2006****(1)** | ** ** | **Change** | ** ** |
| **ADR**                              |       |            |       |             |       |            |       |            |       |       |       |
| InterContinental (no. 1)(2)          |       | 31              |       | 3,844            |       | $               | 110.47     |            | $          | 104.38     |       | 5.8 | % |
| InterContinental (no. 2)             |       | 76              |       | 9,220            |       | 69.81           |       | 66.50           |       | 5.0        | %          |
| InterContinental (no. 3)(3) (4) |       | 14              |       | 4,139            |       | 141.79          |       | 134.49          |       | 5.4        | %          |
| InterContinental (no.4)(3)           |       | 10              |       | 2,937            |       | 109.64          |       | 101.22          |       | 8.3        | %          |
| Marriott (no. 1)                     |       | 53              |       | 7,610            |       | 123.67          |       | 117.76          |       | 5.0        | %          |
| Marriott (no. 2)                     |       | 18              |       | 2,178            |       | 119.69          |       | 112.81          |       | 6.1        | %          |
| Marriott (no. 3)                     |       | 35              |       | 5,382            |       | 116.65          |       | 110.34          |       | 5.7        | %          |
| Marriott (no. 4)                     |       | 19              |       | 2,756            |       | 116.47          |       | 114.74          |       | 1.5        | %          |
| Hyatt                                |       | 24              |       | 2,895            |       | 95.45           |       | 82.02           |       | 16.4       | %          |
| Carlson                              |       | 12              |       | 2,262            |       | 99.58           |       | 92.73           |       | 7.4        | %          |
| Total/Average                        |       | 292             |       | 43,223           |       | $               | 107.18     |            | $          | 101.04     |       | 6.1 | % |
|                                 |       |            |       |             |       |            |       |            |       |       |       |
| **Occupancy**                        |       |            |       |             |       |            |       |            |       |       |       |
| InterContinental (no. 1)(2)          |       | 31              |       | 3,844            |       | 75.9            | %          | 76.0            | %          | -0.1       | pts        |
| InterContinental (no. 2)             |       | 76              |       | 9,220            |       | 74.5            | %          | 75.7            | %          | -1.2       | pts        |
| InterContinental (no. 3)(3) (4) |       | 14              |       | 4,139            |       | 76.8            | %          | 75.1            | %          | 1.7        | pts        |
| InterContinental (no.4)(3)           |       | 10              |       | 2,937            |       | 68.6            | %          | 71.8            | %          | -3.2       | pts        |
| Marriott (no. 1)                     |       | 53              |       | 7,610            |       | 69.2            | %          | 69.3            | %          | -0.1       | pts        |
| Marriott (no. 2)                     |       | 18              |       | 2,178            |       | 76.5            | %          | 79.9            | %          | -3.4       | pts        |
| Marriott (no. 3)                     |       | 35              |       | 5,382            |       | 75.7            | %          | 75.4            | %          | 0.3        | pts        |
| Marriott (no. 4)                     |       | 19              |       | 2,756            |       | 73.0            | %          | 73.2            | %          | -0.2       | pts        |
| Hyatt                                |       | 24              |       | 2,895            |       | 58.8            | %          | 61.1            | %          | -2.3       | pts        |
| Carlson                              |       | 12              |       | 2,262            |       | 67.0            | %          | 63.6            | %          | 3.4        | pts        |
| Total/Average                        |       | 292             |       | 43,223           |       | 72.2            | %          | 72.6            | %          | -0.4       | pts        |
|                                 |       |            |       |             |       |            |       |            |       |       |       |
| **RevPAR**                           |       |            |       |             |       |            |       |            |       |       |       |
| InterContinental (no. 1)(2)          |       | 31              |       | 3,844            |       | $               | 83.85      |            | $          | 79.33      |       | 5.7 | % |
| InterContinental (no. 2)             |       | 76              |       | 9,220            |       | 52.01           |       | 50.34           |       | 3.3        | %          |
| InterContinental (no. 3)(3) (4) |       | 14              |       | 4,139            |       | 108.89          |       | 101.00          |       | 7.8        | %          |
| InterContinental (no.4)(3)           |       | 10              |       | 2,937            |       | 75.21           |       | 72.68           |       | 3.5        | %          |
| Marriott (no. 1)                     |       | 53              |       | 7,610            |       | 85.58           |       | 81.61           |       | 4.9        | %          |
| Marriott (no. 2)                     |       | 18              |       | 2,178            |       | 91.56           |       | 90.14           |       | 1.6        | %          |
| Marriott (no. 3)                     |       | 35              |       | 5,382            |       | 88.30           |       | 83.20           |       | 6.1        | %          |
| Marriott (no. 4)                     |       | 19              |       | 2,756            |       | 85.02           |       | 83.99           |       | 1.2        | %          |
| Hyatt                                |       | 24              |       | 2,895            |       | 56.12           |       | 50.11           |       | 12.0       | %          |
| Carlson                              |       | 12              |       | 2,262            |       | 66.72           |       | 58.98           |       | 13.1       | %          |
| Total/Average                        |       | 292             |       | 43,223           |       | $               | 77.38      |            | $          | 73.36      |       | 5.5 | % |

 

----

| (1) |   | Includes data for the  calendar year indicated, except for our Marriott branded hotels, which  include data for comparable fiscal periods.                                          |
|-----|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) |   | Excludes operating  statistics of one hotel which was closed from May 2005 through  May 2006 due to fire damage and a newly developed hotel acquired in  April 2006. |
| (3) |   | Includes data for periods  prior to our ownership of certain hotels.                                                                                                                |
| (4) |   | Includes data for periods  hotels were not operated by the current manager.                                                                                                         |

 

**Seasonality**

** **

Our hotels andtravel centers have historically experienced seasonal differences typical oftheir industries with higher revenues in the second and third quarters ofcalendar years compared with the first and fourth quarters. This 

 

19

----

 

seasonality isnot expected to cause material fluctuations in our income or cash flow becauseour contractual management agreements and leases require our managers andtenants to make the substantial portion of our return payments and rents to usin equal amounts throughout a year. Seasonality may affect our hotel operatingrevenues, but we do not expect seasonal variations to have a material impactupon our financial results of operations or upon our managers’ or tenants’ability to meet their contractual obligations to us.

 

**Impact of Inflation**

 

Inflation might have bothpositive and negative impacts upon us. Inflation might cause the value of ourreal estate investments to increase. In an inflationary environment, thepercentage returns and rents which we receive based upon a percentage of grossrevenues should increase. Offsetting these benefits, inflation might cause ourcosts of equity and debt capital and other operating costs to increase. Anincrease in our capital costs or in our operating costs will result indecreased earnings unless it is offset by increased revenues. In periods ofrapid inflation, our managers’ or tenants’ operating costs may increase fasterthan revenues and this fact may have an adverse impact upon us if the operatingincome from our properties becomes insufficient to pay our returns or rents. Tomitigate the adverse impact of insufficient income at our properties, all ofour operating agreements contain security features, such as security depositsor guarantees of our returns or rents. To mitigate the adverse impact ofincreased costs of debt capital in the event of material inflation, we mayenter into interest rate hedge arrangements in the future; the decision toenter into these agreements will be based on the amount of our floating ratedebt outstanding, our belief that material interest rate increases are likelyto occur and upon requirements of our borrowing arrangements.

 

20

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**Item 15.Exhibits and Financial Statement Schedules**

 

**(a) **Index to Financial Statements andFinancial Statement Schedules

** **

The followingaudited consolidated financial statements and schedule of HospitalityProperties Trust are included on the pages indicated:

 
| ** **                                                                                                     | **Page** |
|----------------------------------------------------------------------------------------------------------------|----------|
|                                                                                                           |     |
| Reports of  Ernst & Young LLP, Independent Registered Public Accounting Firm                          | F-1      |
|                                                                                                           |     |
| Consolidated  Balance Sheet as of December 31, 2007 and 2006                                              | F-3      |
|                                                                                                           |     |
| Consolidated  Statement of Income for each of the three years ended December 31, 2007                     | F-4      |
|                                                                                                           |     |
| Consolidated  Statement of Shareholders’ Equity for each of the three years ended  December 31, 2007 | F-5      |
|                                                                                                           |     |
| Consolidated  Statement of Cash Flows for each of the three years ended December 31,  2007                | F-6      |
|                                                                                                           |     |
| Notes to Consolidated Financial Statements                                                                     | F-7      |
|                                                                                                           |     |
| Schedule III -  Real Estate and Accumulated Depreciation as of December 31, 2007                          | F-22     |

 

All other schedules for which provision ismade in the applicable accounting regulations of the Securities and ExchangeCommission are not required under the related instructions or are inapplicable,and therefore have been omitted.

 

21

----

 
| (b)  Exhibits |
|---------------|
|          |   |   |
| 2.1           |   | Purchase  Agreement, dated May 30, 2007, among the Company, Petro Stopping Centers  Holdings, L.P. and the partners of Petro Stopping Centers Holdings, L.P.  (INCORPORATED BY REFERENCE TO THE COMPANY’S CURRENT REPORT ON FORM 8-K  DATED JUNE 4, 2007) |
|          |   |   |
| 3.1           |   | Composite copy of Amended and Restated Declaration of Trust dated  August 21, 1995, as amended to date. (INCORPORATED BY REFERENCE TO THE  COMPANY’S QUARTERLY REPORT ON FORM 10- Q FOR THE QUARTER ENDED  MARCH 30, 2007) |
|          |   |   |
| 3.2           |   | Articles Supplementary dated June 2, 1997. (INCORPORATED BY  REFERENCE TO THE COMPANY’S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED  DECEMBER 31, 1997) |
|          |   |   |
| 3.3           |   | Articles Supplementary dated May 16, 2000. (INCORPORATED BY  REFERENCE TO THE COMPANY’S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED  DECEMBER 31, 2000) |
|          |   |   |
| 3.4           |   | Articles Supplementary dated December 9, 2002. (INCORPORATED BY  REFERENCE TO THE COMPANY’S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED  DECEMBER 31, 2002) |
|          |   |   |
| 3.5           |   | Articles Supplementary dated February 15, 2007. (INCORPORATED BY  REFERENCE TO THE COMPANY’S CURRENT REPORT ON FORM 8-K DATED FEBRUARY 16,  2007) |
|          |   |   |
| 3.6           |   | Articles  Supplementary dated March 5, 2007 (INCORPORATED BY REFERENCE TO THE  COMPANY’S CURRENT REPORT ON FORM 8-K DATED MARCH 7, 2007) |
|          |   |   |
| 3.7           |   | Composite copy of Amended and Restated Bylaws of the Company, as  amended to date. (INCORPORATED BY REFERENCE TO THE COMPANY’S CURRENT REPORT  ON FORM 8-K DATED DECEMBER 13, 2007) |
|          |   |   |
| 4.1           |   | Form of Common Share Certificate. (INCORPORATED BY REFERENCE TO  THE COMPANY’S REGISTRATION STATEMENT ON FORM S-11 (FILE NO. 33-92330)) |
|          |   |   |
| 4.2           |   | Form of temporary 8.875% Series B Cumulative Redeemable  Preferred Share Certificate. (INCORPORATED BY REFERENCE TO THE COMPANY’S  CURRENT REPORT ON FORM 8-K DATED DECEMBER 5, 2002) |
|          |   |   |
| 4.3           |   | Form of temporary 7% Series C Cumulative Redeemable  Preferred Share Certificate. (INCORPORATED BY REFERENCE TO THE COMPANY’S  CURRENT REPORT ON FORM 8-K DATED FEBRUARY 15, 2007) |
|          |   |   |
| 4.4           |   | Indenture, dated as of February 25, 1998, between the Company  and State Street Bank and Trust Company. (INCORPORATED BY REFERENCE TO THE  COMPANY’S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31,  1997) |
|          |   |   |
| 4.5           |   | Supplemental Indenture No. 1, dated as of February 25,  1998, between the Company and State Street Bank and Trust Company, relating  to the Company’s 7.00% Senior Notes due 2008, including form thereof.  (INCORPORATED BY REFERENCE TO THE COMPANY’S ANNUAL REPORT ON FORM 10-K  FOR THE YEAR ENDED DECEMBER 31, 1997) |
|          |   |   |
| 4.6           |   | Supplemental Indenture No. 4 dated as of July 14, 2000,  between the Company and State Street Bank and Trust Company, relating to the  Company’s 9.125% Senior Notes due 2010, including form thereof. (INCORPORATED  BY REFERENCE TO THE COMPANY’S ANNUAL REPORT ON FORM 10-K FOR THE YEAR  ENDED DECEMBER 31, 2000) |

 

