UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K/A

Amendment No. 1

For the fiscal year ended December 31, 2011

or

Commission file number 1-115272

HOSPITALITY PROPERTIES TRUST

(Exact Name of Registrant as Specified in Its Charter)

Registrant’s Telephone Number, Including Area Code  617-964-8389

Securities registered pursuant to Section 12(b) of the Act:

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

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

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes o No x

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x No o

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o No x

The aggregate market value of the voting shares of the registrant held by non-affiliates was $3.0 billion based on the $24.25 closing price per common share on the New York Stock Exchange on June 30, 2011. For purposes of this calculation, an aggregate of 494,217 common shares of beneficial interest $.01 par value, held by the trustees and officers of the registrant have been included in the number of shares held by affiliates.

Number of the registrant’s common shares outstanding as of February 28, 2012: 123,521,535.

In this Amendment No. 1 to Annual Report on Form 10-K, and unless the context otherwise requires, the terms “HPT,” ‘‘we,’’ ‘‘our’’ and ‘‘us’’ refer to Hospitality Properties Trust and its consolidated subsidiaries; and the term “TA” refers to TravelCenters of America LLC and its consolidated subsidiaries.

DOCUMENTS INCORPORATED BY REFERENCE

Certain information required in Items 10, 11, 12, 13 and 14 of Part III of this Annual Report on Form 10-K is incorporated herein by reference to our definitive Proxy Statement as filed with the SEC for the Annual Meeting of Shareholders to be held on May 9, 2012, or our definitive Proxy Statement.

EXPLANATORY NOTE

We are filing this Amendment No. 1 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 the fiscal year ended December 31, 2011, or the Annual Report, which was originally filed with the Securities and Exchange Commission, or the SEC, on February 29, 2012.

Item 7 of the Annual Report is amended and being filed in its entirety solely to include the rent coverage ratios for our two lease agreements with TA for the year ended December 31, 2011.  Item 15 of the Annual Report is amended and being filed in its entirety solely to include in the notes to our consolidated financial statements, summary audited financial information for TA for the fiscal years ended December 31, 2011, 2010 and 2009, as reported by TA in its Annual Report on Form 10-K filed with the SEC for the fiscal year ended December 31, 2011.  The rent coverage ratios and summary audited financial information described above were not available when we originally filed our Annual Report.

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

This amendment is limited in scope to the rent coverage ratios and summary audited financial information described above and does not amend, update, or change any other items or disclosures contained in the Annual Report.  Accordingly, all other items that remain unaffected are omitted in this filing.  Except as described in the preceding paragraphs, we do not purport by this Form 10-K/A to update any of the information contained in the Annual Report.

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

Overview

The following information should be read in conjunction with our consolidated financial statements and accompanying notes included in this Annual Report on Form 10-K.

Our hotel tenants and managers.  Our hotel operating agreements contain security features, such as guarantees and security deposits, which are intended to protect minimum returns and rents due to us in accordance with our operating agreements regardless of hotel performance.  However, the effectiveness of various security features to provide uninterrupted receipt by us of minimum returns and rents is not assured, particularly if the U.S. economy and the lodging industry takes an extended period to recover from the severe declines experienced during the recent recession.  If our tenants, managers or guarantors default in their payment obligations to us, our cash flows will decline and we may be unable to pay distributions to our shareholders.

During the twelve months ended December 31, 2011, all payments due to us under our hotel leases and hotel management contracts were paid when due except for certain payments from Marriott and InterContinental.

Marriott agreement.  On June 14, 2011, we entered an agreement to re-align three of our contracts with Marriott.  Additional details of this agreement are set forth in Note 5 to our consolidated financial statements in Item 15 of this Annual Report on Form 10-K, which disclosure is incorporated herein by reference.

After giving effect to the January 1, 2011 effective date of the new agreement with Marriott, the payments we received were $29,762 less than the minimum amounts contractually due during the twelve months ended December 31, 2011.  We applied the remaining $18,392 of available security deposit to partially cover these shortfalls and Marriott provided $9,127 of guaranty payments to us.

InterContinental agreement.  On July 25, 2011, we entered an agreement to re-align all four of our contracts with InterContinental.  Additional details of this agreement are set forth in Note 5 to our consolidated financial statements in Item 15 of this Annual Report on Form 10-K, which disclosure is incorporated herein by reference.

During the twelve months ended December 31, 2011, the payments we received under our agreements with InterContinental were $18,052 less than the minimum amounts contractually required.  We applied the available security deposit to cover these shortfalls.

Other hotel management agreement and lease matters. As of February 28, 2012, all other payments due to us from our hotel managers and hotel tenants under our operating agreements were current.  Additional details of our guarantees from Hyatt and Carlson are set forth in Note 9 to our consolidated financial statements in Item 15 of this Annual Report on Form 10-K, which disclosure is incorporated herein by reference.

When we reduce the amounts of the security deposits we hold under our operating agreements for payment deficiencies, we record income equal to the amounts by which these deposits are reduced up to the minimum return or minimum rent due to us. However, reducing the security deposits does not result in additional cash flow to us of the deficiency amounts, but reducing amounts of security deposits does reduce the refunds due to the respective lessees or managers who have provided us with these deposits upon expiration of the respective lease or management agreement.  Security deposits are non-interest bearing and are not required to be held in escrow.  Under all of our hotel operating agreements that include security deposits, any amounts of the security deposits which are applied to payment deficits may be replenished from future cash flows under the respective agreements.  When we receive payments under guarantees under our leases or operating agreements, we receive cash.  When we receive guaranty payments under our hotel operating agreements, generally the hotel operator is allowed to recapture payments it makes to us out of some or all of the hotels’ future cash flows after our minimum returns are paid.

In November 2010, Host notified us that it will not exercise its renewal option at the end of the current lease term for 53 hotels which we have historically referred to as our Marriott No. 1 Contract.  In the absence of any default by Host, upon expiration of the agreement on December 31, 2012, we expect to return the $50,540 security deposit to Host, to lease these hotels to one of our TRSs and to continue the existing hotel brand and management agreements with

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Marriott with respect to these hotels.  In June 2011, Marriott notified us that it intends to exercise its option to renew these management agreements for an additional 12 years to 2024.

TA amendment agreement.  On January 31, 2011, we entered into an amendment agreement with TA which modified the terms of our two leases with TA pursuant to which we lease 185 of our travel centers to, and which are operated by, subsidiaries of TA.  Additional details of this agreement are set forth in Note 8 to our consolidated financial statements in Item 15 of this Annual Report on Form 10-K, which disclosure is incorporated herein by reference.

As of February 28, 2012, all payments due to us under our TA leases were current.

Royal Sonesta acquisition. On January 31, 2012, we completed our previously announced acquisition of the entities which own the Royal Sonesta Hotel in Cambridge, MA (400 rooms) and lease the Royal Sonesta Hotel in New Orleans, LA (483 rooms) for $150,500, excluding acquisition costs.  Additional details of this transaction are set forth in Notes 4 and 8 to our consolidated financial statements in Item 15 of this Annual Report on Form 10-K, which disclosure is incorporated herein by reference.

