Choice Hotels International Inc (CHH) 2007 Q4 法說會逐字稿

Ladies and gentlemen, good morning and welcome to the Choice Hotels International fourth quarter and full year 2007 earnings conference call. At this time all lines are in a listen-only mode. Later there will be a Question and Answer Session and instructions will be given at that time. (OPERATOR INSTRUCTIONS) As a reminder today's call is being recorded. Now, during the course of this conference call certain predictive or forward-looking statements will be used to assist you in understanding the company and its results. Such statements are subject to risks and uncertainties that could cause actual results that differ materially from those expressed or implied by such statements. The company's form 10-K for the year ended December 31, 2006, details some of the important risk factors that you should reveal. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievement. We caution you not to place undue reliance on forward-looking statements which reflect our analysis only and speak only as of today's date. We undertake no obligation to publicly update the forward-looking statements to reflect subsequent events or circumstances. Now, with that being said I would like to introduce Chuck Ledsinger, Vice Chairman and Chief Executive Officer of Choice Hotels. Please go ahead, sir.

Thank you. Well, good morning, and welcome to our fourth quarter and full year 2007 earnings conference call. With many this morning is David White our Chief Financial Officer. Yesterday after the market closed we reported our fourth quarter and full year 2007 results. After I share some brief highlights from yesterday's announcement I will open up the call for your questions.

Domestic unit growth for 2007 was 5.6%, and domestic RevPAR growth was 4.7% for the fourth quarter and 4% for the full year compared to the same periods in 2006. Domestic RevPAR for our mid-scale without food and beverage brands which represent approximately half of our rooms online increased 5.2% for both full year and fourth quarter 2007. The principle driver of RevPAR improvements for these brands was average daily rate growth which exceeded 5.5% for these brands during 2007. 2007 was another record year for franchise development, as new domestic hotel franchise contracts increased 7% to 770 executed agreements. Fourth quarter new domestic hotel franchise contracts increased 13% to 301 compared to the same period last year. For the full year new construction conversion hotel franchise contracts increased 14% and 3% respectively compared to the prior year. Our strong unit growth, RevPAR performance, and franchise sales were key drivers of our operating income and earnings per share growth.

Operating income for the full year increased 11% to $185.2 million compared to 166.6 million in the same period prior year. Operating income for the fourth quarter of 2007 increased 21% to $48.1 million compared to $39.9 million for the fourth quarter of 2006. Diluted earnings per share for fourth quarter 2007 were $0.44, an increase of 19% compared to 2006. For full year 2007 diluted earnings per share were $1.70. Adjusted diluted EPS for full year 2007 were $1.70, a 14% increase compared to adjusted diluted EPS of $1.49 for full year 2006. Adjusted diluted EPS for the fourth quarter of 2007 were $0.44, a 22% increase compared to $0.36 for the same period of 2006. Adjusted diluted earnings per share amounts exclude reductions of income tax expense related to the reversals of income tax contingency provisions of approximately $0.01 and $0.19 per share for the fourth quarter and full year 2006 respectively. In 2007 we continued to execute against our long-term strategy of returning excess capital to shareholders. For the year, the company purchased approximately 4.9 million shares of its common stock, for a total cost of $184 million. The Company also paid approximately $40 million of cash dividends to shareholders during 2007.

Looking forward, we expect first quarter 2008 diluted earnings per share of $0.26 and full year 2008 diluted earnings per share of $1.87. EBITDA for full year 2008 is expected to be approximately $207 million. These figures assume domestic unit growth of approximately 5% for full year 2008, an approximately 2% increase in RevPAR for the first quarter of '08 and 3% for the full year and a 4 basis points increase in the effective royalty rate for full year 2008 and an effective tax rate of 36% for the first quarter and 36.5% for the full year of '08. In closing the fundamental strength of our business model was evidenced in our full year and fourth quarter 2007 performance by providing an exceptional return on investment for our franchisees, we're able to attract and retain owners for our family of 10 well-segmented brands. And I will now open up the call to answer any questions that you might have.

Thank you. (OPERATOR INSTRUCTIONS) Our first question will come from the line of Steve Kent with Goldman Sachs. Please go ahead.