22

----

 
| 4.7    |   | Supplemental Indenture No. 5, dated as of July 28, 2000,  between the Company and State Street Bank and Trust Company, relating to the  Company’s 9.125% Senior Notes due 2010, including form thereof. (INCORPORATED  BY REFERENCE TO THE COMPANY’S ANNUAL REPORT ON FORM 10-K FOR THE YEAR  ENDED DECEMBER 31, 2000)                     |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                |
| 4.8    |   | Supplemental Indenture No. 6, dated as of July 8, 2002,  between the Company and State Street Bank and Trust Company, relating to the  Company’s 6.85% Senior Notes due 2012, including form thereof. (INCORPORATED  BY REFERENCE TO THE COMPANY’S QUARTERLY REPORT ON FORM 10- Q FOR THE  QUARTER ENDED JUNE 30, 2002)                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                |
| 4.9    |   | Supplemental Indenture No. 7, dated as of January 24, 2003,  between the Company and U.S. Bank National Association, as Trustee, relating  to the Company’s 6 3/4% Senior Notes due 2013, including form thereof.  (INCORPORATED BY REFERENCE TO THE COMPANY’S ANNUAL REPORT ON FORM 10-K  FOR THE YEAR ENDED DECEMBER 31, 2002)           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                |
| 4.10   |   | Supplemental Indenture No. 8, dated as of February 15,  2005, between the Company and U.S. Bank National Association, as Trustee,  relating to the Company’s 5 1/8% Senior Notes due 2015, including form  thereof. (INCORPORATED BY REFERENCE TO THE COMPANY’S CURRENT REPORT ON  FORM 8-K DATED FEBRUARY 11, 2005)                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                |
| 4.11   |   | Supplemental Indenture No. 9, dated as of June 15, 2006,  between the Company and U.S. Bank National Association, as Trustee, relating  to the Company’s 6.30% Senior Notes due 2016, including form thereof.  (INCORPORATED BY REFERENCE TO THE COMPANY’S QUARTERLY REPORT ON FORM 10-  Q FOR THE QUARTER ENDED JUNE 30, 2006)            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                |
| 4.12   |   | Supplemental Indenture No. 10, dated as of March 7, 2007,  between the Company and U.S. Bank National Association, as Trustee, relating  to the Company’s 3.80% Convertible Senior Notes due 2027, including form  thereof. (INCORPORATED BY REFERENCE TO THE COMPANY’S CURRENT REPORT ON  FORM 8-K DATED MARCH 7, 2007)              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                |
| 4.13   |   | Supplemental Indenture No. 11, dated as of March 12, 2007,  between the Company and U.S. Bank National Association, as Trustee, relating  to the Company’s 5.625% Senior Notes due 2017, including form thereof.  (INCORPORATED BY REFERENCE TO THE COMPANY’S CURRENT REPORT ON FORM 8-K  DATED MARCH 12, 2007)                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                |
| 4.14   |   | Supplemental Indenture No. 12, dated as of September 28,  2007, between the Company and U.S. Bank National Association, as Trustee,  relating to the Company’s 6.70% Senior Notes due 2018, including form  thereof. (INCORPORATED BY REFERENCE TO THE COMPANY’S QUARTERLY REPORT ON  FORM 10- Q FOR THE QUARTER ENDED SEPTEMBER 30, 2007) |
|   |   |                                                                                                                                                                                                                                                                                                                                                                |
| 4.15   |   | Renewed Rights Agreement, dated as of May 15, 2007, between  Hospitality Properties Trust and Wells Fargo Bank, National Association, as  Rights Agent, including all exhibits thereto (INCORPORATED BY REFERENCE TO  THE COMPANY’S CURRENT REPORT ON FORM 8-K DATED MAY 16, 2007)                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                |
| 4.16   |   | Registration Rights Agreement, dated as of March 7, 2007 among  the Company and the several initial purchasers, for whom Merrill Lynch,  Pierce, Fenner & Smith Incorporated is acting as representative  (INCORPORATED BY REFERENCE TO THE COMPANY’S CURRENT REPORT ON FORM 8-K  DATED MARCH 7, 2007)                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                |
| 8.1    |   | Opinion of Sullivan & Worcester LLP as to certain tax  matters. (INCORPORATED BY REFERENCE TO THE COMPANY’S ANNUAL REPORT ON  FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2007)                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                |
| 10.1   |   | Amended and Restated Advisory Agreement, dated January 1, 2006,  between Reit Management & Research LLC and the Company. (+)  (INCORPORATED BY REFERENCE TO THE COMPANY’S ANNUAL REPORT ON FORM 10-K  FOR THE YEAR ENDED DECEMBER 31, 2005)                                                                                                 |

 

23

----

 
| 10.2   |   | Master Management Agreement, dated as of January 6, 2006,  between Reit Management & Research LLC and the Company. (+)  (INCORPORATED BY REFERENCE TO THE COMPANY’S CURRENT REPORT ON FORM 8-K  DATED JANUARY 6, 2006)                                                                                                                                                                                                                                       |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.3   |   | Summary of Trustee Compensation (+). (INCORPORATED BY REFERENCE TO  THE COMPANY’S CURRENT REPORT ON FORM 8-K DATED MAY 24, 2006)                                                                                                                                                                                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.4   |   | The Company’s 1995 Incentive Share Award Plan (+). (INCORPORATED BY  REFERENCE TO THE COMPANY’S REGISTRATION STATEMENT ON FORM S-11 (FILE NO.  33-92330))                                                                                                                                                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.5   |   | Amendment to the Company’s 1995 Incentive Share Award Plan effective  as of May 30, 2003 (+). (INCORPORATED BY REFERENCE TO THE COMPANY’S  REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2003)                                                                                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.6   |   | The Company’s 2003 Incentive Share Award Plan effective as of  May 30, 2003. (+) (INCORPORATED BY REFERENCE TO THE COMPANY’S REPORT ON  FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2003)                                                                                                                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.7   |   | Form of Restricted Share Agreement. (+) (INCORPORATED BY  REFERENCE TO THE COMPANY”S REPORT ON FORM 10-Q FOR THE QUARTER ENDED  JUNE 30, 2003.)                                                                                                                                                                                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.8   |   | Representative form of Indemnification Agreement. (+) (INCORPORATED  BY REFERENCE TO THE COMPANY’S ANNUAL REPORT ON FORM 10-K FOR THE YEAR  ENDED DECEMBER 31, 2007)                                                                                                                                                                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.9   |   | Master Lease Agreement, dated as of April 30, 1999, by and among  the Company, HPTCY Properties Trust and HMH HPT Courtyard LLC. (INCORPORATED  BY REFERENCE TO THE COMPANY’S ANNUAL REPORT ON FORM 10-K FOR THE YEAR  ENDED DECEMBER 31, 1999)                                                                                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.10  |   | Amended and Restated Credit Agreement, dated as of May 23, 2005,  by and among the Company, Wachovia Bank, National Association, as Agent, and  the additional agents, arrangers and financial institutions initially a  signatory thereto. (INCORPORATED BY REFERENCE TO THE COMPANY’S CURRENT REPORT  ON FORM 8-K DATED MAY 23, 2005)                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.11  |   | First Amendment to Amended and Restated Credit Agreement, dated as of  August 22, 2006, by and among the Company, Wachovia Bank, National  Association, as Administrative Agent, and the additional agents, arrangers  and financial institutions signatory thereto. (INCORPORATED BY REFERENCE TO  THE COMPANY’S CURRENT REPORT ON FORM 8-K DATED AUGUST 22, 2006)                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.12  |   | Second Amendment to Amended and Restated Credit Agreement, dated as  of January 12, 2007, by and among the Company, Wachovia Bank, National  Association, as Agent, and the additional agents, arrangers and financial  institutions signatory thereto. (INCORPORATED BY REFERENCE TO THE COMPANY’S  CURRENT REPORT ON FORM 8-K DATED JANUARY 22, 2007)                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.13  |   | Interim Loan Agreement, dated as of January 22, 2007, by and  among the Company, Merrill Lynch Capital Corporation, as Administrative  Agent, Merrill Lynch, Pierce, Fenner & Smith Incorporated as Lead  Arranger and Lead Bookrunner, and the additional agents and financial  institutions signatory thereto. (INCORPORATED BY REFERENCE TO THE COMPANY’S  CURRENT REPORT ON FORM 8-K DATED JANUARY 22, 2007)                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.14  |   | Amendment No. 1, dated as of February 26, 2007, to the  Interim Loan Agreement by and among the Company, Merrill Lynch Capital  Corporation, as Administrative Agent, Merrill Lynch, Pierce,  Fenner & Smith Incorporated as Lead Arranger and Lead Bookrunner,  and the additional agents and financial institutions signatory thereto.  (INCORPORATED BY REFERENCE TO THE COMPANY’S ANNUAL REPORT ON FORM 10-K  FOR THE YEAR ENDED DECEMBER 31, 2006) |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.15  |   | Agreement and Plan of Merger, dated as of September 15, 2006, by  and among the Company TravelCenters                                                                                                                                                                                                                                                                                                                                                                           |

 

24

----

 
|   |   | of America, Inc., HPT TA Merger Sub Inc. and Oak Hill Capital  Partners, L.P.  (INCORPORATED BY REFERENCE TO THE COMPANY’S CURRENT  REPORT ON FORM 8-K DATED SEPTEMBER 20, 2006)                                                                                                                                                      |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                      |
| 10.16  |   | Amendment No. 1, dated as of January 30, 2007, to the  Agreement and Plan of Merger by and among the Company, TravelCenters of  America, Inc., HPT TA Merger Sub Inc. and Oak Hill Capital Partners,  L.P.  (INCORPORATED BY REFERENCE TO THE COMPANY’S CURRENT REPORT ON  FORM 8-K DATED FEBRUARY 2, 2007)                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                      |
| 10.17  |   | Transaction Agreement, dated as of January 29, 2007, by and  among the Company, TravelCenters of America LLC, HPT TA Properties Trust, HPT  TA Properties LLC, HPT TA Merger Sub Inc. and Reit Management &  Research LLC.  (INCORPORATED BY REFERENCE TO THE COMPANY’S CURRENT  REPORT ON FORM 8-K DATED FEBRUARY 12, 2007) |
|   |   |                                                                                                                                                                                                                                                                                                                                                      |
| 10.18  |   | Lease Agreement, dated as of January 31, 2007, by and among HPT  TA Properties Trust, HPT TA Properties LLC and TA Leasing LLC. (INCORPORATED  BY REFERENCE TO THE COMPANY’S CURRENT REPORT ON FORM 8-K DATED FEBRUARY  12, 2007)                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                      |
| 10.19  |   | Guaranty Agreement, dated as of January 31, 2007, by  TravelCenters of America LLC and certain of its subsidiaries, for the benefit  of HPT TA Properties Trust and HPT TA Properties LLC. (INCORPORATED BY  REFERENCE TO THE COMPANY’S CURRENT REPORT ON FORM 8-K DATED FEBRUARY 12,  2007)                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                      |
| 10.20  |   | Lease Agreement, dated as of May 30, 2007, by and among HPT PSC  Properties Trust and HPT PSC Properties LLC as Landlord, and Petro Stopping  Centers, L.P., as Tenant (INCORPORATED BY REFERENCE TO THE COMPANY’S CURRENT  REPORT ON FORM 8-K DATED JUNE 4, 2007)                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                      |
| 10.21  |   | Guaranty Agreement, dated as of May 30, 2007, made by  TravelCenters of America LLC, as Guarantor, for the benefit of HPT PSC  Properties Trust and HPT PSC Properties LLC. (INCORPORATED BY REFERENCE TO  THE COMPANY’S CURRENT REPORT ON FORM 8-K DATED JUNE 4, 2007)                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                      |
| 12.1   |   | Computation of Ratio of Earnings to Fixed Charges. (INCORPORATED BY  REFERENCE TO THE COMPANY’S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED  DECEMBER 31, 2007)                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                      |
| 12.2   |   | Computation of Ratio of Earnings to Combined Fixed Charges and  Preferred Distributions. (INCORPORATED BY REFERENCE TO THE COMPANY’S ANNUAL  REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2007)                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                      |
| 21.1   |   | Subsidiaries of the Registrant. (INCORPORATED BY REFERENCE TO THE  COMPANY’S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31,  2007)                                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                      |
| 23.1   |   | Consent of Ernst & Young LLP. (FILED HEREWITH)                                                                                                                                                                                                                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                      |
| 23.2   |   | Consent of Sullivan & Worcester LLP. (INCLUDED IN EXHIBIT  8.1 TO THIS ANNUAL REPORT ON FORM 10-K)                                                                                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                      |
| 31.1   |   | Rule 13a-14(a) Certification. (INCORPORATED BY REFERENCE TO  THE COMPANY’S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31,  2007)                                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                      |
| 31.2   |   | Rule 13a-14(a) Certification. (INCORPORATED BY REFERENCE TO  THE COMPANY’S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31,  2007)                                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                      |
| 31.3   |   | Rule 13a-14(a) Certification. (INCORPORATED BY REFERENCE TO  THE COMPANY’S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31,  2007)                                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                      |
| 31.4   |   | Rule 13a-14(a) Certification. (INCORPORATED BY REFERENCE TO  THE COMPANY’S ANNUAL                                                                                                                                                                                                                                                          |

 

25

----

 
|   |   | REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2007)                                                                                                                 |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                           |
| 31.5   |   | Rule 13a-14(a) Certification with respect to Amendment  No. 3 to Annual Report on Form 10-K/A (FILED HEREWITH).                                            |
|   |   |                                                                                                                                                                           |
| 31.6   |   | Rule 13a-14(a) Certification with respect to Amendment  No. 3 to Annual Report on Form 10-K/A (FILED HEREWITH).                                            |
|   |   |                                                                                                                                                                           |
| 31.7   |   | Rule 13a-14(a) Certification with respect to Amendment  No. 3 to Annual Report on Form 10-K/A (FILED HEREWITH).                                            |
|   |   |                                                                                                                                                                           |
| 31.8   |   | Rule 13a-14(a) Certification with respect to Amendment  No. 3 to Annual Report on Form 10-K/A (FILED HEREWITH).                                            |
|   |   |                                                                                                                                                                           |
| 32.1   |   | Section 1350 Certification. (INCORPORATED BY REFERENCE TO THE  COMPANY’S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31,  2007)(FURNISHED THEREWITH) |
|   |   |                                                                                                                                                                           |
| 32.2   |   | Section 1350 Certification with respect to Amendment No. 3  to Annual Report on Form 10-K/A. (FURNISHED HEREWITH)                                               |

 

----

| (+) |   | Management contract or compensatory plan or agreement. |
|-----|--------|--------------------------------------------------------|

 

26

----

 

**REPORT OF INDEPENDENT REGISTEREDPUBLIC ACCOUNTING FIRM**

** **

**To the Trustees and Shareholders of Hospitality Properties Trust:**

** **

We have audited theaccompanying consolidated balance sheets of Hospitality Properties Trust as of December 31,2007 and 2006, and the related consolidated statements of income, shareholders’equity, and cash flows for each of the three years in the period ended December 31,2007.  Our audits also included thefinancial statement schedule listed in the Index at Item 15(a).  These financial statements and schedule arethe responsibility of the Company’s management. Our responsibility is to express an opinion on these financialstatements and schedule based on our audits.

 

We conducted our auditsin accordance with the standards of the Public Company Accounting OversightBoard (United States).  Those standardsrequire that we plan and perform the audit to obtain reasonable assurance aboutwhether the financial statements are free of material misstatement.  An audit includes examining, on a test basis,evidence supporting the amounts and disclosures in the financial statements. Anaudit also includes assessing the accounting principles used and significantestimates made by management, as well as evaluating the overall financialstatement presentation.  We believe thatour audits provide a reasonable basis for our opinion.

 

In our opinion, thefinancial statements referred to above present fairly, in all materialrespects, the consolidated financial position of Hospitality Properties Trustat December 31, 2007 and 2006, and the consolidated results of itsoperations and its cash flows for each of the three years in the period ended December 31,2007, in conformity with U.S. generally accepted accounting principles.  Also in our opinion, the related financialstatement schedule, when considered in relation to the basic financialstatements taken as a whole, presents fairly in all material respects theinformation set forth therein.