Management Agreements and Leases

At December 31, 2011, our 288 hotels were operated under six operating agreements, including 233 hotels leased to our wholly owned TRSs and managed by hotel management companies and 55 hotels leased to hotel operators.  We lease our 185 travel centers to TA under two agreements. Our consolidated statements of income include operating revenues and expenses of our managed hotels and rental income for leased hotels and travel centers.  Additional information regarding the terms of our management agreements and leases is included in the table on pages 18 and 19.

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

Year Ended December 31, 2011 Compared to Year Ended December 31, 2010

The increase in hotel operating revenues in 2011 compared to 2010 was caused primarily by the increase in revenues at our managed hotels and the conversion of 18 hotels (formerly our Marriott No. 2 Contract) and 19 hotels (formerly our Marriott No. 4 Contract) from leased to managed properties effective January 1, 2011.  Revenues at most of our managed hotels increased from 2010 due to higher occupancy rates and increases in average daily rate, or ADR.  Additional operating statistics of our hotels are included in the table on page 20.

The decrease in rental income - hotels is a result of the conversion of the 37 hotels from leased portfolios to managed portfolios as described above, partially offset by increases in the minimum rents due to us as we funded improvements at certain of our leased hotels in 2010 and 2011.

The increase in rental income - travel centers is primarily the result of the increase in rental income we recognized in 2011 under our leases with TA due to TA ceasing as of December 31, 2010, to be able to defer additional rent pursuant to our rent deferral agreement with TA ($23,196, including $4,789 of straight line rent) and the increase in rents due to us from TA as a result of our funding of improvements to certain of our travel centers in 2011 ($2,165), partially offset by the elimination of interest paid to us by TA on deferred rent amounts in 2010 ($14,100 and recorded as rental income in our consolidated financial statements) pursuant to the terms of our rent deferral agreement with TA

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(see Note 8 to our consolidated financial statements in Item 15 of this Annual Report on Form 10-K for further information on our agreements with TA).

The increase in percentage rent — hotels is a result of increased sales at certain of our leased hotels in 2011 versus 2010.

FF&E reserve income represents amounts paid by certain of our hotel tenants into restricted accounts owned by us, the purpose of which is to accumulate funds for future capital expenditures. The terms of our hotel leases require these amounts to be calculated as a percentage of total sales at our hotels. The decrease in FF&E reserve income is primarily the result of the conversion of the 37 hotels from leased to managed as described above, partially offset by increased levels of sales at certain of our leased hotels in 2011 versus 2010. We do not report the amounts, if any, which are escrowed as FF&E reserves for our managed hotels as FF&E reserve income.

The increase in hotel operating expenses was primarily caused by the conversion of 37 hotels from leased to managed as described above, and increased expenses associated with higher occupancy at our managed hotels, partially offset by the funding by certain of our managers of minimum return deficiencies and our application of security deposits to cover minimum return deficiencies. Certain of our managed hotel portfolios had net operating results that were, in the aggregate, $60,264 and $85,592 less than the minimum returns due to us in 2011 and 2010, respectively.  When the shortfalls are funded by the managers of these hotels under the terms of our operating agreements, we reflect these fundings (including security deposit applications) in our consolidated statements of income as a reduction to hotel operating expenses.  The reduction in operating expenses was $58,771 and $85,592 in 2011 and 2010, respectively.

The decrease in depreciation and amortization - hotels is primarily due to certain of our depreciable assets becoming fully depreciated in 2010 and 2011 and the impact of not recording depreciation on 21 hotels classified as held for sale beginning in July 2011 in accordance with United States generally accepted accounting principles, or GAAP, partially offset by the depreciation and amortization of assets acquired with funds from our FF&E reserve accounts in 2010 and 2011.

The increase in depreciation and amortization - travel centers is primarily due to the depreciation and amortization of improvements made to our travel centers during 2010 and 2011.

The increase in general and administrative costs is primarily due to an increase in business management and legal fees in 2011 versus 2010.

Acquisition related costs represent legal and other costs incurred in connection with our January 2012 acquisition of the entities that own or lease two Royal Sonesta Hotels as described above.

We recorded a $163,681, or $1.33 per share, loss on asset impairment in the twelve months ended December 31, 2010 to reduce the carrying value of 49 of our hotels to their estimated fair value.  We recorded a $16,384, or $0.13 per share, loss on asset impairment in the twelve months ended December 31, 2011 to further reduce the carrying value of certain of these hotels.

The increase in operating income is primarily due to the revenue and expense changes discussed above, particularly the loss on asset impairment recorded in 2010.

The decrease in interest income is due to lower average cash balances during 2011 versus 2010.

The decrease in interest expense is primarily due to lower weighted average interest rates and lower average borrowings in 2011 compared to 2010.

In 2010, we recorded a $6,720 loss on the extinguishment of debt relating to the purchase of $185,696 face amount of our 3.8% convertible senior notes due 2027 for an aggregate purchase price of $185,626, excluding accrued interest. The loss on extinguishment of debt includes unamortized issuance costs and discounts of $7,260 and $588 of transaction costs, net of the equity component of the notes of $1,058.

Equity in earnings (losses) of an investee represents our proportionate share of the earnings (losses) of AIC.

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The increase in income tax expense is primarily the result of an increase in state income taxes as a result of higher taxable income for state income tax purposes in the 2011 period compared to the 2010 period.

The increases in net income, net income available for common shareholders and net income available for common shareholders per common share in 2011 are primarily a result of the changes discussed above, particularly the loss on asset impairment recorded in 2010.

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Year Ended December 31, 2010 Compared to Year Ended December 31, 2009

The increase in hotel operating revenues in 2010 compared to 2009 was caused by the increase in revenues at our managed hotels. Revenues at most of our managed hotels increased from 2009 due to higher occupancy rates, partially offset by declines in ADR at certain of our hotels.  Additional operating statistics of our hotels are included in the table on page 20.

The increase in minimum rents - hotels was a result of our funding of improvements at certain of our leased hotels in 2009 and 2010 that resulted in increases in the annual minimum rents due to us.

The increase in rental income - travel centers was a result of contractual rent increases in our lease agreement with TA for 145 travel centers and interest of $14,100 earned on deferred rent amounts in 2010 pursuant to our rent deferral agreement with TA discussed in Note 8 to our consolidated financial statements included in Item 15 of this Annual Report on Form 10-K.  Rental income for both periods excludes $60,000 of rent deferred by TA under the rent deferral agreement.

The increase in percentage rent - hotels was the result of increased sales at certain of our leased hotels in 2010 versus 2009.

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The increase in FF&E reserve income was primarily due to increases in the percentage of sales contributed to our FF&E reserves by some of our tenants in 2010 and increased levels of hotel sales in 2010 versus 2009 at our leased hotels.  We do not report the amounts which are escrowed as FF&E reserves for our managed hotels as FF&E reserve income.