Good morning. Just a couple things. Given the lower RevPAR expectations for the industry and just what appears to be increasingly a more difficult environment for RevPAR gains, are you seeing any of your competition get more lenient on franchise pricing just to lock in some unit growth in this environment?

Steve, not that I am aware of. We -- but -- I answer that question by saying not that I am not aware of. I haven't heard that from our sales force, so Dave, I don't know if you have heard anything?

No, I haven't heard anything different.

I don't think so. I think it's -- we just haven't seen that. That really hasn't been an issue.

Okay and then just -- as the usual question, given the cash flow, given the balance sheet, any new thoughts on dividend or share buyback or something along those lines?

I will give you the usual answer. It's a great business. We generate excess cash and we will continue to look for opportunities to expand the business, and if we can't find profitable ways that we think make sense for the long run, we'll continue to repurchase shares and continue to pay dividends, so there is really no different strategy there, Steve.

Okay thanks.

Sure.

Our next question is from David Katz with Oppenheimer. Go ahead, please.

Hi, good morning.

Hi, Dave.

The unit growth -- I think your unit growth guidance actually went up a little bit in the quarter.

Yes.

And just looking for some color on what the drivers of that are? Is it more new construction than conversion, what's behind that?

Yeah. It is really based on our visibility to the pipeline, and what we know is in the ground and what's going to open next year, so I think we feel a little -- we had a good strong solid '07, and I think -- we think that will continue into '08 just based on sort of the analysis of the pipeline. We have sold more new construction projects, but we're not looking in those projections. We're looking at things that are in the ground kind of -- or are under construction now.

Right. And so I guess part of what I am getting at are, conversions starting to accelerate, right? Don't we usually see that as a dynamic at some point in the cycle?

If you look at our pipeline report in the exhibit to the press release, you can see that actual conversion properties in the pipeline at the end of this year, at the end of '07, was about I think around 7% higher than what it was at the end of '06, so I think you're on point there, and that's what we've seen in kind of past cycles as kind of an acceleration on the conversion side of things.

Alright, and is there a component of the pipeline that is international that may be growing a little faster? Are we going to start to see some signs of that end of it improving?

I think over time what you will see there, David, is -- well, we made a lot of changes in the past year to around how we operate in Europe. We acquired back the master franchising rights in Europe and the U.K. from partners who previously weren't as successful as I think we had hoped going into those relationships, and I think that having control of those regions, the rollback will give us some opportunity over time to help those locations perform better and I think we feel good about what we have going with Canada, Australia, and the other parts of the world. So, I think over time you'll start to see that we'll continue to make improvements there in the profitability of that business which is already good in are our mind.

And one last one. I saw you announced a deal this week on some new Cambria's, which appear to be basically toward the middle of the southwest, right? Is there -- are you getting any more or less regional interest on that brand from one end of the country versus the other?

It has been pretty widespread. It's a function sometimes I think of obviously the developers that get interested in the product and where they may be based, and of course it's a product sometimes of where they have sites, and where there is demand, but I don't know that you can say that there is any sort of geographic concentration or seeing more than one area versus another. It's a lot more opportunistic than that.

Right. And then one last one and I will give someone else a chance, which is I heard an observation recently that I am not -- I am unwilling to take personal ownership of that it can be easier for branded companies in a higher end system to reach down market with a new brand than it can be for a lower end system to reach up market with a new brand. Is that -- do you observe that? Obviously you don't entirely agree with it, but do you observe any of that and what do you think about that I, I guess?

I think it is a matter of degree. I wouldn't say that Cambria is a huge leap in to another segment. You know, 40% of our choice privileges customers, which is our frequency program, already go to the two primary competitors into that space, so these are customers that are our best customers that is are using other products today. So, we did a lot of research in Cambria and asked a lot of those very specific -- or exact questions that you're asking, and the answer was, you know, you don't own the customer. The customers play across a number of segments because they really look at the businesses and occasion-driven business, so we think with 6 million frequency customers and this huge distribution system we have, we know we can move business into that brand. It is not like we're going from Econo Lodge to Four Seasons. This is not a huge big step up. We have some hotels today that run the same rates or higher rates than some of the Cambria's, so, I would say that -- and that observation is -- in my experience, I was at Holiday Inns, and we started Embassy Suites, and it was one of the most successful chains ever. I think that is a little bit of a myth maybe.