 

We also have audited, inaccordance with the standards of the Public Company Accounting Oversight Board(United States), Hospitality Properties Trust’s internal control over financialreporting as of December 31, 2007, based on criteria established inInternal Control – Integrated Framework issued by the Committee of SponsoringOrganizations of the Treadway Commission and our report dated February 21,2008 expressed an unqualified opinion thereon.

 
|                                         | /s/  Ernst & Young LLP |
|----------------------------------------------|---------------------------------|
|                                         |                            |
| Boston,  Massachusetts                       |                            |
| February 21,  2008,                     |                            |
| except for  Note 14, as to which the date is |                            |
| July 24,  2008                               |                            |

 

F-1

----

 

**REPORT OF INDEPENDENT REGISTERED PUBLICACCOUNTING FIRM**

** **

**To the Trustees and Shareholders of**HospitalityProperties Trust:

** **

We have audited Hospitality Properties Trust’sinternal control over financial reporting as of December 31, 2007, basedon criteria established in InternalControl—Integrated Framework issued by the Committee of SponsoringOrganizations of the Treadway Commission (the COSO criteria). Hospitality Properties Trust’smanagement is responsible for maintaining effective internal control overfinancial reporting, and for its assessment of the effectiveness of internalcontrol over financial reporting included in Item 9A of Hospitality PropertiesTrust’s Annual Report on Form 10-K under the heading Management Report onAssessment of Internal Control over Financial Reporting. Our responsibility isto express an opinion on the company’s internal control over financialreporting based on our audit.

 

We conducted our auditin accordance with the standards of the Public Company Accounting OversightBoard (United States). Those standards require that we plan and perform theaudit to obtain reasonable assurance about whether effective internal controlover financial reporting was maintained in all material respects. Our auditincluded obtaining an understanding of internal control over financial reporting,assessing the risk that a material weakness exists, testing and evaluating thedesign and operating effectiveness of internal control based on the assessedrisk, and performing such other procedures as we considered necessary in thecircumstances. We believe that our audit provides a reasonable basis for ouropinion.

 

A company’s internalcontrol over financial reporting is a process designed to provide reasonableassurance regarding the reliability of financial reporting and the preparationof financial statements for external purposes in accordance with generallyaccepted accounting principles. A company’s internal control over financialreporting includes those policies and procedures that (1) pertain to themaintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company; (2) providereasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally acceptedaccounting principles, and that receipts and expenditures of the company arebeing made only in accordance with authorizations of management and directorsof the company; and (3) provide reasonable assurance regarding preventionor timely detection of unauthorized acquisition, use, or disposition of thecompany’s assets that could have a material effect on the financial statements.

 

Because of its inherentlimitations, internal control over financial reporting may not prevent ordetect misstatements.  Also, projectionsof any evaluation of effectiveness to future periods are subject to the riskthat controls may become inadequate because of changes in conditions, or thatthe degree of compliance with the policies or procedures may deteriorate.

 

In our opinion, Hospitality Properties Trustmaintained, in all material respects, effective internal control over financialreporting as of December 31, 2007, based on****the COSO criteria.

 

We also have audited, inaccordance with the standards of the Public Company Accounting Oversight Board(United States), the 2007 consolidatedfinancial statements****of Hospitality Properties Trust and ourreport dated February 21, 2008 (except for Note 14, as to which thedate is July 24, 2008) expressedan unqualified opinion thereon.

 
|                    | /s/  Ernst & Young LLP |
|-------------------------|---------------------------------|
|                    |                            |
| Boston,  Massachusetts  |                            |
| February 21,  2008 |                            |

 

F-2

----

 

**HOSPITALITY PROPERTIES TRUST**

**CONSOLIDATED BALANCE SHEET**

(dollars in thousands, except share data)

 
| ** **                                                                                                                                                             | ** ** | **As of December 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                                                                                                                                             | ** ** | **2007**                              | ** ** | **2006** | ** ** |
| **Assets**                                                                                                                                                             | ** ** | ** **                            | ** ** | ** ** | ** ** |
| ** **                                                                                                                                                             | ** ** | ** **                            | ** ** | ** ** | ** ** |
| Real estate properties, at cost:                                                                                                                                       |       |                                  |       |   |   |
| Land                                                                                                                                                                   |       | $                                     | 1,377,520  |   | $ | 582,562 |   |
| Buildings, improvements and equipment                                                                                                                                  |       | 4,818,711                             |       | 3,436,219 |   |
|                                                                                                                                                                   |       | 6,196,231                             |       | 4,018,781 |   |
| Accumulated depreciation                                                                                                                                               |       | (849,470                              | )          | (702,513 | ) |
|                                                                                                                                                                   |       | 5,346,761                             |       | 3,316,268 |   |
| Cash and cash equivalents                                                                                                                                              |       | 23,401                                |       | 553,256 |   |
| Restricted cash (FF&E escrow)                                                                                                                                      |       | 28,134                                |       | 27,363 |   |
| Other assets, net                                                                                                                                                      |       | 281,011                               |       | 60,576 |   |
|                                                                                                                                                                   |       | $                                     | 5,679,307  |   | $ | 3,957,463 |   |
|                                                                                                                                                                   |       |                                  |       |   |   |
| **Liabilities and  Shareholders’ Equity**                                                                                                                         |       |                                  |       |   |   |
|                                                                                                                                                                   |       |                                  |       |   |   |
| Revolving credit facility                                                                                                                                              |       | $                                     | 158,000    |   | $ | — |   |
| Senior notes, net of discounts                                                                                                                                         |       | 1,842,756                             |       | 1,196,130 |   |
| Convertible senior notes                                                                                                                                               |       | 575,000                               |       | — |   |
| Mortgage payable                                                                                                                                                       |       | 3,635                                 |       | 3,700 |   |
| Security deposits                                                                                                                                                      |       | 169,406                               |       | 185,366 |   |
| Dividends payable                                                                                                                                                      |       | 4,754                                 |       | 1,914 |   |
| Accounts payable and other liabilities                                                                                                                                 |       | 134,705                               |       | 119,536 |   |
| Due to affiliate                                                                                                                                                       |       | 4,617                                 |       | 3,277 |   |
| Total liabilities                                                                                                                                                      |       | 2,892,873                             |       | 1,509,923 |   |
|                                                                                                                                                                   |       |                                  |       |   |   |
| Commitments and contingencies                                                                                                                                          |       |                                  |       |   |   |
|                                                                                                                                                                   |       |                                  |       |   |   |
| Shareholders’ equity:                                                                                                                                             |       |                                  |       |   |   |
| Preferred shares of beneficial interest, no par  value, 100,000,000 shares authorized:                                                                                 |       |                                  |       |   |   |
| Series B preferred shares; 8 7/8% cumulative  redeemable; 3,450,000 shares issued and outstanding, aggregate liquidation  preference $86,250                      |       | 83,306                                |       | 83,306 |   |
| Series C preferred shares; 7% cumulative  redeemable; 12,700,000 shares and none issued and outstanding, respectively,  aggregate liquidation preference $317,500 |       | 306,833                               |       | — |   |
| Common shares of beneficial interest; $0.01 par  value; 150,000,000 shares authorized, 93,892,719 and 86,284,251 shares issued  and outstanding, respectively          |       | 939                                   |       | 863 |   |
| Additional paid-in capital                                                                                                                                             |       | 3,048,881                             |       | 2,703,687 |   |
| Cumulative net income                                                                                                                                                  |       | 1,711,079                             |       | 1,380,111 |   |
| Cumulative preferred distributions                                                                                                                                     |       | (93,761                               | )          | (66,992 | ) |
| Cumulative common distributions                                                                                                                                        |       | (2,270,843                            | )          | (1,653,435 | ) |
| Total shareholders’ equity                                                                                                                                        |       | 2,786,434                             |       | 2,447,540 |   |
|                                                                                                                                                                   |       | $                                     | 5,679,307  |   | $ | 3,957,463 |   |

 

The accompanying notes are an integral partof these financial statements.

 

F-3

----

 

**HOSPITALITY PROPERTIES TRUST**

**CONSOLIDATED STATEMENT OF INCOME**

(in thousands, except per share data)

 
| ** **                                                                                                | ** ** | **Year Ended December 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                                                | ** ** | **2007**                                   | ** ** | **2006** | ** ** | **2005** | ** ** |
| **Revenues:**                                                                                             |       |                                       |       |   |   |   |   |
| Hotel operating revenues                                                                                  |       | $                                          | 941,455    |   | $ | 879,324 |   | $ | 682,541 |   |
| Rental income:                                                                                            |       |                                       |       |   |   |   |   |
| Minimum rent                                                                                              |       | 310,764                                    |       | 115,461 |   | 110,869 |   |
| Percentage rent                                                                                           |       | 6,055                                      |       | 5,188 |   | 3,463 |   |
|                                                                                                      |       | 316,819                                    |       | 120,649 |   | 114,332 |   |
| FF&E reserve income                                                                                   |       | 22,286                                     |       | 20,299 |   | 19,767 |   |
| Interest income                                                                                           |       | 4,919                                      |       | 2,674 |   | 1,373 |   |
| Total revenues                                                                                            |       | 1,285,479                                  |       | 1,022,946 |   | 818,013 |   |
|                                                                                                      |       |                                       |       |   |   |   |   |
| **Expenses:**                                                                                             |       |                                       |       |   |   |   |   |
| Hotel operating expenses                                                                                  |       | 657,000                                    |       | 618,334 |   | 476,858 |   |
| Interest (including amortization of deferred  financing costs of $3,659, $2,584 and $2,894, respectively) |       | 140,517                                    |       | 81,451 |   | 65,263 |   |
| Depreciation and amortization                                                                             |       | 216,688                                    |       | 141,198 |   | 127,242 |   |
| General and administrative                                                                                |       | 37,223                                     |       | 25,090 |   | 22,514 |   |
| Loss on asset impairment                                                                                  |       | 1,332                                      |       | — |   | 7,300 |   |
| TA spin off costs                                                                                         |       | 2,711                                      |       | — |   | — |   |
| Total expenses                                                                                            |       | 1,055,471                                  |       | 866,073 |   | 699,177 |   |
|                                                                                                      |       |                                       |       |   |   |   |   |
| Income before income taxes                                                                                |       | 230,008                                    |       | 156,873 |   | 118,836 |   |
| Income tax expense                                                                                        |       | (2,191                                     | )          | (372 | ) | (57 | ) |
|                                                                                                      |       |                                       |       |   |   |   |   |
| Income from continuing operations                                                                         |       | 227,817                                    |       | 156,501 |   | 118,779 |   |
| Discontinued operations:                                                                                  |       |                                       |       |   |   |   |   |
| Income from discontinued operations                                                                       |       | 7,440                                      |       | 12,538 |   | 11,124 |   |
| Gain on sale of real estate used by discontinued  operations                                              |       | 95,711                                     |       | — |   | — |   |
| Net Income                                                                                                |       | 330,968                                    |       | 169,039 |   | 129,903 |   |
| Preferred distributions                                                                                   |       | 26,769                                     |       | 7,656 |   | 7,656 |   |
| Net income available for common shareholders                                                              |       | $                                          | 304,199    |   | $ | 161,383 |   | $ | 122,247 |   |
|                                                                                                      |       |                                       |       |   |   |   |   |
| Weighted average common shares outstanding                                                                |       | 93,109                                     |       | 73,279 |   | 69,866 |   |
|                                                                                                      |       |                                       |       |   |   |   |   |
| Basic and diluted earnings per common share:                                                              |       |                                       |       |   |   |   |   |
| Income from continuing operations available for  common shareholders                                      |       | $                                          | 2.16       |   | $ | 2.03 |   | $ | 1.59 |   |
|                                                                                                      |       |                                       |       |   |   |   |   |
| Income from discontinued operations available for  common shareholders                                    |       | $                                          | 1.11       |   | $ | 0.17 |   | $ | 0.16 |   |
|                                                                                                      |       |                                       |       |   |   |   |   |
| Net income available for common shareholders                                                              |       | $                                          | 3.27       |   | $ | 2.20 |   | $ | 1.75 |   |

 

The accompanying notes are an integral partof these financial statements.

 

F-4

----

 

**HOSPITALITY PROPERTIES TRUST**

**CONSOLIDATED STATEMENT OFSHAREHOLDERS’ EQUITY**

(in thousands, except share data)

 
| ** **                         | ** ** | **Preferred Shares** | ** ** | **Common Shares**  | ** ** | ** **                  | ** ** | ** **              | ** ** | ** **                         | ** ** |
|------------------------------------|------------|---------------------------|------------|-------------------------|------------|-----------------------------|------------|-------------------------|------------|------------------------------------|------------|
| ** **                         | ** ** | **Series B**         | ** ** | **Series C**       | ** ** | **Cumulative **        | ** ** | ** **              | ** ** | ** **                         | ** ** | **Cumulative ** | ** ** | **Additional ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                         | ** ** | **Number  of  Shares**    | ** ** | **Preferred    Shares** | ** ** | **Number  of  Shares** | ** ** | **Preferred    Shares** | ** ** | **Preferred   Distributions** | ** ** | **Number of  Shares** | ** ** | **Common   Shares** | ** ** | **Common   Distributions** | ** ** | **Paid-in   Capital** | ** ** | **Cumulative  Net Income** | ** ** | **Total** | ** ** |
| Balance  at December 31, 2004 |       | 3,450,000                 |       | $                       | 83,306     |                        | —     |                    | —     |                               | $          | (51,680 | ) | 67,203,228 |   | $ | 672 |   | $ | (1,287,530 | ) | $ | 1,859,936 |   | $ | 1,081,169 |   | $ | 1,685,873 |   |
|                               |       |                      |       |                    |       |                        |       |                    |       |                               |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance  of shares, net           |       | —                    |       | —                  |       | —                      |       | —                  |       | —                             |       | 4,700,000 |   | 47 |   | — |   | 199,186 |   | — |   | 199,233 |   |
| Common  share grants               |       | —                    |       | —                  |       | —                      |       | —                  |       | —                             |       | 17,350 |   | — |   | — |   | 761 |   | — |   | 761 |   |
| Redemption  of preferred shares    |       | —                    |       | —                  |       | —                      |       | —                  |       | —                             |       | — |   | — |   | — |   | — |   | — |   | — |   |
| Net  income                        |       | —                    |       | —                  |       | —                      |       | —                  |       | —                             |       | — |   | — |   | — |   | — |   | 129,903 |   | 129,903 |   |
| Distributions                      |       | —                    |       | —                  |       | —                      |       | —                  |       | (7,656                             | )          | — |   | — |   | (152,659 | ) | — |   | — |   | (160,315 | ) |
| Balance  at December 31, 2005 |       | 3,450,000                 |       | 83,306                  |       | —                      |       | —                  |       | (59,336                            | )          | 71,920,578 |   | 719 |   | (1,440,189 | ) | 2,059,883 |   | 1,211,072 |   | 1,855,455 |   |
|                               |       |                      |       |                    |       |                        |       |                    |       |                               |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance  of shares, net           |       | —                    |       | —                  |       | —                      |       | —                  |       | —                             |       | 14,300,000 |   | 143 |   | — |   | 641,509 |   | — |   | 641,652 |   |
| Common  share grants               |       | —                    |       | —                  |       | —                      |       | —                  |       | —                             |       | 63,673 |   | 1 |   | — |   | 2,295 |   | — |   | 2,296 |   |
| Net  income                        |       | —                    |       | —                  |       | —                      |       | —                  |       | —                             |       | — |   | — |   | — |   | — |   | 169,039 |   | 169,039 |   |
| Distributions                      |       | —                    |       | —                  |       | —                      |       | —                  |       | (7,656                             | )          | — |   | — |   | (213,246 | ) | — |   | — |   | (220,902 | ) |
| Balance  at December 31, 2006 |       | 3,450,000                 |       | 83,306                  |       | —                      |       | —                  |       | (66,992                            | )          | 86,284,251 |   | 863 |   | (1,653,435 | ) | 2,703,687 |   | 1,380,111 |   | 2,447,540 |   |
| Issuance  of shares, net           |       | —                    |       | —                  |       | 12,700,000                  |       | 306,833                 |       | —                             |       | 7,550,000 |   | 75 |   | — |   | 343,376 |   | — |   | 650,284 |   |
| Common  share grants               |       | —                    |       | —                  |       | —                      |       | —                  |       | —                             |       | 58,468 |   | 1 |   | — |   | 1,818 |   | — |   | 1,819 |   |
| Net  income                        |       | —                    |       | —                  |       | —                      |       | —                  |       | —                             |       | — |   | — |   | — |   | — |   | 330,968 |   | 330,968 |   |
| Distributions                      |       | —                    |       | —                  |       | —                      |       | —                  |       | (26,769                            | )          | — |   | — |   | (280,158 | ) | — |   | — |   | (306,927 | ) |
| Distribution  of TA                |       | —                    |       | —                  |       | —                      |       | —                  |       | —                             |       | — |   | — |   | (337,250 | ) | — |   | — |   | (337,250 | ) |
| Balance  at December 31, 2007 |       | 3,450,000                 |       | $                       | 83,306     |                        | 12,700,000 |                    | $          | 306,833                            |       | $ | (93,761 | ) | 93,892,719 |   | $ | 939 |   | $ | (2,270,843 | ) | $ | 3,048,881 |   | $ | 1,711,079 |   | $ | 2,786,434 |   |
|                                    |            |                           |            |                         |            |                             |            |                         |            |                                    |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