The increase in hotel operating expenses was primarily caused by increased expenses associated with higher occupancy at our managed hotels, partially offset by the funding by certain of our managers of minimum return deficiencies and our application of a security deposit to cover minimum return deficiencies. Certain of our managed hotel portfolios had net operating results that were, in the aggregate, $85,592 and $75,205 less than the minimum returns due to us in 2010 and 2009, respectively.  These shortfalls were funded by the managers of these hotels under the terms of our operating agreements and we reflected these fundings (including security deposit applications) in our consolidated statements of income as a reduction to hotel operating expenses.

The decrease in depreciation and amortization - hotels was primarily due to certain of our depreciable assets becoming fully depreciated in 2010 and 2009, partially offset by the depreciation and amortization of assets acquired with funds from our FF&E reserve accounts or separately funded by us in 2009 and 2010.

The decrease in depreciation and amortization - travel centers was primarily due to certain of our depreciable assets becoming fully depreciated in 2010 and 2009, partially offset by the depreciation and amortization of improvements made to our travel centers during 2009 and 2010.

The decrease in general and administrative expense was due primarily to lower professional services fees in 2010 versus 2009.

We recorded $163,681, or $1.33 per share, loss on asset impairment in the twelve months ended December 31, 2010 to reduce the carrying value of 49 of our hotels to their estimated fair value.

The decrease in operating income was primarily due to the revenue and expense changes discussed above, particularly the loss on asset impairment recorded in 2010.

The increase in interest income was due to higher average restricted cash balances during 2010 versus 2009.

The decrease in interest expense was primarily due to lower average borrowings, partially offset by higher weighted average interest rates during 2010 than in 2009.

In 2010, we recorded a $6,720 loss on the extinguishment of debt relating to the purchase of $185,696 face amount of our 3.8% convertible senior notes due 2027 for an aggregate purchase price of $185,626, excluding accrued interest. The loss on extinguishment of debt includes unamortized issuance costs and discounts of $7,260 and $588 of transaction costs, net of the equity component of the notes of $1,058.  The gain on extinguishment of debt in 2009 resulted from our purchase of $367,421 face amount of our 3.8% convertible senior notes due 2027 and various issues of our senior notes for an aggregate purchase price of $303,341, excluding accrued interest. The gain on extinguishment of debt is net of unamortized issuance costs and discounts of $17,837 and includes a portion of the allocated equity component on the convertible notes of $4,854.

Equity in losses of an investee represents our proportionate share of the losses of AIC.

The decrease in income tax expense is primarily the result of lower state income taxes due to a decrease in taxable income for state income tax purposes as a result of our increased common share distributions in 2010 compared to 2009.

The decreases in net income, net income available for common shareholders and net income available for common shareholders per common share in 2010 are primarily a result of the changes discussed above, particularly the loss on asset impairment recorded in 2010.

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Liquidity and Capital Resources (dollar amounts in thousands, except per share amounts)

Our Managers and Tenants

As of December 31, 2011, all 473 of our properties are operated under eight management agreements or leases.  All costs of operating and maintaining our properties are paid by our hotel managers as agents for us or by our tenants for their own account. These hotel managers and tenants derive their funding for property operating expenses, FF&E reserves, and returns and rents due to us generally from property operating revenues and, to the extent that these parties themselves fund our minimum returns and minimum rents, from their separate resources.

We define coverage for each of our hotel management agreements or leases as total property sales minus all property level expenses that are not subordinated to the minimum returns and minimum rents due to us and the required FF&E reserve contributions, divided by the minimum return or minimum rent payments due to us. More detail regarding coverage, guarantees and other security features of our operating agreements is presented in the tables on pages 18 and 19. During the twelve months ended December 31, 2011, all six of our hotel operating agreements, generated coverage of less than 1.0x (0.50x to 0.83x).

We define coverage for our travel center leases as property level sales minus all property level expenses divided by the minimum rent payments due to us.  During the twelve months ended December 31, 2011, our two travel center leases, representing 185 properties, generated coverage of 1.69x and 1.63x, respectively.  Because substantially all of TA’s business is conducted at properties leased from us, property level rent coverage may not be an appropriate way to evaluate TA’s ability to pay rents due to us.  We believe property level rent coverage is nonetheless one useful indicator of the performance and value of our properties as we believe it is what an operator interested in acquiring these properties or leaseholds might use to evaluate these properties’ contributions to their earnings before corporate level expenses.

Two hundred ninety (290) of our properties, representing 63% of our total historical investments at cost as of December 31, 2011, are operated under six management arrangements or leases which are subject to full or limited guarantees. These guarantees may provide us with continued payments if the property level cash flows fail to equal or exceed guaranteed amounts due to us. Some of our managers and tenants, or their affiliates, may also supplement cash flow from our properties in order to make payments to us and preserve their rights to continue operating our properties even if they are not required to do so by guarantees. Guaranty or supplemental payments to us, if any, made under any of our management agreements or leases do not subject us to repayment obligations, but, under some of our agreements, the manager or tenant may recover these guaranty or supplemental payments from the future cash flows from our properties after our future minimum returns and minimum rents are paid.

As described above, certain of our agreements are generating cash flows that are less than the minimum amounts contractually required and we have been utilizing the security features and guarantees in our agreements to cover these shortfalls.  However, several of the guarantees and all the security deposits we hold are for limited amounts and are for limited durations and may be exhausted or expire, especially if our properties operations and our managers and tenants do not sufficiently recover from the recent recession in a reasonable time period.  Accordingly, the effectiveness of our various security features to provide uninterrupted payments to us is not assured.  If any of our hotel managers, tenants or guarantors default in their payment obligations to us, our cash flows will decline.

Our Operating Liquidity and Capital Resources

Our principal source of funds for current expenses and distributions to shareholders are minimum returns from our managed hotels and minimum rents from our leased hotels and travel centers. We receive minimum returns and minimum rents from our managers and tenants monthly. We receive additional returns, percentage rents and our share of the operating profits of our managed hotels after payment of management fees and other deductions, if any, either monthly or quarterly. This flow of funds has historically been sufficient for us to pay our operating expenses, debt service interest and distributions to shareholders declared by our Board of Trustees. We believe that our operating cash flow will be sufficient to meet our operating expenses, interest and distribution payments declared by our Board of Trustees for the next twelve months and the foreseeable future thereafter.  However, because of the impact of the weak U.S. economy on the hotel and travel center industries, our managers and tenants may be unable to pay minimum returns and minimum rents to us when due, in which case our cash flow and net income will decline and we may need to reduce the amount of, or even eliminate, our distributions to common shareholders.

Changes in our cash flows in the twelve months ended December 31, 2011 compared to the same period in 2010 were as follows: (1) cash flow provided by operating activities increased from $341,444 in 2010 to $355,102 in 2011; (2) cash used in investing activities decreased from $122,203 in 2010 to $94,307 in 2011; and (3) cash used in financing activities decreased from $344,758 in 2010 to $257,374 in 2011.