It doesn't work for you. Okay, thank you very much. Nice job.

Sure.

Thank you. We'll go next to William Truelove with UBS. Please go ahead.

Hey, guys, good quarter.

Thank you.

A little bit about the conversion activity. Is there in your outlook for external growth net, are you assuming continued expansion above and beyond the current number of conversions that you have already in the pipeline? Is that what you need to get to the numbers or, to put another way, if we continue to see an increase in conversion activity to your brands, could you probably exceed your external growth target for the year?

Yes, I think to the extent that the conversion side of things accelerates, the franchise sale side, that that could give us some upside in 2008. Right now what we assume is, what's in the pipeline for conversions comes online based upon our opening success percentages there, plus some kind of level of franchise sales for 2008 that are conversion that actually sell in '08 and come online in '08. But to the extent that we do better on the conversion side during 2008 on franchise sales, that could be some upside there, potentially.

Maybe a round about way of asking about share repurchases because I know you guys always give the standard answer. How about this. Is there a minimum amount of cash that you need to the balance sheet to probably run the franchise organization? Is it $20 million, is it $40 million? What sort of level of cash on the balance sheet do you feel where you start getting a little uncomfortable?

Well, on the balance sheet side on cash, one thing you have to -- when you look at our cash balances at the end of the year, a big component of that is our international cash balances which for some tax structure reasons we really are limited in terms of how we can -- use those cash balances for share repurchases, debt pay-downs, that type of thing, so that's a pretty big part of what's going on with our cash balances at the end of the day. So, we have plenty of liquidity around cash just because we have a resolving bank facility that goes out for another two or three years here. And we're -- we haven't -- we don't have -- I guess we have about $200 million or so of capacity remaining on that at this point, so we've got plenty of liquidity from a cash perspective. So, I think on the cash side it's more a function of, for the long-term, addressing the utilization of those international cash balances and that number should come down over time.

Okay, and then one final question maybe you can answer this. Hampton Inn, one of your competitors brands, is a little over 20-year-old right now and a lot of those franchise contracts will be coming off, and there are a lot of exterior corridor kind of things that no longer fit their brands, so I would assume a lot of those hotels are looking for conversion activities. Are those the kind of brands you're targeting specifically for conversions or do you just target pretty much anything you can get your hands on?

Well, I think what we look at it, yeah, it has-- first off it has to fit one of the brands that we have obviously and fit the standards, so in some cases they're Hamptons and in some cases they're independents, and there is really -- there is no one concentration of assets that are in those conversion brands, they're really all over the place. And a fir number of them are independents, so -- and there is still a ton of independent hotels out there, so I would say that we're opportunistic if it looks like a competitor may be changing some of the amenity requirements or as you say they may be coming up on the end of their term, and if they fit one of our brands and it makes more economic sense for that owner to convert to one of our brands from where they are, then that's what happens. But it's not -- again, it is not any one -- we've looked at that a lot to try to figure out, how do we -- is there any one specific brand that seems to be feeding the conversion (inaudible) and the answer is really not. It is really diverse. So, -- and again, it has to be something that makes sense for our brands, too.

All right.

Sometimes those are Hamptons and sometimes they're not.

That's all the questions. Thank you.

Sure, Will.

Thank you. We'll go next to Soul Lamen with Lehman.

Good morning. I was just wondering your 2008 RevPAR guidance implies an acceleration through the year and I was just wondering what gives you confidence in that?

Well, I think what we're seeing is we looked at the guidance at STR and PWC and whatnot, put out on RevPAR and can kind of (inaudible) out what some of the other competitors in the lodging space, where they're positioning RevPAR growth going forward, and, yes, you're right. There is an acceleration of RevPAR in the last three quarters of the year, but 2% in Q1 and kind of an average of 3% over the last three quarters, 3%, 3.5%, gets you to around 3%, so we feel good based upon what we're seeing from the prognosticators and the limited data that we have looking into '08 bookings about that acceleration in the last three quarters of the year.