The accompanying notes are an integral partof these financial statements.

 

**F-5**

----

 

**HOSPITALITY PROPERTIES TRUST**

**CONSOLIDATED STATEMENT OF CASH FLOWS**

(inthousands)

 
| ** **                                                                     | ** ** | **Year Ended December 31,** | ** ** |
|--------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                     | ** ** | **2007**                                   | ** ** | **2006** | ** ** | **2005** | ** ** |
| **Cash Flows From Operating  Activities:**                                     |       |                                       |       |   |   |   |   |
| Net income                                                                     |       | $                                          | 330,968    |   | $ | 169,039 |   | $ | 129,903 |   |
| Adjustments to reconcile net income to cash  provided by operating activities: |       |                                       |       |   |   |   |   |
| Depreciation and amortization                                                  |       | 218,319                                    |       | 144,404 |   | 131,792 |   |
| Amortization of deferred financing costs as  interest                          |       | 3,659                                      |       | 2,584 |   | 2,894 |   |
| Straight line rent adjustments                                                 |       | (15,851                                    | )          | (113 | ) | — |   |
| Other non-cash (income) expense, net                                           |       | (4,363                                     | )          | (2,969 | ) | (2,952 | ) |
| FF&E reserve income and deposits                                           |       | (57,912                                    | )          | (46,095 | ) | (32,338 | ) |
| Gain on sale of real estate used by discontinued  operations                   |       | (95,711                                    | )          | — |   | — |   |
| Loss on asset impairment                                                       |       | 1,332                                      |       | — |   | 7,300 |   |
| Changes in assets and liabilities:                                             |       |                                       |       |   |   |   |   |
| Increase in other assets                                                       |       | (14,089                                    | )          | (2,488 | ) | (1,091 | ) |
| Increase in accounts payable and other                                         |       | 19,147                                     |       | 5,462 |   | 6,492 |   |
| Increase in due to affiliate                                                   |       | 2,730                                      |       | 1,729 |   | 306 |   |
| Cash provided by operating activities                                          |       | 388,229                                    |       | 271,553 |   | 242,306 |   |
|                                                                           |       |                                       |       |   |   |   |   |
| **Cash Flows From Investing  Activities:**                                     | ** ** | ** **                                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| Real estate acquisitions                                                       |       | (2,629,215                                 | )          | (320,776 | ) | (443,104 | ) |
| FF&E reserve fundings                                                      |       | (64,241                                    | )          | (72,556 | ) | (45,390 | ) |
| Real estate acquisition deposit                                                |       | —                                     |       | — |   | (10,000 | ) |
| Sale of real estate used by discontinued  operations                           |       | 205,350                                    |       | — |   | — |   |
| Increase (decrease) in security deposits                                       |       | (15,960                                    | )          | 2 |   | 10,000 |   |
| Proceeds from sale of real estate                                              |       | —                                     |       | — |   | 3,227 |   |
| Cash used in investing activities                                              |       | (2,504,066                                 | )          | (393,330 | ) | (485,267 | ) |
|                                                                           |       |                                       |       |   |   |   |   |
| **Cash Flows From Financing  Activities:**                                     |       |                                       |       |   |   |   |   |
| Proceeds from issuance of common shares, net                                   |       | 343,451                                    |       | 641,652 |   | 199,233 |   |
| Proceeds from issuance of preferred shares, net                                |       | 306,833                                    |       | — |   | — |   |
| Issuance of senior notes, net of discount                                      |       | 645,843                                    |       | 273,974 |   | 299,442 |   |
| Issuance of convertible senior notes, net of  discount                         |       | 575,000                                    |       | — |   | — |   |
| Draws on revolving credit facility                                             |       | 1,022,000                                  |       | 511,000 |   | 319,000 |   |
| Repayments of revolving credit facility                                        |       | (864,000                                   | )          | (546,000 | ) | (356,000 | ) |
| Draws on interim credit facility                                               |       | 1,400,000                                  |       | — |   | — |   |
| Repayments of interim credit facility                                          |       | (1,400,000                                 | )          | — |   | — |   |
| Deferred finance costs incurred                                                |       | (17,892                                    | )          | (3,259 | ) | (7,339 | ) |
| Distributions to preferred shareholders                                        |       | (23,929                                    | )          | (7,656 | ) | (7,656 | ) |
| Distributions to common shareholders                                           |       | (280,158                                   | )          | (213,246 | ) | (201,045 | ) |
| Distribution of TA to common shareholders                                      |       | (121,166                                   | )          | — |   | — |   |
| Cash provided by financing activities                                          |       | 1,585,982                                  |       | 656,465 |   | 245,635 |   |
| Increase (decrease) in cash and cash equivalents                               |       | (529,855                                   | )          | 534,688 |   | 2,674 |   |
| Cash and cash equivalents at beginning of year                                 |       | 553,256                                    |       | 18,568 |   | 15,894 |   |
| Cash and cash equivalents at end of year                                       |       | $                                          | 23,401     |   | $ | 553,256 |   | $ | 18,568 |   |
|                                                                           |       |                                       |       |   |   |   |   |
| **Supplemental Information:**                                                  |       |                                       |       |   |   |   |   |
| Cash paid for interest                                                         |       | $                                          | 119,200    |   | $ | 78,157 |   | $ | 56,597 |   |
| Non-cash investing activities:                                                 |       |                                       |       |   |   |   |   |
| Property managers deposits in FF&E reserve                                 |       | 58,668                                     |       | 44,946 |   | 31,056 |   |
| Purchases of fixed assets with FF&E reserve                                |       | (122,138                                   | )          | (116,129 | ) | (76,860 | ) |
| Non-cash financing activities:                                                 |       |                                       |       |   |   |   |   |
| Issuance of common shares                                                      |       | 1,819                                      |       | 2,296 |   | 761 |   |
| Distribution of net assets of TravelCenters of  America LLC                    |       | (216,084                                   | )          | **—** | ** ** | **—** | ** ** |

 

The accompanying notes are an integral partof these financial statements.

 

**F-6**

----

** **

**HOSPITALITYPROPERTIES TRUST**

**NOTES TOFINANCIAL STATEMENTS**

**December 31,2007**

**(dollars inthousands, except per share data)**

** **

**1. Organization**

** **

HospitalityProperties Trust, or HPT, we or us, is a real estate investment trust, or REIT,organized on February 7, 1995, under the laws of the State of Maryland,which invests in real estate used in hospitality industries. At December 31,2007, HPT, directly and through subsidiaries, owned 292 hotels and 185 travelcenters.

 

At December 31,2007, our properties were leased to and or operated by subsidiaries of thefollowing companies: Host Hotels & Resorts, Inc., or Host;Marriott International, Inc., or Marriott; InterContinental Hotels Group,plc, or InterContinental; Barcelo Crestline Corporation, or Barcelo Crestline;Global Hyatt Corporation, or Hyatt; Carlson Hotels Worldwide, or Carlson; andTravelCenters of America, LLC, or TA. Hereinafter these hotel and travel centeroperators are sometimes referred to as managers and/or tenants.

 

**2. Summary of Significant Accounting Policies**

** **

**Consolidation**.These consolidated financial statements include the accounts of HPT and itssubsidiaries, all of which are 100% owned directly or indirectly by HPT. Wehave determined that each of our taxable REIT subsidiaries, or TRSs, is avariable interest entity that must be consolidated because we are the primarybeneficiary. All intercompany transactions and balances have been eliminated.

 

**RealEstate Properties.** We record real estate properties at cost. We allocate the cost of real estate acquired among building, land,furniture, fixtures and equipment, and, if applicable, the value of in-placeleases, the fair market value of above or below market leases and customer relationships.  We depreciate real estateproperties  on a straight line basis overestimated useful lives of up to 40 years for buildings and improvements and upto 12 years for personal property and we amortize finite lived intangible assets over the shorter of theiruseful lives or the term of the associated lease.

 

**IntangibleAssets and Liabilities. **Intangibleassets consist of acquired trademarks and tradenames and below market groundleases.  Intangible liabilities consistof acquired above market ground leases. We do not amortize our indefinite life trademarks and tradenames, but weevaluate them for impairment.  Weamortize above and below market ground leases on a straight line basis over theterm of the lease (19 and 11 years on a weighted average basis for intangibleassets and liabilities, respectively). We include intangible assets in otherassets and intangible liabilities in accounts payable and other liabilities inthe accompanying consolidated balance sheet. At December 31, 2007, our intangible assets and liabilities were asfollows:

 
| Assets:                                                                |   |   |    |
|------------------------------------------------------------------------|--------|--------|---------|
| Tradenames and trademarks                                              |   | $      | 142,600 |   |
| Below market ground leases, net of accumulated  amortization of $3,208 |   | 45,868 |    |
|                                                                   |   | $      | 188,468 |   |
| Liabilities:                                                           |   |   |    |
| Above market ground leases, net of accumulated  amortization of $2,492 |   | $      | 8,158   |   |

 

F-7

----

 

We had nointangible assets or liabilities at December 31, 2006.  For the year ended December 31, 2007,amortization relating to intangible assets and liabilities were $3,284 and$1,206, respectively.

 

As of December 31,2007, amortization expense relating to intangible assets and liabilities isprojected as follows:

 
| ** ** | ** ** | **Intangible   Assets** | ** ** | **Intangible   Liabilities** | ** ** |
|------------|------------|------------------------------|------------|-----------------------------------|------------|
|       |       |                         |       |                              |       |
| 2008       |       | $                            | 2,744      |                              | $          | (865 | ) |
| 2009       |       | 2,744                        |       | (734                              | )          |
| 2010       |       | 2,744                        |       | (726                              | )          |
| 2011       |       | 2,744                        |       | (695                              | )          |
| 2012       |       | 2,744                        |       | (653                              | )          |
| Thereafter |       | 32,148                       |       | (4,486                            | )          |
|       |       | $                            | 45,868     |                              | $          | (8,158 | ) |

 

**Impairmentof Long Lived Assets.**We regularly evaluate whetherevents or changes in circumstances have occurred that could indicate animpairment in the value of our long lived assets. If there is an indicationthat the carrying value of an asset is not recoverable, we estimate theprojected undiscounted cash flows of the asset to determine if an impairmentloss should be recognized. We determine the amount of an impairment loss bycomparing the historical carrying value of the asset to its estimated fairvalue. We estimate fair value by evaluating recent financial performance andprojecting discounted cash flows of properties using standard industryvaluation techniques. In addition to consideration of impairment upon theevents or changes in circumstances described above, we regularly evaluate theremaining lives of its long lived assets. If we change estimated lives, weallocate the carrying values of affected assets over the revised remaininglives.

 

**Cash andCash Equivalents**. We consider highly liquid investments with original maturities of threemonths or less at date of purchase to be cash equivalents. The carrying amountof cash and cash equivalents is equal to its fair value.

 

**RestrictedCash**. Restricted cash consists of amounts escrowed tofund periodic renovations and improvements at our hotels.

 

**DeferredFinancing Costs**. We capitalize costs incurred to borrow and we amortize that cost asinterest expense over the term of the related borrowing. Deferred financingcosts were $25,352 and $10,335 at December 31, 2007 and 2006,respectively, net of accumulated amortization of $8,210 and $5,335,respectively, and are included in other assets, net, in the accompanyingconsolidated balance sheet.  Futureamortization of deferred financing fees to be recognized by us during thecurrent terms of our loans as of December 31, 2007, are approximately$3,089 million in 2008, $3,063 million in 2009, $2,810 million in 2010, $1,918million 2011, $1,909 million in 2012 and $12,563 million thereafter.

 

**RevenueRecognition.** We report hotel operating revenues formanaged hotels in our consolidated statement of income.  We generally recognize hotel operatingrevenues, consisting primarily of room, food and beverage sales when servicesare provided. Our share of the net operating results of our managed hotels inexcess of the minimum returns due us, or additional returns, are generallydetermined annually.  We recognizeadditional returns due to us under our management agreements as income at yearend when all contingencies are met and the income is earned. We recognizedadditional returns of $24,181, $20,029 and $13,568 in 2007, 2006 and 2005,respectively.