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The increase in cash provided by operating activities between 2011 and 2010 is due primarily to the increase in rental income we received pursuant to our amended TA leases and increases in our minimum returns and rents under certain of our hotel operating agreements. The decrease in cash used in investing activities is primarily due to the supplemental security deposit we received from InterContinental in 2011 pursuant to the agreement to realign our operating agreements as described above compared to a $17,220 refund of a security deposit for an expired lease in 2010, partially offset by an increase in the funding of improvements to certain of our hotels and travel centers in 2011.  The decrease in cash used in financing activities between 2011 and 2010 is primarily a result of reduced net borrowings under our revolving credit facility in 2011 and our repurchase of $185,626 of our convertible senior notes in 2010 compared to no repurchases in 2011.

We maintain our status as a REIT under the IRC by meeting certain requirements. As a REIT, we do not expect to pay federal income taxes on the majority of our income.  The IRC, among other things, allows a REIT to lease hotels to TRSs if the hotels are managed by a third party. The income realized by our TRSs in excess of the rent they pay to us is subject to U.S. federal income tax at corporate tax rates.  The income we receive from our hotels in Canada and Puerto Rico is subject to taxes in those jurisdictions and we are subject to taxes in certain states where we have properties.

Our Investment and Financing Liquidity and Capital Resources

Various percentages of total sales at certain of our hotels are escrowed by us as FF&E reserves to fund future capital improvements. During the twelve months ended December 31, 2011, our hotel managers and hotel tenants contributed $50,834 to these accounts and $144,436 was spent from the FF&E reserve escrow accounts and from separate payments by us to renovate and refurbish our hotels.  As of December 31, 2011, there was $50,196 on deposit in these escrow accounts, which was held directly by us and is reflected on our consolidated balance sheets as restricted cash.

Our hotel operating agreements generally provide that, if necessary, we may provide our managers and tenants with funding for capital improvements to our hotels in excess of amounts otherwise available in escrowed FF&E reserves. To the extent we make such additional fundings, our annual minimum returns or minimum rents generally increase by a percentage of the amount we fund. During the twelve months ended December 31, 2011, we funded $63,177 for capital improvements in excess of FF&E reserve fundings available from hotel operations to our hotels, as follows:

·                  During the twelve months ended December 31, 2011, we funded $17,138 for improvements to hotels included in our Marriott No. 1 Contract using cash on hand and borrowings under our revolving credit facility. We currently do not expect to make fundings for capital improvements materially in excess of amounts available in escrowed FF&E reserves under this agreement in 2012.

·                  Pursuant to the June 2011 agreement we entered with Marriott for management of 71 hotels, we agreed to provide approximately $102,000 of funding during the next two years for renovations of certain of these hotels and for other improvements.  As we fund improvements pursuant to this agreement, the minimum returns payable to us increase.  We funded $7,402 of this commitment during the twelve months ended December 31, 2011 using existing cash balances and borrowings under our revolving credit facility. We expect to fund approximately $75,000 of this commitment during 2012 using our existing cash balances or borrowings under our revolving credit facility.  Also pursuant to this agreement, 21 hotels included in the agreement were identified for sale; however, subsequent to December 31, 2011, we entered discussions with Marriott about retaining certain of these hotels in the agreement.  If we retain certain of these hotels in the agreement, we will be required to fund previously agreed amounts for renovations to the retained hotels which are in addition to the fundings described above.

·                  Pursuant to the July 2011 agreement we entered with InterContinental for management of 130 hotels, we have committed to a renovation program for all of the hotels included in the new agreement pursuant to which we expect to invest approximately $300,000 over the next two years.  Pursuant to the agreement, we may rebrand or sell up to 42 hotels included in the agreement.  The final amount we are required to fund for renovations will be adjusted based on the number of hotels which we determine to rebrand or sell and remove from the agreement; however, if we determine to rebrand certain properties, we expect to be required to fund amounts for rebranding costs and renovations to the rebranded hotels.  As we fund improvements pursuant to this

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agreement, the minimum returns payable to us increase.  We funded $38,637 of this commitment during the twelve months ended December 31, 2011 using existing cash balances and borrowings under our revolving credit facility.  We expect to fund approximately $227,000 of this commitment during 2012 using our existing cash balances or borrowings under our revolving credit facility.

In November 2010, Host notified us that it will not exercise its renewal option at the end of the current lease term for 53 Courtyard hotels which we have historically referred to as our Marriott No. 1 Contract.  Assuming that Host does not default in its contractual obligations to us, upon expiration of this agreement on December 31, 2012, we expect to return the $50,540 security deposit to Host. We expect to fund the return of this security deposit using existing cash balances or borrowings under our revolving credit facility.

Our travel center leases with TA do not require FF&E escrow deposits.  However, TA is required to maintain the leased travel centers, including structural and non-structural components.  Under both our leases with TA, TA may request that we fund additional amounts for capital improvements to the leased facilities in return for minimum rent increases.  We funded $69,122 for capital improvements to TA under this lease provision during the twelve months ended December 31, 2011 using existing cash balances and borrowings under our revolving credit facility.  We currently expect to fund approximately $75,000 for capital improvements to our travel center properties during 2012, using funds from our existing cash balances or borrowings under our revolving credit facility.  However, TA is not obligated to request and we are not obligated to fund any such improvements.

On January 14, 2011, April 15, 2011, July 15, 2011 and October 17, 2011, we paid a $0.5546875 per share distribution to our Series B preferred shareholders with respect to the periods ending January 14, 2011, April 14, 2011, July 14, 2011 and October 14, 2011, respectively. On December 1, 2011, we declared a $0.5546875 per share distribution to our Series B preferred shareholders of record on December 30, 2011, with respect to the period ended January 14, 2012. We paid this amount on January 17, 2012.  We funded these distributions using existing cash balances and borrowings under our revolving credit facility.

On February 15, 2011, May 16, 2011, August 15, 2011 and November 15, 2011, we paid a $0.4375 per share distribution to our Series C preferred shareholders with respect to the periods ending February 14, 2011, May 14, 2011, August 14, 2011 and November 14, 2011, respectively.  On January 6, 2012, we declared a $0.4375 per share distribution to our Series C preferred shareholders of record on January 31, 2012, with respect to the period ending February 14, 2012. We paid this amount on February 15, 2012.  We funded these distributions using existing cash balances and borrowings under our revolving credit facility.

On February 23, 2011, May 24, 2011, August 23, 2011 and November 23, 2011, we paid a $0.45 per share distribution to our common shareholders.  On January 11, 2012, we declared a $0.45 per share distribution to our common shareholders of record on January 27, 2012.  We paid this amount on February 23, 2012. We funded these distributions using existing cash balances and borrowings under our revolving credit facility.

On January 3, 2011, we repaid without penalty our 8.3% mortgage note payable, which had a principal balance of $3,383, using existing cash balances.

In July 2011, we sold our Holiday Inn branded hotel in Memphis, Tennessee, for net proceeds of $6,905. We used the net proceeds to reduce amounts outstanding under our revolving credit facility.