 

We recognizerental income from operating leases on a straight line basis over the life ofthe lease agreements.  Rental incomeincludes $15,851, $113, and $0 of adjustments necessary to record rent on thestraight line basis in 2007, 2006 and 2005, respectively.  Percentage rent due to us under our leases isgenerally determined 

 

F-8

----

 

annually andis recognized as income at year end when all contingencies are met and the rentis earned.  We recognized percentagerental income of $6,055, $5,188 and $3,463 in 2007, 2006 and 2005,respectively.

 

We own all thecapital expenditure reserves, or FF&E reserve escrows, for hotels leased toour TRSs and leased to third parties.  Wedo not report the amounts which are escrowed as FF&E reserves for hotelsleased to our TRSs as FF&E reserve income. We report deposits by our third party tenants into the escrow account asFF&E reserve income.

 

**Per CommonShare Amounts.** We compute per common share amounts using theweighted average number of common shares outstanding during the period. We hadno dilutive common share equivalents during the periods presented.

 

**Reclassifications.**  We reclassified prior year’s financialstatements to conform to the current year’s presentation.

 

**Use ofEstimates.** The preparation of financial statements inconformity with accounting principles generally accepted in the United Statesrequires us to make estimates and assumptions that affect reported amounts.Actual results could differ from those estimates.

 

**SegmentInformation.** As of December 31, 2007, we have tworeportable business segments: hotel and travel center real estateinvestments.  Prior to January 31,2007, our only reportable segment was hotel real estate investments.

 

**IncomeTaxes.** We haveelected to be taxed as a REIT under the Internal Revenue Code of 1986, asamended and, as such, are generally not subject to federal and most stateincome taxation on our operating income provided we distribute our taxableincome to our shareholders and meet certain organization and operatingrequirements.  We are subject to incometax in Canada, Puerto Rico and certain states despite our REIT status.  Further, we lease our managed hotels to ourwholly owned TRSs that, unlike most of our subsidiaries, file a separateconsolidated tax return and are subject to federal, state and foreign incometaxes.  Our consolidated income taxprovision (or benefit) includes the income tax provision (or benefit) relatedto the operations of our TRSs and certain state and foreign income taxesincurred by us despite our REIT status.

 

**New Accounting Pronouncement.** In June 2006, the FinancialAccounting Standards Board issued Interpretation No. 48 “Accounting forUncertainty in Income Taxes”, or FIN 48. FIN 48 prescribes how we shouldrecognize, measure and present in our financial statements uncertain taxpositions that have been taken or are expected to be taken in a tax return.Pursuant to FIN 48, we can recognize a tax benefit only if it is “more likelythan not” that a particular tax position will be sustained upon examination oraudit. To the extent the “more likely than not” standard has been satisfied,the benefit associated with a tax position is measured as the largest amountthat is greater than 50% likely of being realized upon settlement.  As required, we adopted FIN 48 effective January 1,2007, and concluded that the effect was not material to our consolidatedfinancial statements. Accordingly, we did not record a cumulative effectadjustment related to the adoption of FIN 48. Tax returns filed for the 2003 through 2007 tax years are subject toexamination by taxing authorities. We classify interest and penalties relatedto uncertain tax positions, if any, in our financial statements as a componentof general and administrative expense.

 

In September 2006, the Financial AccountingStandards Board, or FASB, issued Statement of Financial Accounting Standards No. 157,“Fair Value Measurement”, or SFAS No. 157, which defines fair value,establishes a framework for measuring fair value, and expands disclosures aboutfair value measurement.  This statementis effective for financial statements issued for fiscal years beginning after November 15,2007.  We are currently evaluating theeffect that the adoption of SFAS No. 157 will have on our consolidatedfinancial statements; however, we do not anticipate the effect, if any, will bematerial.

 

In February 2007, the FASB issued Statement ofFinancial Accounting Standards No. 159, “The Fair Value Option for FinancialAssets and Financial Liabilities”, or SFAS No. 159, which permits entitiesto choose to measure many financial assets and financial liabilities at fairvalue.  Unrealized gains and losses onitems for which the fair value option has been elected are reported inearnings.  SFAS No. 159 is effectivefor fiscal years beginning 

 

F-9

----

 

after November 15,2007.  We are currently evaluating theeffect that the adoption of SFAS No. 159 will have on our consolidatedfinancial statements; however, we do not anticipate the effect, if any, will bematerial.

 

**3. Shareholders’ Equity**

** **

We reserved anaggregate of 3,128,791 shares of our common shares to be issued under the termsof the 1995 Incentive Share Award Plan and the 2003 Incentive Share Award Plan,collectively referred to as the Award Plans. During the years ended December 31, 2007, 2006 and 2005, 23,290common shares with an aggregate market value of $950, 25,950 common shares withan aggregate market value of $1,224 and 15,850 common shares with an aggregatemarket value of $698, respectively, were awarded to our officers and certainemployees of our manager pursuant to these plans.  In January 2007, we issued 1,500 commonshares with a market value of $71 to our two new trustees at the time of theirelection as trustees.  In addition, eachof our trustees were awarded 750 common shares in 2007 with an aggregate marketvalue of $166 and 750 common shares each in 2006 with an aggregate value of$153, as part of their annual fees.  Ourindependent trustees were each awarded 750 common shares in 2005 with anaggregate market value of $64, as part of their annual fees.  The shares awarded to our trustees vestimmediately.  The shares awarded to ourofficers and certain employees of our manager vest in three or five annualinstallments beginning on the date of grant. Share awards are expensed overtheir vesting period and are included in general and administrativeexpenses.  At December 31, 2007,2,740,838 of our common shares remain reserved for issuance under the AwardPlans.

 

Under the terms of our management agreement with Reit Management &Research LLC, or RMR, on March 26, 2007, we issued 29,928 common shares inpayment of an incentive fee of $1,390 for services rendered by RMR during 2006.

 

In January 2007, wesold 1,800,000 of our common shares at a price of $47.51 per share in a publicoffering pursuant to an over allotment option granted to the underwriters ofour December 2006 common share offering. Net proceeds from this sale of$81,775 (after underwriting and other offering expenses) were used to partiallyfund our acquisition of TravelCenters of America, Inc., or TravelCenters(see Note 8).

 

In February 2007, wesold 5,750,000 of our common shares at a price of $47.67 per share in a publicoffering. Net proceeds from these sales of $261,677 (after underwriting andother offering expenses) were used to reduce borrowings under our $1,400,000interim loan borrowing, or the Acquisition Facility (see Note 8).

 

In February 2007, wesold 12,700,000 Series C cumulative redeemable preferred shares at a priceof $25.00 per share in a public offering. Net proceeds from these sales of$306,833 (after underwriting and other offering expenses) were used to reduceborrowings under our Acquisition Facility (see Note 8). Each of our Series Cpreferred shares has a distribution rate of $1.75 per annum, payable in equalquarterly amounts, and a liquidation preference of $25.00 per share ($317,500in aggregate). The Series C preferred shares are redeemable at our optionfor $25.00 each plus accrued and unpaid distributions at any time on or after February 15,2012.

 

Each of our3,450,000 Series B cumulative redeemable preferred shares has adistribution rate of $2.21875 per annum, payable in equal quarterly amounts,and a liquidation preference of $25.00 ($86,250 in aggregate). Series Bpreferred shares are redeemable at our option for $25.00 each plus accrued andunpaid distributions at any time on or after December 10, 2007.

 

Cash distributions paid orpayable by us to our common shareholders for the years ended December 31,2007, 2006 and 2005, were $3.06 per share, $2.95 per share and $2.90 per share,respectively.  Further, as described inNote 8, in January 2007, we distributed all of the shares of our formersubsidiary, TA, to our common shareholders. The characterization for income tax reporting purposes of thedistributions to our common shareholders in 2007 is as follows:  45.05% ordinary income, 11.53% capital gain,39.23% return of capital, and 4.19% un-recaptured section 1250 gain. In 2006and 2005, the characterization was 82.6% and 96.9% ordinary income,respectively, and 17.4% and 3.1% return of capital, respectively.

 

F-10

----

 

**4. Management Agreements and Leases**

** **

As of December 31,2007, we owned 292 hotels and 185 travel centers which are grouped into twelvecombinations.   We do not operate any ofour properties.  201 of our hotels areleased to our TRSs and managed by an independent hotel operating company and 91are leased to third parties.  Our tenhotel combinations are managed by or leased to separate subsidiaries of hoteloperating companies including InterContinental, Marriott, Host, BarceloCrestline, Hyatt, and Carlson.  Our hotelagreements have initial terms expiring between 2010 and 2031. Each of theseagreements is for a combination of between 10 and 76 of our hotels. Theagreements contain renewal options for all, but not less than all, of theaffected properties, and the renewal terms total 20 to 40 years. Each agreementgenerally requires the third party manager or tenant to: (i) make paymentsto us of minimum returns or minimum rents; (ii) deposit a percentage oftotal hotel sales into reserves established for the regular refurbishment ofour hotels, or FF&E reserves; (iii) make payments to us of percentagereturns or rent of 5% to 10% of increases in gross hotel revenues overthreshold amounts and/or, in certain circumstances, make payments to our TRSsof additional returns based on increases in hotel operating income. Some of thethird party managers or tenants have provided deposits or guarantees to securetheir obligation to pay us.  Our 185travel centers are leased to and operated by separate subsidiaries of TA undertwo agreements.  Our lease for 145 travelcenters expires in 2022.  Our lease for40 travel centers expires in 2024 and has two fifteen year renewal options.  Both of the leases with TA require them to: (i) makeminimum payments to us of minimum rents; and (ii) pay us 3% of non-fuelrevenue and .3% of fuel revenues over threshold amounts to be established in2011 and 2012 respectively and (iii) maintain the leased travel centers,including structural and non-structural components.  TA has provided guarantees of the tenantsobligations under the leases.

 

As of December 31,2007, our management agreements and leases provide for minimum return paymentsor minimum rents to be paid to us during the remaining initial terms asfollows:

 
| 2008       |   | $         | 564,604   |   |
|------------|--------|-----------|-----------|--------|
| 2009       |   | 568,679   |      |
| 2010       |   | 572,693   |      |
| 2011       |   | 558,381   |      |
| 2012       |   | 563,438   |      |
| Thereafter |   | 6,169,859 |      |
|       |   | $         | 8,997,654 |   |

 

As of December 31,2007, the average remaining initial terms of our leases and managementagreements, weighted based on minimum returns or rents from third parties, wasapproximately 15.5 years, and the weighted average remaining total term,including renewal options which may be exercised, was 38 years.

 

Our hoteloperating agreements generally provide that, if necessary, we will provide our managersand tenants funding for capital improvements to our properties in excess ofamounts available in escrowed FF&E reserves. To the extent that we makesuch additional fundings, our annual minimum returns or rent generally increaseby a percentage of the amount we fund. One of our leases with TA provides for us to fund up to $25million annually for the first five years of the lease for certain specifiedcapital improvements to the leased travel centers. This funding is cumulativeand may be drawn by TA from us in subsequent years until December 2015.  We will own all capital improvements fundedby us under this agreement.  There willnot be any adjustment in our minimum rent as we fund these amounts.  At December 31, 2007, we expectto provide funding for capital improvements at our hotels and travel centers ofapproximately $129,000 in 2008.

 

We settled allour outstanding claims with Prime Hospitality Corp., or Prime, a formermanager, arising from its July 2003 lease default by entering a managementagreement for our 24 AmeriSuites® hotels effective on January 1,2004. The balance of the retained deposits and the value of other propertyreceived from Prime pursuant to this settlement, totaling approximately$44,281, is being amortized into our income on a straight line basis over theinitial 15 year term of the management contract for the affected hotels. Theunamortized balance of $32,473 at December 31, 2007, is included inaccounts payable and other liabilities in the accompanying consolidated balancesheet. In October 2004, Prime was sold to the Blackstone Group, orBlackstone. In January 2005, Blackstone sold the AmeriSuites®brand and transferred operating responsibility for these hotels to Hyatt.

 

F-11

----

 

**5. Real Estate Properties**

** **

Our real estate properties,at cost, consisted of land of $1,377,520, buildings and improvements of$4,305,529 and furniture, fixtures and equipment of $513,182, as of December 31,2007; and land of $582,562, buildings and improvements of $3,027,204 andfurniture, fixtures and equipment of $409,015 as of December 31,2006.  In December 2007, our boardof trustees authorized us to pursue the sale of three hotels.  In connection with this decision, we recordeda $1,332 loss on asset impairment to reduce the carrying value of one hotel toits estimated net realizable value less costs to sell.  The $15,767 carrying value of the hotels heldfor sale at December 31, 2007, is included in other assets in theaccompanying consolidated balance sheet. In February 2008, we sold one hotel with a carrying value of $6,951for net proceeds of approximately $7,644.

 

During 2007, 2006 and 2005,we invested $64,241, $72,555 and $45,390, respectively, in certain of ourproperties that are leased to or managed by others, which resulted in increasesin our annual minimum returns and rents of $6,003, $6,981 and $2,384 in 2007,2006 and 2005, respectively.

 

At December 31, 2007, 14 of our hotels were onleased land. In each case, the remaining term of the ground lease (includingrenewal options) is in excess of 27 years, and the ground lessors are unrelatedto us. Ground rent payable under nine of the ground leases is generallycalculated as a percentage of hotel revenues. 12 of the 14 ground leases requireminimum annual rents ranging from approximately $102 to $556 per year; futurerents under two ground leases have been pre-paid.  26 of our travel centers are on land leasedpartially or in its entirety.  Theremaining terms on the leases range from two to 35 years with rents rangingfrom approximately $2 to $2,043 per year. Generally payments of ground lease obligations are made by our managersor tenants. However, if a manager or tenant did not perform obligations under aground lease or did not renew any ground lease, we might have to performobligations under the ground lease or renew the ground lease in order toprotect our investment in the affected property. Any pledge of our interests ina ground lease may require the consent of the applicable ground lessor and itslenders.