In January 2012, we sold 11,600,000 Series D cumulative redeemable preferred shares, or our Series D Preferred Shares, at a price of $25.00 per share in a public offering. The distribution rate on the preferred shares is 7.125% of the liquidation preference per year, or $1.78125 per share per year.  Net proceeds from this sale of $280,365 (after underwriting and other offering expenses) were used to repay amounts outstanding under our revolving credit facility and to fund acquisitions.

On January 31, 2012, we acquired the entities which own the Royal Sonesta Hotel Boston in Cambridge, Massachusetts and lease the Royal Sonesta Hotel New Orleans in New Orleans, Louisiana for $150,500, excluding acquisition costs.  The purchase price was funded with proceeds from the offering of our Series D Preferred Shares described above.

On February 10, 2012, we entered an agreement to sell our Marriott branded hotel in St. Louis, Missouri with 601 rooms.  The contract sales price is $35,000, excluding closing costs.  We expect to complete this sale in the second

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quarter of 2012.  This pending transaction is subject to buyer’s completion of due diligence and other customary closing conditions; accordingly, we can provide no assurances that we will sell this hotel.

On February 13, 2012, we redeemed all of our 3,450,000 outstanding of 8.875% Series B Cumulative Redeemable Preferred Shares at the stated liquidation preference price of $25 per share plus accrued and unpaid distributions to the date of redemption.  We funded this redemption using existing cash balances and borrowings under our revolving credit facility.

In order to fund capital improvements to our properties and acquisitions and to meet cash needs that may result from timing differences between our receipt of returns and rents and our desire or need to make distributions or pay operating expenses, we maintain a revolving credit facility with a group of institutional lenders.  On September 8, 2011, we entered a new $750,000 unsecured revolving credit facility.  The new facility replaced our previous $750,000 unsecured revolving credit facility, which had a maturity date of October 24, 2011. The maturity date of the new facility is September 7, 2015 and, subject to the payment of an extension fee and meeting certain other conditions, includes an option for us to extend the facility for one year to September 7, 2016.  Interest paid under the new facility is set at LIBOR plus 130 basis points, subject to adjustments based on our senior unsecured debt ratings.  The annual interest rate payable on our borrowings under the facility was 1.59% as of December 31, 2011. We may draw, repay and redraw funds until maturity, and no principal repayment is due until maturity. As of December 31, 2011 and February 28, 2012, we had $149,000 and $185,000, respectively, outstanding under our revolving credit facility.

Our term debt maturities (other than our revolving credit facility) are as follows: $100,829 in 2012, $287,000 in 2013, $300,000 in 2014, $280,000 in 2015, $275,000 in 2016, $300,000 in 2017, $350,000 in 2018, and $79,054 in 2027. Our $79,054 of 3.8% convertible senior notes due 2027 are convertible into our common shares, if certain conditions are met (including certain changes in control), into cash equal to the principal amount of the notes and, to the extent the market price of our common shares exceeds the exchange price of $50.50 per share, subject to adjustment, either cash or our common shares at our option with a value based on such excess amount. Holders of our convertible senior 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 of certain change in control events.

None of our other debt obligations require principal or sinking fund payments prior to their maturity dates.

At December 31, 2011, we had $8,303 of cash (excluding restricted cash) and cash equivalents and $601,000 available to borrow under our revolving credit facility.  We expect to use existing cash balances, the cash flow from our operations, borrowings under our revolving credit facility and net proceeds of offerings of equity or debt securities to fund future debt maturities and property acquisitions and for other general business purposes.

When significant amounts are outstanding for an extended period of time under our revolving credit facility and as the maturity dates of our revolving credit facility and term debts approach, we currently expect we would explore alternatives for the repayment of amounts due.  Such alternatives in the short term and long term may include incurring additional debt and issuing new equity securities.  We have an effective shelf registration statement that allows us to issue public securities on an expedited basis, but it does not assure that there will be buyers for such securities.

While we believe we will have access to various types of financings, including debt or equity, to fund our future acquisitions and to pay our debts and other obligations, there can be no assurance that we will be able to complete any debt or equity offerings or that our cost of any future public or private financings will be reasonable.

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As of December 31, 2011, our contractual obligations were as follows (dollars in thousands):

Off Balance Sheet Arrangements

As of December 31, 2011, we had no off balance sheet arrangements that have had or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Debt Covenants

Our debt obligations at December 31, 2011, consist of our revolving credit facility and $1,971,883 of unsecured term debt and convertible notes. Our unsecured term debt and convertible notes are governed by an indenture. This indenture and related supplements and our revolving credit facility agreement contain a number of financial ratio covenants which generally restrict our ability to incur debts, including debts secured by mortgages on our properties, in excess of calculated amounts, require us to maintain a minimum net worth, restrict our ability to make distributions under certain circumstances and require us to maintain various financial ratios. As of December 31, 2011, we believe we were in compliance with all of our covenants under our indenture and its supplements and our revolving credit facility agreement.

Neither our indenture and its supplements nor our revolving credit facility agreement contains provisions for acceleration which could be triggered by our debt ratings. However, under our revolving credit facility agreement, our highest senior unsecured debt rating is used to determine the fees and interest rate we pay.  Accordingly, if that debt rating is downgraded by certain credit rating agencies, our interest expense and related costs under our revolving credit facility would increase.

Our public debt indenture and its supplements contain cross default provisions to any other debts of $20,000 or more. Similarly, our revolving credit facility agreement has cross default provisions to other indebtedness that is recourse of $25,000 or more and indebtedness that is non-recourse of $75,000 or more.

Related Person Transactions

We have relationships among us, our Trustees, our executive officers, RMR, TA, Sonesta and AIC and other companies to which RMR provides management services and others affiliated with or related to them.  For example, we have no employees; personnel and various services we require to operate our business are provided to us by RMR

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pursuant to management agreements.  Also, as a further example, we have relationships with other companies to which RMR provides management services and with companies affiliated with RMR and which have trustees, directors and officers who are also Trustees, directors or officers of ours or RMR, including TA, which is our former subsidiary and our largest tenant, and we are its largest shareholder; Sonesta, which manages, and from which we purchased, certain of our properties; and AIC, an Indiana insurance company, of which we, RMR, CWH, SNH, GOV, TA and Five Star each currently own approximately 14.29% and with respect to which we and the other shareholders of AIC have property insurance in place providing $500,000 of coverage pursuant to an insurance program arranged by AIC and with respect to which AIC is a reinsurer of certain coverage amounts.  For further information about these and other such relationships and related person transactions and about the risks which may arise as a result of those and other related person transactions and relationships, please see Note 8 to the Notes to our Consolidated Financial Statements included in Item 15 of this Annual Report on Form 10-K, which is incorporated herein by reference. In addition, for more information about these transactions and relationships, please see elsewhere in this report, including “Warning Concerning Forward Looking Statements” and the “Risk Factors” section for a description of risks which may arise from these transactions and relationships.