 

**6. Indebtedness**

** **

At December 31,2007 and 2006, our indebtedness was as follows:

 
| ** **                                 | ** ** | **As of December 31,** | ** ** |
|--------------------------------------------|------------|---------------------------------------|------------|
| ** **                                 | ** ** | **2007**                              | ** ** | **2006** | ** ** |
| Senior Notes, due 2008 at 7%               |       | $                                     | 150,000    |   | $ | 150,000 |   |
| Senior Notes, due 2010 at 9.125%           |       | 50,000                                |       | 50,000 |   |
| Senior Notes, due 2012 at 6.85%            |       | 125,000                               |       | 125,000 |   |
| Senior Notes, due 2013 at 6.75%            |       | 300,000                               |       | 300,000 |   |
| Senior Notes, due 2015 at 5.125%           |       | 300,000                               |       | 300,000 |   |
| Senior Notes, due 2016 at 6.3%             |       | 275,000                               |       | 275,000 |   |
| Senior Notes, due 2017 at 5.625%           |       | 300,000                               |       | — |   |
| Convertible Senior Notes, due 2027 at 3.8% |       | 575,000                               |       | — |   |
| Senior Notes, due 2018 at 6.7%             |       | 350,000                               |       | — |   |
| Unamortized discounts                      |       | (7,244                                | )          | (3,870 | ) |
| Total unsecured senior notes               |       | 2,417,756                             |       | 1,196,130 |   |
| Unsecured revolving credit facility        |       | 158,000                               |       | — |   |
| Mortgage Note, due 2011 at 8.3%            |       | 3,635                                 |       | 3,700 |   |
|                                       |       | $                                     | 2,579,391  |   | $ | 1,199,830 |   |

 

All of oursenior notes are prepayable at any time prior to their maturity date at parplus accrued interest plus a premium equal to a make whole amount, as defined,generally designed to preserve a stated yield to the noteholder. Interest onall of our senior notes is payable semi-annually in arrears.

 

We have a$750,000, interest only, unsecured revolving credit facility with a group ofinstitutional lenders. Our credit facility matures in October 2010 and maybe extended at our option to October 2011 upon payment of an extensionfee. Funds may be drawn, repaid and redrawn until maturity, and no principalpayment is due until 

 

F-12

----

 

maturity.  The interest rate on drawings under thecredit facility is LIBOR plus a spread (5.41% per annum at December 31,2007). As of December 31, 2007, we had $158,000 outstanding under ourrevolving credit facility and $592,000 available to be drawn for acquisitionsand general business purposes.  During2007, 2006 and 2005, the weighted average interest rate on the amountsoutstanding under our revolving credit facility was 5.9%, 5.6% and 4.2%, respectively.

 

In March 2007, wesold $575,000 of 3.8% convertible senior notes due 2027. Net proceeds fromthese offerings of $562,525 (after placement and other offering expenses) wereused to repay amounts outstanding under the Acquisition Facility (see Note 8)and for general business purposes. The convertible senior notes are convertibleif certain conditions are met (including certain changes in control) into cashequal to the principal amount of the notes and, to the extent the market priceof our common shares exceeds the initial exchange price of $50.50 per share,subject to adjustment, either cash or our common shares at our option with avalue based on such excess amount. Holders of our convertible senior notes mayrequire us to repurchase all or a portion of the notes on March 20, 2012, March 15,2017, and March 15, 2022, or upon the occurrence of certain change incontrol events.

 

On March 12, 2007,we sold $300,000 of 5.625% senior notes due 2017. Net proceeds from thisoffering of $296,468 (after placement and other offering expenses) were used toreduce borrowings under our Acquisition Facility (see Note 8).

 

On September 24,2007, we sold $350,000 of 6.7% unsecured senior notes due 2018.  Net proceeds from this offering of $344,226(after underwriting and other offering expenses) were used to reduce borrowingsunder our revolving credit facility.

 

Our revolvingcredit agreement and note indenture and its supplements contain financialcovenants which, among other things, restrict our ability to incur indebtednessand require us to maintain financial ratios and a minimum net worth. We were incompliance with these covenants during the periods presented.

 

As of December 31,2007 and 2006, the estimated aggregate fair values of our indebtedness were asfollows:

 
| ** **                                 | ** ** | **As of December 31,** | ** ** |
|--------------------------------------------|------------|---------------------------------------|------------|
| ** **                                 | ** ** | **2007**                              | ** ** | **2006** | ** ** |
| Revolving credit facility at 5.41%         |       | $                                     | 158,000    |   | $ | — |   |
| Senior Notes, due 2008 at 7%               |       | 153,738                               |       | 154,860 |   |
| Senior Notes, due 2010 at 9.125%           |       | 55,582                                |       | 57,263 |   |
| Mortgage Note, due 2011 at 8.3%            |       | 4,254                                 |       | 4,279 |   |
| Senior Notes, due 2012 at 6.85%            |       | 131,053                               |       | 134,953 |   |
| Senior Notes, due 2013 at 6.75%            |       | 308,985                               |       | 321,667 |   |
| Senior Notes, due 2015 at 5.125%           |       | 278,414                               |       | 292,082 |   |
| Senior Notes, due 2016 at 6.3%             |       | 265,262                               |       | 284,739 |   |
| Senior Notes, due 2017 at 5.625%           |       | 277,600                               |       | — |   |
| Convertible Senior Notes, due 2027 at 3.8% |       | 604,922                               |       | — |   |
| Senior Notes, due 2018 at 6.7%             |       | 347,505                               |       | — |   |
|                                       |       | $                                     | 2,585,315  |   | $ | 1,249,843 |   |

 

We estimate fair value of our indebtedness usingdiscounted cash flow analysis and currently prevailing market rates.

 

F-13

----

 

**7. Income Taxes**

 

Ourprovision (benefit) for income taxes consists of the following:

 
| ** **                     | ** ** | **For the years ended December 31,** | ** ** |
|--------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                     | ** ** | **2007**                                                      | ** ** | **2006** | ** ** | **2005** | ** ** |
| Current- Federal               |       | $                                                             | 70         |   | $ | — |   | $ | 6 |   |
| State                          |       | 1,410                                                         |       | 225 |   | — |   |
| Foreign                        |       | 761                                                           |       | 105 |   | — |   |
|                           |       | 2,241                                                         |       | 330 |   | 6 |   |
| Deferred- Federal              |       | —                                                        |       | — |   | — |   |
| State                          |       | —                                                        |       | — |   | — |   |
| Foreign                        |       | (50                                                           | )          | 42 |   | 51 |   |
|                           |       | (50                                                           | )          | 42 |   | 51 |   |
| Income tax provision (benefit) |       | $                                                             | 2,191      |   | $ | 372 |   | $ | 57 |   |

 

Areconciliation of our effective tax rate and the U.S. Federal statutory incometax rate is as follows:

 
| ** **                                                | ** ** | **For the year ended December 31,** | ** ** |
|-----------------------------------------------------------|------------|--------------------------------------------------------------|------------|
| ** **                                                | ** ** | **2007**                                                     | ** ** | **2006** | ** ** | **2005** | ** ** |
| Taxes at statutory U.S. federal income tax rate           |       | 35.0                                                         | %          | 35.0 | % | 35.0 | % |
| Nontaxable income of HPT                                  |       | (35.0                                                        | )%         | (35.0 | )% | (35.0 | )% |
| State and local income taxes, net of federal tax  benefit |       | 4.2                                                          | %          | 4.0 | % | 3.9 | % |
| Alternative Minimum Tax                                   |       | 0.1                                                          | %          | 0.0 | % | 0.0 | % |
| Foreign taxes                                             |       | 0.2                                                          | %          | 0.1 | % | 0.0 | % |
| Change in valuation allowance                             |       | (0.5                                                         | )%         | (1.0 | )% | (0.2 | )% |
| Other differences, net                                    |       | (3.4                                                         | )%         | (2.9 | )% | (3.7 | )% |
| Effective tax rate                                        |       | 0.6                                                          | %          | 0.2 | % | 0.0 | % |

 

Significantcomponents of our deferred tax assets and liabilities are as follows:

 
| ** **                            | ** ** | **For the year ended December 31,** | ** ** |
|---------------------------------------|------------|--------------------------------------------------------------|------------|
| ** **                            | ** ** | **2007**                                                     | ** ** | **2006** | ** ** |
| Deferred tax assets:                  |       |                                                         |       |   |   |
| Tax credits                           |       | $                                                            | 643        |   | $ | 101 |   |
| Tax loss carry forwards               |       | 8,659                                                        |       | 9,948 |   |
| Other                                 |       | 124                                                          |       | 478 |   |
|                                  |       | 9,426                                                        |       | 10,527 |   |
| Valuation allowance:                  |       | (9,426                                                       | )          | (10,527 | ) |
|                                  |       | —                                                       |       | — |   |
| Deferred tax liabilities:             |       |                                                         |       |   |   |
| Puerto Rico basis difference          |       | (9,376                                                       | )          | (9,426 | ) |
|                                  |       | (9,376                                                       | )          | (9,426 | ) |
| Net deferred tax assets (liabilities) |       | $                                                            | (9,376     | ) | $ | (9,426 | ) |

 

F-14

----

 

Deferred tax liabilities areincluded in accounts payable and other liabilities in the accompanyingconsolidated balance sheet.

 

At December 31, 2007and 2006, we had a deferred tax liability related to the hotel we purchased inPuerto Rico.  Specifically, we acquiredall of the outstanding stock of a C corporation that owned the hotel as itsprimary asset, which generally would cause us to succeed to the acquiredcorporation’s tax bases.  However, forU.S tax purposes we made an election under Section 338(g) of theInternal Revenue Code to avoid being treated as the successor to the acquiredcorporation’s federal income tax attributes, including its adjusted taxbases.  Because we made no such electionfor Puerto Rico tax purposes we recorded in purchase accounting a deferred taxliability for these basis differences at our Puerto Rico effective tax rate.

 

At December 31,2007 and 2006, our consolidated TRS had a net deferred tax asset, prior to anyvaluation allowance, of $9,426 and $10,527, respectively, which consistsprimarily of net operating loss carryforwards and tax credits.  Because of the uncertainty surrounding ourability to realize the future benefit of these assets we have provided a 100%valuation allowance as of December 31, 2007 and 2006.  As of December 31, 2007 our consolidatedTRS had net operating loss carryforwards for federal income tax purposes ofapproximately $22,396 which begin to expire in 2023 if unused.

 

**8. Acquisitions**

** **

On January 31, 2007, wecompleted our acquisition of TravelCenters pursuant to the Agreement and Planof Merger dated as of September 15, 2006, as amended, among TravelCenters,us, one of our former subsidiaries and the stockholders of TravelCenters. Uponcompletion of the acquisition, we restructured the business of TravelCentersand distributed all of the common shares of our former subsidiary, TA, to ourshareholders in a spin off transaction. The acquisition of TravelCenters,the restructuring of the TravelCenters business and the spin off transactionare collectively referred to herein as the TA Transaction.

 

As a part of therestructuring of TravelCenters which occurred in connection with the TATransaction, on January 31, 2007:

 

·                  TravelCenters became a subsidiary of our subsidiary, TA;

 

·                  certain real property interests of 146 travel centers that wereoperated by TravelCenters and certain other assets used in connection with thetravel center business with an estimated total value of $1,697,221 weretransferred to subsidiaries of ours that were not owned by TA;

 

·                  TA became the owner of all of the working capital of TravelCenters,including current assets (primarily consisting of cash, receivables andinventory) and current liabilities (primarily consisting of trade payables andaccrued liabilities);

 

·                  we contributed cash of $121,166 to TA so that the sum of its currentassets, net of current liabilities, was $200,000;

 

·                  TA became the owner of one travel center in Ontario, Canada, theoperator of two travel centers leased from owners other than us, the manager ofone travel center for an owner other than us, the franchisor of 13 travelcenters owned and operated by third parties and the owner of certain otherassets historically owned and used by TravelCenters;

 

·                  We entered into a lease of the 146 travel centers we acquired (onetravel center was subsequently disposed of) and certain related assets to TA;and

 

·                  TA commenced operating the travel center business formerly conducted byTravelCenters.

 

After this restructuring,on January 31, 2007, we distributed all of the shares of TA to our commonshareholders of record on January 26, 2007. The book value of thisdistribution was $337,250. Shareholders were entitled to receive one TA commonshare for every ten of our common shares owned on the record date. Fractionalshares were issued as necessary. TA’s common shares are listed on the AmericanStock Exchange under the symbol “TA”. We expensed $2,711 of costs in connectionwith the spin off transaction.

 

F-15

----

 

The cost of theTravelCenters acquisition was as follows:

 
| Cash consideration                   |   | $       | 1,222,336 |   |
|--------------------------------------|--------|---------|-----------|--------|
| Indebtedness extinguished at closing |   | 681,148 |      |
| Fees and other expenses              |   | 9,821   |      |
|                                 |   | $       | 1,913,305 |   |

 

We allocated the cost tothe fair value of assets and liabilities acquired as follows:

 
| Net assets and liabilities retained by TA in the  restructuring  |   | $         | 216,084   |   |
|------------------------------------------------------------------|--------|-----------|-----------|--------|
| Assets and liabilities transferred to HPT in the  restructuring: |   |      |      |
| Real estate                                                      |   | 1,532,895 |      |
| Trademarks and tradenames                                        |   | 142,600   |      |
| Other, net                                                       |   | 21,726    |      |
|                                                             |   | $         | 1,913,305 |   |

 

On January 22, 2007,we entered into a new $2,000,000 interim loan agreement, or the AcquisitionFacility, with a group of institutional lenders that became effectiveconcurrently with our acquisition of TravelCenters. We funded the acquisitionof TravelCenters and the capitalization of TA with a $1,400,000 borrowing underthe Acquisition Facility and our then existing cash balances. We subsequentlyrepaid all borrowings under the Acquisition Facility during the first quarterof 2007 with net proceeds from the financing transactions described in Notes 3and 6. The annual interest rate of the Acquisition Facility was 6.02% duringthe period it was outstanding.

 

On May 30, 2007, weacquired Petro Stopping Centers Holdings, L.P., or Petro, for approximately$630,000 plus certain costs.  Petro owns40 travel centers located in 25 states. In connection with our acquisition ofPetro, we acquired certain Petro properties which secure debt that waspreviously issued by Petro Stopping Centers, L.P., or Petro Centers, a formersubsidiary of Petro acquired by TA on May 30, 2007. Upon closing of ouracquisition of Petro, the Petro debt assumed by TA was covenant defeased andfunds were escrowed by TA at closing and used to redeem the Petro Centers debton February 15, 2008. We agreed to pay certain costs associated with ouracquisition of Petro, including those related to the defeasance and prepaymentof the Petro Centers debt and customary closing costs, that totaledapproximately $25,000.  Simultaneous withour acquisition of Petro, we leased the acquired travel centers to TA.