We believe that our agreements with RMR, TA, Sonesta and AIC are on commercially reasonable terms. We also believe that our relationships with RMR, TA, Sonesta and AIC and their affiliated and related persons and entities benefit us, and, in fact, provide us with competitive advantages in operating and growing our business.

Critical Accounting Policies

Our critical accounting policies are those that will have the most impact on the reporting of our financial condition and results of operations and those requiring significant judgments and estimates. We believe that our judgments and estimates are consistently applied and produce financial information that fairly presents our results of operations. Our most critical accounting policies involve our investments in real property.  These policies affect our:

·            classification of leases and the related impact on the recognition of rental income;

·            allocation of purchase prices between various asset categories and the related impact on the recognition of depreciation and amortization expenses;

·            assessment of the carrying values and impairments of real estate and intangible assets;

·            variable interest entities; and

·            income taxes.

Certain of our properties are leased on a triple net basis, pursuant to non-cancelable, fixed term, operating leases. Each time we enter a new lease or materially modify an existing lease we evaluate its classification as either a capital or operating lease. The classification of a lease as capital or operating affects the carrying value of a property, as well as our recognition of rental payments as revenue. These evaluations require us to make estimates of, among other things, the remaining useful life and market value of a leased property, appropriate present value discount rates and future cash flows. Incorrect assumptions or estimates may result in misclassification of our leases.

We allocate the acquisition cost of each property investment to various property components such as land, buildings and equipment and intangibles based on their fair values and each component generally has a different useful life. For real estate acquired, we record building, land, furniture, fixtures and equipment, and, if applicable, the value of acquired in-place leases, the fair market value of above or below market leases and customer relationships at fair value.  We allocate the excess, if any, of the consideration over the fair value of assets acquired to goodwill.  We base purchase price allocations and the determination of useful lives on our estimates and, under some circumstances, studies from independent real estate appraisal firms to provide market information and evaluations that are relevant to our purchase price allocations and determinations of useful lives; however, we are ultimately responsible for the purchase price allocations and determination of useful lives.

We compute depreciation expense using the straight line method over estimated useful lives of up to 40 years for buildings and improvements, and up to 12 years for personal property. We amortize the value of intangible assets over the shorter of their estimated useful lives, or the term of the respective lease or the affected contract. We do not depreciate the allocated cost of land. Purchase price allocations and estimates of useful lives require us to make certain assumptions and estimates.  Incorrect assumptions and estimates may result in inaccurate depreciation and amortization charges over future periods.

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We periodically evaluate our real estate and other assets for possible impairment indicators. These indicators may include weak or declining operating profitability, cash flow or liquidity, our decision to dispose of an asset before the end of its estimated useful life or market or industry changes that could permanently reduce the value of our investments. If indicators of impairment are present, we evaluate the carrying value of the related investment by comparing it to the expected future undiscounted cash flows to be generated from that investment. If the sum of these expected future cash flows is less than the carrying value, we reduce the net carrying value of the property to its estimated fair value.

We test our indefinite lived intangible assets for impairment on an annual basis and on an interim basis if events or changes in circumstances between annual tests indicate that the asset might be impaired.  The impairment test requires us to determine the estimated fair value of the intangible asset.  An impairment charge is recorded if the fair value is determined to be lower than the carrying value.

We determine the fair value for our long lived assets and indefinite lived intangible assets by evaluating recent financial performance and projecting discounted cash flows using standard industry valuation techniques. These analyses require us to judge whether indicators of impairment exist and to estimate likely future cash flows. If we misjudge or estimate incorrectly or if future operating profitability, market or industry factors differ from our expectations, we may record an impairment charge which is inappropriate, fail to record a charge when we should have done so or the amount of such charges may be inaccurate.

We have determined that each of our TRSs is a variable interest entity, or VIE, as defined under the Consolidation Topic of the Financial Accounting Standards Board, or FASB, Accounting Standards CodificationTM, or the Codification.  We have concluded that we must consolidate each of our TRSs because we are the entity with the power to direct the activities that most significantly impact such VIEs’ performance and we have the obligation to absorb the majority of the potential variability in gains and losses of each VIE, with the primary focus on losses, and are therefore the primary beneficiary of each VIE.

We account for income taxes in accordance with the Income Taxes Topic of the Codification. Under this Topic, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.  We measure deferred tax assets and liabilities using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled.  We establish valuation allowances to reduce deferred tax assets to the amounts that are expected to be realized when necessary. We have elected to be taxed as a REIT under the IRC and are generally not subject to federal and state income taxation on our operating income provided we distribute our taxable income to our shareholders and meet certain organization and operating requirements.  Despite our REIT status, we are subject to income tax in Canada, Puerto Rico and in certain states.  Further, we lease our managed hotels to our wholly owned TRSs that, unlike most of our subsidiaries, are generally subject to federal, state and foreign income tax.  Our consolidated income tax provision (or benefit) includes the income tax provision (or benefit) related to the operations of the TRSs and state and foreign income taxes incurred by us despite our tax status as a REIT.  The Income Taxes Topic also prescribes how we should recognize, measure and present in our financial statements uncertain tax positions that have been taken or are expected to be taken in a tax return.  Deferred tax benefits are recognized only to the extent that it is “more likely than not” that a particular tax 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 is measured as the largest amount that has a greater than 50% likelihood of being realized upon settlement.  Tax returns filed for the 2008 through 2011 tax years are subject to examination by taxing authorities.  We classify interest and penalties related to uncertain tax positions, if any, in our financial statements as a component of general and administrative expense.

These policies involve significant judgments made based upon experience, including judgments about current valuations, ultimate realizable value, estimated useful lives, salvage or residual value, the ability and willingness of our tenants and operators to perform their obligations to us, and the current and likely future operating and competitive environments in which our properties operate. In the future, we may need to revise our carrying value assessments to incorporate information which is not now known, and such revisions could increase or decrease our depreciation expense related to properties we own, result in the classification of our leases as other than operating leases or decrease the carrying values of our assets.

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Property Management Agreements, Leases and Operating Statistics

As of December 31, 2011, we owned 288 hotels and 185 travel centers that are grouped into eight operating agreements.  As of December 31, 2011, our hotels are managed by or leased to subsidiaries of hotel operating companies including InterContinental, Marriott, Host, Hyatt and Carlson under six agreements.  Our 185 travel centers are leased to and operated by subsidiaries of TA under two agreements.

The tables on the following pages summarize significant terms of our leases and management agreements as of December 31, 2011.  The tables also include statistics reported to us or derived from information reported to us by our managers and tenants. These statistics include coverage of our minimum returns or minimum rents and occupancy, ADR and revenue per available room, or RevPAR, for our hotel properties.  We consider these statistics and the management agreement or lease security features also presented in the tables on the following pages, to be important measures of our managers’ and tenants’ success in operating our properties and their ability to continue to pay us. However, none of this third party reported information is a direct measure of our financial performance and we have not independently verified this data.