 

The allocation of thePetro purchase price to the fair value of assets acquired was as follows:

 
| Real estate         |   | $      | 638,300 |   |
|---------------------|--------|--------|---------|--------|
| Leasehold interests |   | 16,700 |    |
|                |   | $      | 655,000 |   |

 

The following tablepresents our pro forma results of operations as if the TA Transaction and thePetro acquisition and the related financing transactions were completed on January 1,2006. This pro forma data is not necessarily indicative of what our actualresults of operations would have been for the periods presented, nor does itrepresent the results of operations for any future period.

 
| ** **                                                           | ** ** | **Twelve months ended December 31,** | ** ** |
|----------------------------------------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                                                           | ** ** | **2007**                                                 | ** ** | **2006** | ** ** |
| Total revenues                                                       |       | $                                                        | 1,325,286  |   | $ | 1,255,867 |   |
| Income from continuing operations                                    |       | 236,182                                                  |       | 220,013 |   |
| Income from continuing operations available for  common shareholders |       | 206,303                                                  |       | 190,132 |   |
| Basic and diluted per common share data:                             |       |                                                     |       |   |   |
| Income from continuing operations available for  common shareholders |       | $                                                        | 2.20       |   | $ | 2.06 |   |

 

F-16

----

 

Income from continuingoperations and income from continuing operations available for commonshareholders for the twelve months ended December 31, 2007, excludes$2,711, or $0.03 per common share, of costs related to the spin off of TA.

 

**9. Discontinued Operations**

** **

On July 26, 2007, we sold 18 Homestead Studio Suites hotels for grossproceeds of $205,350 and recognized a gain on sale of $95,711. Seventeen ofthese hotels were sold to an unrelated party. One hotel was purchased by asubsidiary of HRPT Properties Trust, a publicly traded real estate investmenttrust that is managed by Reit Management & Research LLC, or RMR, whichis also our manager. We used the net proceeds from these sales, totaling $189,309after the refund of a $15,960 security deposit and payment of closing costs, toreduce amounts outstanding under our revolving credit facility.  We have reclassified our consolidatedstatement of income for all periods presented to show the results of operationsof the hotels which have been sold as discontinued.  Following is a summary of the operatingresults of these discontinued operations:

 
| ** **                          | ** ** | **Twelve Months Ended December 31,** | ** ** |
|-------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                          | ** ** | **2007**                                                 | ** ** | **2006** | ** ** | **2005** | ** ** |
| Minimum rent                        |       | $                                                        | 9,218      |   | $ | 15,960 |   | $ | 15,960 |   |
| Percentage rent                     |       | 267                                                      |       | 509 |   | 439 |   |
| Total revenue                       |       | 9,485                                                    |       | 16,469 |   | 16,399 |   |
| Depreciation and amortization       |       | (1,636                                                   | )          | (3,206 | ) | (4,550 | ) |
| General and administrative          |       | (409                                                     | )          | (725 | ) | (725 | ) |
| Income from discontinued operations |       | $                                                        | 7,440      |   | $ | 12,538 |   | $ | 11,124 |   |

** **

**10. Transactions with Affiliates**

** **

RMR originatesand presents investment opportunities to our board and provides management andadministrative services to us. Our contract with RMR for such servicescontinues from year to year and is subject to annual approval by a boardcommittee comprised of our independent trustees. RMR is compensated at anannual rate equal to 0.7% of our average real estate investments, as defined,up to the first $250,000 of such investments and 0.5% thereafter, plus anincentive fee based upon increases in cash available for distribution pershare, as defined.  On January 6, 2006, we entered into amanagement agreement with RMR to operate an office building which we acquiredin connection with an adjacent hotel.  Feespaid to RMR under this management agreement are based on a formula, generally3% of gross collected rents as a property management fee and 5% of grossconstruction costs as a construction management fee. Aggregate fees earned byRMR from us, excluding incentive fees, for the years ended 2007, 2006 and 2005were $29,937, $19,891 and $17,730, respectively. Incentive fees are paid inrestricted common shares based on a formula. Incentive fees earned by RMR fromus for 2007, 2006 and 2005 were $1,862, $1,487 and $1,397, respectively. Weexpect to issue 53,541 restricted common shares in satisfaction of the 2007incentive fees in 2008.  RMR also provides the internal audit functionfor us and for other publicly traded companies to which it provides managementor other services. Our pro rata share of RMR’s costs in providing that functionfor the years ended 2007, 2006 and 2005 was $169, $173 and $112, respectively. Asof December 31, 2007, RMR and its affiliates owned 344,856 of our commonshares. RMR is beneficially owned by Barry M. Portnoy and his son, Adam D.Portnoy, our managing trustees.

 

In order toeffect the TA Transaction, we entered into a transaction agreement effective asof January 29, 2007, with TA and RMR. That agreement provided for certainof the steps in the restructuring of the TravelCenters business and the spinoff. In addition, under this agreement TA entered into a management and sharedservices agreement with RMR, TA granted to us a right of first refusal topurchase, lease, mortgage or otherwise finance any interest it owns or acquiresin a travel center before it is purchased, sold, leased, mortgaged or otherwisefinanced with another party, and TA agreed to indemnify us for liabilitiesrelating to its business and operations for periods before and after the spinoff and for liabilities relating to the ownership and operation of the leasedtravel centers which arise during the term of our lease with TA.

 

F-17

----

 

**11. Concentration**

** **

At December 31,2007, our 477 properties were located in 44 states in the United States,Ontario, Canada and Puerto Rico. Between 5% and 12% of our properties, byinvestment, were located in each of California, Texas and Georgia. Our twohotels in Ontario, Canada and our hotel in Puerto Rico represent 1% and 2% ofour hotels, by investment, respectively.

 

All of ourmanagers and tenants are subsidiaries of other companies.  The percentage of our minimum return paymentsand minimum rents, for each combination is shown below, as of December 31,2007.

 
| **Manager / Tenant is a** | ** ** | **Number of** | ** ** | **Minimum Return /** | ** ** | **% of** | ** ** |
|-----------------------------------------------|------------|--------------------|------------|--------------------------------|------------|---------------|------------|
| **Subsidiary of:**                       | ** ** | **Properties**     | ** ** | **Minimum Rent**          | ** ** | **Total**     | ** ** |
| TA                                            |       | 145                |       | $                              | 155,713    |          | 28         | % |
| TA                                            |       | 40                 |       | 62,225                         |       | 11            | %          |
| Host*                                         |       | 53                 |       | 58,379                         |       | 10            | %          |
| InterContinental                              |       | 76                 |       | 50,000                         |       | 9             | %          |
| Marriott                                      |       | 35                 |       | 49,034                         |       | 9             | %          |
| InterContinental                              |       | 14                 |       | 42,873                         |       | 8             | %          |
| InterContinental                              |       | 31                 |       | 37,882                         |       | 7             | %          |
| Barcelo Crestline**                           |       | 19                 |       | 28,508                         |       | 5             | %          |
| Hyatt                                         |       | 24                 |       | 23,050                         |       | 4             | %          |
| InterContinental                              |       | 10                 |       | 20,306                         |       | 4             | %          |
| Host*                                         |       | 18                 |       | 19,287                         |       | 3             | %          |
| Carlson                                       |       | 12                 |       | 11,890                         |       | 2             | %          |
| Total                                         |       | 477                |       | $                              | 559,147    |          | 100        | % |

 

----

*Thesehotels are subleased to Barceló Crestline and managed by Marriott.

**Thesehotels are managed by Marriott.

 

Minimum returnand minimum rent payments due to us under some of our management agreements andleases are supported by guarantees. The guarantee provided by Hyatt withrespect to the 24 hotels managed by Hyatt is limited to $50,000 ($36,678remaining at December 31, 2007). The guarantee provided by Carlson withrespect to the 12 hotels managed by Carlson is limited to $40,000 ($40,000remaining at December 31, 2007). The combined guarantee provided byInterContinental for the 131 hotels managed or leased by InterContinental islimited to $125,000 ($115,922 remaining at December 31, 2007) and willexpire if and when the hotels achieve stipulated operating results.  The guarantees provided by TA are not limitedand do not expire.

 

Each of ourhotels is included in a combined management agreement or lease as describedabove. Operations at some of our managed hotels generated net financial resultsthat were $9,780, $3,542 and $2,491 less than the guaranteed minimum returnsdue us in 2007, 2006 and 2005, respectively. These amounts have been paid bythe hotel managers or their guarantors and are reflected as a reduction of hoteloperating expenses in our consolidated statement of income.

 

F-18

----

 

**12. Selected Quarterly Financial Data (Unaudited)**

** **
| ** **                                                                           | ** ** | **2007**                 |
|--------------------------------------------------------------------------------------|------------|--------------------------|
| ** **                                                                           | ** ** | **First**                | ** ** | **Second** | ** ** | **Third** | ** ** | **Fourth** | ** ** |
| ** **                                                                           | ** ** | **Quarter ****(3)** | ** ** | **Quarter ****(3)** | ** ** | **Quarter****(3)** | ** ** | **Quarter** | ** ** |
| Revenues                                                                             |       | $                        | 290,668 |   | $ | 333,741 |   | $ | 334,310 |   | $ | 326,760 |   |
| Income from continuing operations                                                    |       | 40,314                   |   | 51,227 |   | 52,822 |   | 83,454 |   |
| Income from discontinued operations                                                  |       | 3,058                    |   | 3,055 |   | 97,038 |   | — |   |
| Net income available for common shareholders                                         |       | 39,013                   |   | 46,812 |   | 142,390 |   | 75,984 |   |
| Income from continuing operations available for  common shareholders per share (1)   |       | .40                      |   | .47 |   | .48 |   | .81 |   |
| Income from discontinued operations available for  common shareholders per share (1) |       | .03                      |   | .03 |   | 1.03 |   | — |   |
| Net income available for common shareholders per  share (1)                          |       | .43                      |   | .50 |   | 1.52 |   | .81 |   |
| Distributions per common share (2)                                                   |       | .76                      |   | .76 |   | .77 |   | .77 |   |
|                                                                                      |            |                          |  |  |  |  |  |  |  |  |  |  |  |

 
| ** **                                                                           | ** ** | **2006 ****(3)** | ** ** |
|--------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                           | ** ** | **First**             | ** ** | **Second** | ** ** | **Third** | ** ** | **Fourth** | ** ** |
| ** **                                                                           | ** ** | **Quarter**           | ** ** | **Quarter** | ** ** | **Quarter** | ** ** | **Quarter** | ** ** |
| Revenues                                                                             |       | $                     | 235,726    |   | $ | 268,208 |   | $ | 265,125 |   | $ | 253,887 |   |
| Income from continuing operations                                                    |       | 32,367                |       | 32,321 |   | 33,510 |   | 58,303 |   |
| Income from discontinued operations                                                  |       | 2,866                 |       | 3,056 |   | 3,053 |   | 3,563 |   |
| Net income available for common shareholders                                         |       | 33,319                |       | 33,463 |   | 34,649 |   | 59,952 |   |
| Income from continuing operations available for  common shareholders per share (1)   |       | .42                   |       | .42 |   | .43 |   | .75 |   |
| Income from discontinued operations available for  common shareholders per share (1) |       | .04                   |       | .04 |   | .04 |   | .05 |   |
| Net income available for common shareholders per  share (1)                          |       | .46                   |       | .47 |   | .47 |   | .79 |   |
| Distributions per common share (2)                                                   |       | .73                   |       | .74 |   | .74 |   | .74 |   |
|                                                                                      |            |                       |            |  |  |  |  |  |  |  |  |  |  |

 

----

(1)   The sum of per common share amounts forthe four quarters differs from annual per share amounts due to the requiredmethod of computing weighted average number of shares in interim periods androunding.

(2)   Amounts represent distributions declaredwith respect to the periods shown. Distributions are generally paid in thequarterly period following the quarterly period to which they relate.

(3)   Amounts previously reported have beenadjusted to reflect the sale of a discontinued operation in July 2007 (seeNote 9).

 

F-19

----

 

**13. Segment Information**

** **

We have two reportable business segments:hotel investments and travel center investments. Prior to our acquisition ofTravelCenters in January 2007, our only reportable segment was hotels.

** **
| ** **                                | ** ** | **Year Ended December 31, 2007** | ** ** |
|-------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                | ** ** | **Hotels**                                           | ** ** | **Travel  Centers** | ** ** | **Corporate** | ** ** | **Consolidated** | ** ** |
| Hotel operating revenues                  |       | $                                                    | 941,455    |   | $ | — |   | $ | — |   | $ | 941,455 |   |
| Minimum rent                              |       | 117,193                                              |       | 193,571 |   | — |   | 310,764 |   |
| Percentage rent                           |       | 6,055                                                |       | — |   | — |   | 6,055 |   |
| FF&E reserve income                   |       | 22,286                                               |       | — |   | — |   | 22,286 |   |
| Interest income                           |       | —                                               |       | — |   | 4,919 |   | 4,919 |   |
| Total revenues                            |       | 1,086,989                                            |       | 193,571 |   | 4,919 |   | 1,285,479 |   |
| Hotel operating expenses                  |       | 657,000                                              |       | — |   | — |   | 657,000 |   |
| Operating income                          |       | 429,989                                              |       | 193,571 |   | 4,919 |   | 628,479 |   |
|                                      |       |                                                 |       |   |   |   |   |   |   |
| Interest expense                          |       | —                                               |       | — |   | 140,517 |   | 140,517 |   |
| Depreciation and  amortization expense    |       | 147,401                                              |       | 69,287 |   | — |   | 216,688 |   |
| General and administrative  expense       |       | —                                               |       | — |   | 37,223 |   | 37,223 |   |
| TA spin off costs                         |       | —                                               |       | — |   | 2,711 |   | 2,711 |   |
| Loss on asset impairment                  |       | 1,332                                                |       | — |   | — |   | 1,332 |   |
| Total expenses                            |       | 148,733                                              |       | 69,287 |   | 180,451 |   | 398,471 |   |
|                                      |       |                                                 |       |   |   |   |   |   |   |
| Income before income taxes                |       | 281,256                                              |       | 124,284 |   | (175,532 | ) | 230,008 |   |
| Income tax expense                        |       | —                                               |       | — |   | (2,191 | ) | (2,191 | ) |
|                                      |       |                                                 |       |   |   |   |   |   |   |
| Income (loss) from  continuing operations |       | $                                                    | 281,256    |   | $ | 124,284 |   | $ | (177,723 | ) | $ | 227,817 |   |
|                                      |       |                                                 |       |   |   |   |   |   |   |
| Total assets                              |       | $                                                    | 3,247,770  |   | $ | 2,378,651 |   | $ | 52,886 |   | $ | 5,679,307 |   |

 

**F-20**

----

 

**14. Significant Tenant (Unaudited)**

** **

TA is the lessee of 39%of our investments, at cost, as of December 31, 2007.  The following table presents summary auditedfinancial information for TA for its fiscal year ended December 31, 2007,as reported in its Annual Report on Form 10-K for the fiscal year ended December 31,2007.  Summary audited financialinformation is also included for TravelCenters of America, Inc., orTravelCenters, the predecessor of TA, for its fiscal years ended December 31,2006 and 2005, and the one month ended January 31, 2007, as reported in TA’sAnnual Report on Form 10-K for the fiscal year ended December 31,2007.