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(1)                In June 2011, we entered an agreement to re-align three of our contracts with Marriott.  The three contracts, which we historically referred to as our Marriott Nos. 2, 3 and 4 Contracts concerning 71 hotels, have been combined under one agreement, which expires in 2025 and is referred to herein as the Marriott No. 234 Contract.

(2)                In July 2011, we entered an agreement to re-align our four contracts with InterContinental.  The four contracts concerning 130 hotels (one hotel was sold in July 2011), have been combined under one agreement, which expires in 2036.

(3)                We are considering the sale of 21 hotels included in this agreement, consisting of nine TownePlace Suites hotels, six Residence Inn hotels, five Courtyard hotels and one Marriott hotel. On February 10, 2012, we entered an agreement to sell our Marriott branded hotel in St. Louis, Missouri.  The information provided in this table includes these 21 hotels.

(4)                In connection with the re-alignment described in Note 2, we may decide to pursue the sale or rebranding of up to 42 hotels included in this agreement.  The information provided in this table includes these 42 hotels.

(5)                Represents historical cost of properties plus capital improvements funded by us and excludes impairment writedowns and capital improvements made from FF&E reserves funded from hotel operations.

(6)                The original amount of this security deposit was $64,700.  As of December 31, 2011 we have fully exhausted this security deposit covering shortfalls in payments of our minimum return.

(7)                The original amount of this security deposit was $36,872.  As part of the July 2011 agreement described in Note 2, InterContinental provided us with an additional $37,000 to supplement the existing security deposit that secures InterContinental’s obligations under the new agreement.  As of December 31, 2011, we have applied $18,052 of the security deposit to cover deficiencies in the minimum returns and rent paid by InterContinental for these agreements.  We received $13,933 less than the minimum amounts due in January and February 2012 and applied the available security deposit to cover these amounts.  As of February 28, 2012, the balance of this security deposit is $41,887.

(8)                Renewal options may be exercised by the manager or tenant for all, but not less than all, of the properties within each combination of properties.

(9)                In November 2010, Host notified us that it will not exercise its renewal option at the end of the current lease term.  Assuming no default by Host, upon expiration of the agreement on December 31, 2012, we expect to return the $50,540 security deposit to Host, to lease the hotels to one of our TRSs and to continue the existing hotel brand and management agreements with Marriott with respect to these hotels.  In June 2011, Marriott provided notice to us that it intends to exercise its option to renew these management agreements for an additional 12 years to 2024.  The renewal options presented are Marriott’s options related to its management agreement.

(10)           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.

(11)           This management agreement provides for payment to us of 62.5% of available cash flow after payment of operating costs, funding the FF&E reserve, payment of our minimum return, payment of certain management fees, replenishment of the security deposit, and reimbursement of guarantee payments.

(12)           This agreement provides for an annual additional return payment to us of the amount stated to the extent of available cash flow after payment of operating costs, funding of the FF&E reserve, payment of our minimum return, payment of certain management fees and replenishment and expansion of the security deposit.  In addition, the agreement provides for payment to us of 50% of the available cash flow after payment to us of the annual additional return amount.  These amounts are not guaranteed or secured by deposits.

(13)           Certain of our leases provide for payment to us of a percentage of increases in total sales over base year levels.

(14)           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 managers or tenants), divided by the minimum returns or minimum rent payments due to us.  Coverage data for the Marriott No. 234 and InterContinental Contracts has been adjusted to reflect the terms of the new combined contracts. Effective July 1, 2011 through December 31, 2013, InterContinental is not required to make FF&E reserve contributions under the terms of the agreement entered in July 2011.  The coverage amounts for InterContinental provided have been calculated without a deduction for FF&E reserve contributions for periods subsequent to June 30, 2011.

(15)           As of December 31, 2011, the available Marriott guaranty was $30,873.

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(1)                Represents historical cost of properties plus capital improvements funded by us and excludes impairment writedowns and capital improvements made from FF&E reserves funded from hotel operations.

(2)                Renewal options may be exercised by the manager or tenant 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)                Effective January 1, 2011, we entered a lease amendment with TA and the rents presented above represent TA’s contractual obligations under the amended lease.  The amounts presented for the TA No. 1 lease include approximately $5,069 of ground rent due to us from TA.

(5)                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.

(6)                Certain of our leases provide for payment to us of a percentage of increases in total sales over base year levels.

(7)                We have agreed to waive payment of the first $2,500 of percentage rent which may become due under the TA No. 2 lease as part of the agreement described in note 4 above.

(8)                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 managers or tenants), divided by the minimum return or minimum rent payments due to us.

(9)                TA rent coverage ratios were calculated based upon the contractual rent amounts and do not reflect the effect of any rent deferral.

(10)           At December 31, 2011, the remaining unpaid amount of the Hyatt guaranty was $21,020.

(11)           At December 31, 2011, the remaining unpaid amount of the Carlson guaranty was $25,598.

(12)           The TA guaranty is unlimited.

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The following tables summarize the operating statistics, including occupancy, ADR and RevPAR reported to us by our hotel managers or tenants by management agreement or lease for the periods indicated. We have not independently verified this data.

(1)         Includes data for the calendar periods indicated, except for our Marriott branded hotels, which include data for comparable fiscal periods.

(2)         On July 19, 2011, we sold our Holiday Inn branded hotel in Memphis, Tennessee.  The information provided in this table excludes this hotel.

(3)         In July 2011, we entered an agreement to re-align our four contracts with InterContinental. The four contracts, which we historically referred to as our InterContinental Nos. 1, 2, 3 and 4 Contracts concerning 130 hotels, have been combined under one agreement. In connection with this agreement, we may decide to pursue the sale or rebranding of up to 42 hotels included in this agreement. The information provided in this table includes these 42 hotels.

(4)         In June 2011, we entered an agreement to re-align three of our contracts with Marriott. The three contracts, which we historically referred to as our Marriott Nos. 2, 3 and 4 Contracts concerning 71 hotels, have been combined under one agreement.  In connection with this agreement, we are considering the sale of 21 hotels included in this agreement. On February 10, 2012, we entered an agreement to sell our Marriott branded hotel in St. Louis, Missouri.  The information provided in this table includes these 21 hotels.

Seasonality

Our hotels and travel centers have historically experienced seasonal differences typical of their industries with higher revenues in the second and third quarters of calendar years compared with the first and fourth quarters.  So long as guarantees and security deposits are available to supplement earnings shortfalls at our properties, this seasonality is not expected to cause material fluctuations in our income or cash flow because our contractual management agreements and leases require our managers and tenants to make the substantial portion of our return payments and rents to us in equal amounts throughout a year. If and as guarantees and security deposits which secure the minimum rents and returns due to us are exhausted our financial results may begin to reflect the seasonality of the industries in which our tenants and managers operate.

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Impact of Inflation

Inflation might have both positive and negative impacts upon us. Inflation might cause the value of our real estate investments to increase. In an inflationary environment, the percentage returns and rents which we receive based upon a percentage of gross revenues should increase. Offsetting these benefits, inflation might cause our costs of equity and debt capital and other operating costs to increase. An increase in our capital costs or in our operating costs will result in decreased earnings unless it is offset by increased revenues. In periods of rapid inflation, our managers’ or tenants’ operating costs may increase faster than revenues and this fact may have an adverse impact upon us if the operating income from our properties becomes insufficient to pay our returns or rents and the security features, such as security deposits or guarantees of our returns or rents are exhausted. To mitigate the adverse impact of increased costs of debt capital in the event of material inflation, we may enter into interest rate hedge arrangements in the future; the decision to enter into these agreements will be based on the amount of our floating rate debt outstanding, our belief that material interest rate increases are likely to occur, the requirements of our borrowing arrangements and the cost of such hedge arrangements.

Impact of Climate Change

The ongoing political debate about climate change has resulted in various treaties, laws and regulations which are intended to limit carbon emissions.  We believe these laws being enacted or proposed may cause energy costs at our hotel and travel center properties to increase.  We do not expect the direct impact of these increases to be material to our results of operations, because the increased costs either would be the responsibility of our tenants or managers directly or in the longer term, passed through and paid by customers of our properties. Although we do not believe it is likely in the foreseeable future, laws enacted to mitigate climate change may make some of our buildings obsolete or cause us to make material investments in our properties which could materially and adversely affect our financial condition or the financial condition of our tenants or managers and their ability to pay rent or returns to us.

Non-GAAP Measures

We provide below calculations of our funds from operations, or FFO, and Normalized FFO for the twelve months ended December 31, 2011, 2010 and 2009.  We believe that this data may facilitate an understanding of our consolidated historical operating results.  These measures should be considered in conjunction with net income and cash flow from operating activities as presented in our Consolidated Statements of Income and Consolidated Statements of Cash Flow.  These measures do not represent cash generated by operating activities in accordance with GAAP and should not be considered as alternatives to net income, net income available to common shareholders or cash flow from operating activities determined in accordance with GAAP, as indicators of our financial performance or liquidity, nor are these measures necessarily indicative of sufficient cash flow to fund all of our needs.  Other REITs and real estate companies may calculate FFO and Normalized FFO differently than we do.

Funds From Operations and Normalized Funds From Operations

We calculate FFO and Normalized FFO as shown below.  FFO is calculated on the basis defined by the National Association of Real Estate Investment Trusts, or NAREIT, which is net income, calculated in accordance with GAAP, excluding gain or loss on sale of properties, plus real estate depreciation and amortization and impairment of assets.  Our calculation of Normalized FFO differs from NAREIT’s definition of FFO because we include percentage rent in the period it is received rather than when it is recognized as income in accordance with GAAP and exclude gain (loss) on early extinguishment of debt and acquisition related costs. We consider FFO and Normalized FFO to be appropriate measures of performance for a REIT, along with net income and cash flow from operating, investing and financing activities.  We believe that FFO and Normalized FFO provide useful information to investors because by excluding the effects of certain historical amounts, such as depreciation expense, FFO and Normalized FFO can facilitate a comparison of operating performances between periods.  FFO and Normalized FFO are among the factors considered by our Board of Trustees when determining the amount of distributions to our shareholders.  Other factors include, but are not limited to, requirements to maintain our status as a REIT, limitations in our revolving credit facility and public debt covenants, the availability of debt and equity capital to us and our expectation of our future capital requirements and operating performance.

Our calculations of FFO and Normalized FFO for the twelve months ended December 31, 2011, 2010 and 2009, and reconciliations of FFO and Normalized FFO to net income available for common shareholders, the most

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directly comparable financial measure under GAAP reported in our consolidated financial statements, appear in the following table.

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PART IV

Item 15. Exhibits and Financial Statement Schedules

(a) Index to Financial Statements and Financial Statement Schedules

The following audited consolidated financial statements and schedule of Hospitality Properties Trust are included on the pages indicated:

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

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(b) Exhibits

3.1                               Composite Copy of Amended and Restated Declaration of Trust dated as of August 21, 1995, as amended to date. (Incorporated by reference to the Company’s Current Report on Form 8-K dated January 18, 2012.)

3.2                               Articles Supplementary dated as of 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 as of 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 as of 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 as of February 15, 2007. (Incorporated by reference to the Company’s Current Report on Form 8-K dated February 15, 2007.)

3.6                               Articles Supplementary dated as of March 5, 2007. (Incorporated by reference to the Company’s Current Report on Form 8-K dated March 7, 2007.)

3.7                               Articles Supplementary dated as of January 13, 2012.  (Incorporated by reference to the Company’s Current Report on Form 8-K dated January 18, 2012.)

3.8                               Amended and Restated Bylaws of the Company, as of January 13, 2010. (Incorporated by reference to the Company’s Current Report on Form 8-K dated January 20, 2010.)

4.1                               Form of Common Share Certificate. (Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2008.)

4.2                               Form of 8.875% Series B Cumulative Redeemable Preferred Share Certificate. (Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2008.)

4.3                               Form of 7% Series C Cumulative Redeemable Preferred Share Certificate. (Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2008.)

4.4                               Form of 7.125% Series D Cumulative Redeemable Preferred Share Certificate.  (Incorporated by reference to the Company’s Current Report on Form 8-K dated January 18, 2012.)

4.5                               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.)

4.6                               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.)

4.7                               Supplemental Indenture No. 7, dated as of January 24, 2003, between the Company and U.S. Bank National Association, 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.)

4.8                               Supplemental Indenture No. 8, dated as of February 15, 2005, between the Company and U.S. Bank National Association, 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 14, 2005.)

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4.9                               Supplemental Indenture No. 9, dated as of June 15, 2006, between the Company and U.S. Bank National Association, 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.)

4.10                         Supplemental Indenture No. 10, dated as of March 7, 2007, between the Company and U.S. Bank National Association, 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.)

4.11                         Supplemental Indenture No. 11, dated as of March 12, 2007, between the Company and U.S. Bank National Association, 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.)

4.12                         Supplemental Indenture No. 12, dated as of September 28, 2007, between the Company and U.S. Bank National Association, 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.)

4.13                         Supplemental Indenture No. 13, dated as of August 12, 2009, between the Company and U.S. Bank National Association, relating to the Company’s 7.875% Senior Notes due 2014, including form thereof. (Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.)

4.14                         Renewed Rights Agreement, dated as of May 15, 2007, between the Company and Wells Fargo Bank, National Association. (Incorporated by reference to the Company’s Current Report on Form 8-K dated May 16, 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, 2011.)

10.1                         Amended and Restated Business Management Agreement, dated as of November 2, 2011, among Reit Management & Research LLC, the Company, Barry M. Portnoy, Gerard M. Martin and Adam D. Portnoy.(+) (Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011.)

10.2                         Amended and Restated Property Management Agreement, dated as of January 13, 2010, between Reit Management & Research LLC and the Company. (+) (Incorporated by reference to the Company’s Current Report on Form 8-K dated January 20, 2010.)