 

**SummaryAudited Financial Information of TravelCenters of America LLC and**

**TravelCentersof America, Inc.**

**(inthousands)**

 
| ** **                                                | ** ** | **TA**                            | ** ** | **TravelCenters**              | ** ** |
|-----------------------------------------------------------|------------|-----------------------------------|------------|--------------------------------|------------|
| ** **                                                | ** ** | **Eleven months ended** | ** ** | **One month ended**  | ** ** | **Year ended December 31,** | ** ** |
| ** **                                                | ** ** | **December 31, 2007**   | ** ** | **January 31, 2007** | ** ** | **2006** | ** ** | **2005** | ** ** |
| Total revenues                                            |       | $                                 | 5,813,475  |                           | $          | 352,682 |   | $ | 4,783,514 |   | $ | 4,075,296 |   |
| Total cost of goods sold                                  |       | 5,056,201                         |       | 298,172                        |       | 4,123,444 |   | 3,450,780 |   |
| Net (loss) income                                         |       | (101,308                          | )          | (22,048                        | )          | 31,033 |   | (2,095 | ) |
| Current assets                                            |       | 746,014                           |       | —                         |       | 266,954 |   | 230,401 |   |
| Noncurrent assets                                         |       | 517,307                           |       | —                         |       | 728,638 |   | 709,303 |   |
| Current liabilities                                       |       | 567,783                           |       | —                         |       | 199,495 |   | 193,762 |   |
| Noncurrent liabilities                                    |       | 256,098                           |       | —                         |       | 706,820 |   | 698,635 |   |
| Total shareholders’ equity                           |       | 439,440                           |       | —                         |       | 75,874 |   | 45,372 |   |
| Net cash provided by (used in) operating  activities      |       | (114,852                          | )          | 40,025                         |       | 107,486 |   | 80,982 |   |
| Net cash used in investing activities                     |       | (180,787                          | )          | (7,141                         | )          | (90,158 | ) | (83,798 | ) |
| Net cash provided by (used in) financing  activities      |       | 199,337                           |       | (8,224                         | )          | (9,573 | ) | 4,476 |   |
| Net increase (decrease) in cash                           |       | (96,133                           | )          | 24,653                         |       | 7,750 |   | 1,701 |   |
| Cash and cash equivalents at the beginning of the  period |       | 245,009                           |       | 55,297                         |       | 47,547 |   | 45,846 |   |
| Cash and cash equivalents at the end of the period        |       | 148,876                           |       | 79,950                         |       | 55,297 |   | 47,547 |   |
|                                                           |            |                                   |            |                                |            |  |  |  |  |  |  |  |  |

 

The summary financialinformation of TA is presented to comply with applicable accounting regulationsof the Securities and Exchange Commission.  References in these financial statements tothe Annual Report on Form 10-K for TA are included as textual referencesonly, and the information in such Annual Report is not incorporated by referenceinto these financial statements.

 

F-21

----

 

**Hospitality Properties Trust**

** **

**SCHEDULE III - REAL ESTATE ANDACCUMULATED DEPRECIATION**DECEMBER 31, 2007(dollars in millions)

** **
| ** **                       | ** ** | ** **                    | ** ** | ** **             | ** ** | ** **                                         | ** ** | **Costs**        | ** ** | ** ** | ** ** | ** **               | ** ** | ** **       | ** ** |
|----------------------------------|------------|-------------------------------|------------|------------------------|------------|----------------------------------------------------|------------|------------------|------------|------------|------------|--------------------------|------------|------------------|------------|
| ** **                       | ** ** | ** **                    | ** ** | ** **             | ** ** | ** **                                         | ** ** | **Capitalized**  | ** ** | ** ** | ** ** | ** **               | ** ** | ** **       | ** ** |
| ** **                       | ** ** | **Initial**                   | ** ** | **Subsequent to** | ** ** | **Gross Amount at which**           | ** ** |
| ** **                       | ** ** | **Cost to Company** | ** ** | **Acquisition**        | ** ** | **Carried at Close of Period** | ** ** |
| ** **                       | ** ** | ** **                    | ** ** | ** **             | ** ** | **Buildings &**                           | ** ** | ** **       | ** ** | ** ** | ** ** | **Buildings &** | ** ** | ** **       | ** ** |
| ** **                       | ** ** | **Encumbrances**              | ** ** | **Land**               | ** ** | **Improvements**                                   | ** ** | **Improvements** | ** ** | **Land**   | ** ** | **Improvements**         | ** ** | **Total****(1)** | ** ** |
| 145 TravelCenters of America     |       | $                             | —     |                   | $          | 586                                                |       | $                | 885        |       | $          | 51                       |       | $                | 596        |   | $ | 926 |   | $ | 1,522 |   |
| 40 Petro Stopping Centers        |       | —                        | (2)        | 229                    |       | 401                                                |       | —           |       | 229        |       | 401                      |       | 630              |       |
| 71 Courtyards                    |       | —                        |       | 127                    |       | 643                                                |       | 40               |       | 126        |       | 684                      |       | 810              |       |
| 76 Candlewood Hotels             |       | 4                             |       | 86                     |       | 457                                                |       | 2                |       | 86         |       | 459                      |       | 545              |       |
| 37 Residence Inn                 |       | —                        |       | 69                     |       | 334                                                |       | 13               |       | 69         |       | 347                      |       | 416              |       |
| 35 Staybridge Suites             |       | —                        |       | 91                     |       | 353                                                |       | 4                |       | 91         |       | 357                      |       | 448              |       |
| 22 AmeriSuites/Hyatt Place       |       | —                        |       | 24                     |       | 185                                                |       | 23               |       | 24         |       | 208                      |       | 232              |       |
| 5 InterContinental               |       | —                        |       | 32                     |       | 196                                                |       | 76               |       | 32         |       | 272                      |       | 304              |       |
| 12 Crowne Plaza                  |       | —                        |       | 67                     |       | 251                                                |       | 8                |       | 67         |       | 259                      |       | 326              |       |
| 3 Marriott Full Service          |       | —                        |       | 14                     |       | 90                                                 |       | 4                |       | 14         |       | 94                       |       | 108              |       |
| 12 TownePlace Suites             |       | —                        |       | 17                     |       | 78                                                 |       | 1                |       | 17         |       | 79                       |       | 96               |       |
| 5 Radisson                       |       | —                        |       | 7                      |       | 81                                                 |       | 4                |       | 7          |       | 85                       |       | 92               |       |
| 5 Country Inns & Suites |       | —                        |       | 6                      |       | 58                                                 |       | 5                |       | 6          |       | 63                       |       | 69               |       |
| 3 Holiday Inn                    |       | —                        |       | 10                     |       | 24                                                 |       | 14               |       | 10         |       | 38                       |       | 48               |       |
| 1 Park Plaza                     |       | —                        |       | 1                      |       | 16                                                 |       | —           |       | 1          |       | 16                       |       | 17               |       |
| 2 SpringHill Suites              |       | —                        |       | 3                      |       | 15                                                 |       | —           |       | 3          |       | 15                       |       | 18               |       |
|                             |       |                          |       |                   |       |                                               |       |             |       |       |       |                     |       |             |       |
| Held for sale                    |       |                          |       |                   |       |                                               |       |             |       |       |       |                     |       |             |       |
| 2 AmeriSuites                    |       | —                        |       | 1                      |       | 10                                                 |       | 1                |       | 1          |       | 11                       |       | 12               |       |
| 1 Park Plaza                     |       | —                        |       | 1                      |       | 5                                                  |       | 4                |       | 1          |       | 9                        |       | 10               |       |
|                             |       |                          |       |                   |       |                                               |       |             |       |       |       |                     |       |             |       |
| Total (477 properties)           |       | $                             | 4          |                   | $          | 1,371                                              |       | $                | 4,082      |       | $          | 250                      |       | $                | 1,380      |   | $ | 4,323 |   | $ | 5,703 |   |

 

----

| (1) |   | Excludes $515 of personal  property classified on our consolidated balance sheet as furniture, fixtures  and equipment.                                               |
|-----|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) |   | Upon closing of our  acquisition of Petro Holdings, the Petro debt was covenant defeased and funds  were escrowed to redeem the Petro debt on February 15, 2008. |

 

F-22

----

** **
| ** **                       | ** ** | ** **          | ** ** | ** **        | ** **        | ** **        | ** ** | **Life on which** | ** **    |
|----------------------------------|------------|---------------------|------------|-------------------|-------------------|-------------------|------------|-----------------------------|---------------|
| ** **                       | ** ** | ** **          | ** ** | ** **        | ** **        | ** **        | ** ** | **Depreciation in**    | ** **    |
| ** **                       | ** ** | ** **          | ** ** | ** **        | ** **        | ** **        | ** ** | **Latest Income**      | ** **    |
| ** **                       | ** ** | **Accumulated**     | ** ** | **Date of**  | ** **        | **Date**          | ** ** | **Statement is**       | ** **    |
| ** **                       | ** ** | **Depreciation(1)** | ** ** | **Construction**  | ** **        | **Acquired**      | ** ** | **Computed**                | ** **    |
| 145 Travel Centers of America    |       | $                   | (49        | )                 | 1962 through 2005 |              | 2007       |                        | 10 - 40 Years |   |
| 40 Petro Stopping Centers        |       | (13                 | )          | 1975 through 2005 |              | 2007              |       | 10 - 40 Years               |          |
| 71 Courtyards                    |       | (176                | )          | 1987 through 2000 |              | 1995 through 2003 |       | 10 - 40 Years               |          |
| 76 Candlewood Hotels             |       | (86                 | )          | 1996 through 2000 |              | 1997 through 2003 |       | 10 - 40 Years               |          |
| 37 Residence Inn                 |       | (89                 | )          | 1989 through 2002 |              | 1998 through 2005 |       | 10 - 40 Years               |          |
| 35 Staybridge Suites             |       | (67                 | )          | 1989 through 2002 |              | 1996 through 2006 |       | 10 - 40 Years               |          |
| 22 AmeriSuites/Hyatt Place       |       | (44                 | )          | 1992 through 2000 |              | 1997 through 2002 |       | 10 - 40 Years               |          |
| 5 InterContinental               |       | (21                 | )          | 1924 through 1989 |              | 2006              |       | 10 - 40 Years               |          |
| 12 Crowne Plaza                  |       | (15                 | )          | 1971 through 1987 |              | 2006              |       | 10 - 40 Years               |          |
| 3 Marriott Full Service          |       | (22                 | )          | 1972 through 1995 |              | 1998 through 2001 |       | 10 - 40 Years               |          |
| 12 TownePlace Suites             |       | (17                 | )          | 1997 through 2000 |              | 1998 through 2001 |       | 10 - 40 Years               |          |
| 5 Radisson                       |       | (23                 | )          | 1987 through 1990 |              | 1996 through 1997 |       | 10 - 40 Years               |          |
| 5 Country Inns & Suites |       | (16                 | )          | 1987 through 1997 |              | 1996 and 2005     |       | 10 - 40 Years               |          |
| 3 Holiday Inn                    |       | (3                  | )          | 1984 through 2001 |              | 2006              |       | 10 - 40 Years               |          |
| 1 Park Plaza                     |       | (5                  | )          | 1987 through 1990 |              | 1996              |       | 10 - 40 Years               |          |
| 2 SpringHill Suites              |       | (3                  | )          | 1997 through 2000 |              | 2000 through 2001 |       | 10 - 40 Years               |          |
| Held for sale                    |       |                |       |              |              |              |       |                        |          |
| 2 Amerisuites                    |       | (3                  | )          | 1992 through 2000 |              | 1997 through 2000 |       | 10 - 40 Years               |          |
| 1 Park Plaza                     |       | (2                  | )          | 1988              |              | 1996              |       | 10 - 40 Years               |          |
|                             |       |                |       |              |              |              |       |                        |          |
| Total (477 properties)           |       | $                   | (654       | )                 |              |              |       |                        |          |   |

** **

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(1) Excludes accumulateddepreciation of $200 related to personal property classified on ourconsolidated balance sheet as furniture, fixtures and equipment.

 

**F-23**

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**HOSPITALITY PROPERTIES TRUST**

** **

**NOTES TO SCHEDULE III**DECEMBER 31, 2007(dollars in thousands)

** **

(A) Thechange in total cost of properties for the period from January 1, 2005 to December 31,2007, is as follows:

 
| ** **                                       | ** ** | **2007**  | ** ** | **2006** | ** ** | **2005**  | ** ** |
|--------------------------------------------------|------------|-----------|------------|----------|------------|-----------|------------|
| Balance at beginning of year                     |       | $         | 3,627,587  |     | $          | 3,255,353 |       | $ | 2,817,608 |   |
|                                             |       |      |       |     |       |      |       |
| Additions: acquisitions and capital expenditures |       | 2,210,407 |       | 372,329  |       | 451,126   |       |
| Dispositions                                     |       | (135,438  | )          | (95      | )          | (13,381   | )          |
|                                             |       |      |       |     |       |      |       |
| Balance at close of year                         |       | $         | 5,702,556  |     | $          | 3,627,587 |       | $ | 3,255,353 |   |

 

(B) Thechange in accumulated depreciation for the period from January 1, 2005 to December 31,2007, is as follows:

 
| ** **                      | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** |
|---------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Balance at beginning of year    |       | $        | 531,792    |     | $          | 448,392  |       | $ | 379,594 |   |
|                            |       |     |       |     |       |     |       |
| Additions: depreciation expense |       | 148,799  |       | 83,495   |       | 72,339   |       |
| Dispositions                    |       | (26,367  | )          | (95      | )          | (3,541   | )          |
|                            |       |     |       |     |       |     |       |
| Balance at close of year        |       | $        | 654,224    |     | $          | 531,792  |       | $ | 448,392 |   |

 

(C) Thenet tax basis for federal income tax purposes of our real estate properties was$4,365,157 on December 31, 2007.

 

F-24

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**Signatures**

 

Pursuant tothe requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned, thereuntoduly authorized.

 
| ** ** | **Hospitality  Properties Trust** |
|------------|-----------------------------------|
| ** ** | ** **                        |
|       | By:                               | /s/ John G.  Murray |
|       |                              | John G.  Murray |
|       |                              | President  and Chief Operating Officer |
|       |                              |   |
| Dated:     | July 25,  2008               |   |   |
|            |                                   |  |  |

 

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