Okay. Thanks.

Our next question is from Patrick Scholes with JP Morgan. Please go ahead.

Hi, good morning. When I am looking at your -- the performance of your individual brands in the fourth quarter, I noticed Rodeway, in your (inaudible) segments, Far and Away out performed it almost 13% RevPAR. What's driving out performance with that brand?

Yeah. You can see the supply growth there has been pretty good, too, in terms of units and rooms, and what's going on there is some of the additions to that brand recently have been in pretty good locations actually, so it's kind of driven that, what you're seeing there from a RevPAR perspective in the results.

Better quality assets and better located markets.

Great. My other question concerns credit availability for potential new franchisees. With the credit crunch, you know, what's the latest you're hearing on availability to obtained financing on the local level?

Well, I think we're seeing it slow some. There seems to be four better known and high quality developers. There seems to be equity, and there is a bit -- there is a little bit of a slowing on the debt side we think or it maybe said another way, it's maybe more conservative underwriting. So, yes, we're starting to hear a little bit of that. We're -- as matter of fact, we're in -- at a conference with a bunch of our developers just yesterday and the day before, and asked that question a fair amount, and projects are still getting done. They're a little bit harder to do.

Where we are with the supply cycle, does that give you a sense that '08 will be the peak of the growth rate for the industry and then we're starting to decelerate after that?

That's a hard one. You got to have -- I think it all depends on -- you -- really the availability of capital and the banks. Obviously if the spill over from the issues we've been seeing, subprime and all of that, start to constrict the bank's ability to lend, yes, you're going to see a slowdown on new supply, and I think if that continues, you probably will -- a softening in the economy will slow things down a little bit, too. I don't think anybody sees a precipitous fall off here. It seems to be more of sort of a softening, and that may not be all bad in the long run. We play both sides of the cycle so we have conversion and new build brands, and so I don't have the crystal ball there. I really don't know what to tell you. I think we're seeing the same things you guys are probably hearing, and that's that it is slowing a little bit.

Great. Thanks for the information.

Sure.

Thank you. Our next question is from Joe Greff with Bear. Please go ahead.

Good morning, guys. David, what is the cash tax rate for 2008?

The cash tax rate for 2008? I don't have that here in front of me. I don't think it will be that different from what it had been in '07. You can probably look back at last year's cash flow statement. I don't have that in front of me with the non-cash exposures section.

With respect to removals in the portfolio in 2007, can you help quantify how many rooms we're taking out for quality assurance reasons or traditional reasons and then how you see your portfolio now and how that trend is going forward?

In the past couple of years I would say terminations have been somewhere around 4% or 5% of kind of the previous year's system size, if you will. And there's a variety of reasons for the terminations. You've got quality assurance, you've got some situations where, we as the franchiser take our out or the property sells and doesn't reflag. I am not seeing anything that causes me to think that going forward over the next couple years that will look really materially different from what it's been in the past for us.

Thank you.

Thank you. We'll go next to Jeff Donnelly with Wachovia Securities. Go ahead, please.

Good morning, guys.

Hi, Jeff.

Chuck, if I could just ask a follow-up on the earlier financing question. Do you think for your franchisees, are you hearing -- is it a question of overall proceeds or financing costs or maybe just a little of both that's driving that difficulty in getting credit?

Yes. Jeff, you know, it depends on the -- it depends a lot -- it's a hard one to answer because it depends on the developer honestly or the owner. Because some of these ownership groups are very well capitalized, and they have relationships with local banks or with long-term relationships with lenders, and they're still getting their financing. The ones that are tough are the ones on the margin that are, you know, that are, maybe newer owners or maybe people that don't have the track record or people that maybe aren't as well capitalized or perhaps more expensive or tougher to do locations, and they seem to -- what seems to be happening there is there is money available, but the loan to cost and the loan to value ratios are a little bit different which requires either more equity sometimes or maybe a little equity plus (inaudible) fees, and that's on the more complicated deals. I don't know that we're seeing that, per se, on the sort of the -- an average type deal. Dave, you may have -- I know Dave spoke to some of these guys we've been with the the last couple of days maybe in a little more depth than I have.

The only other thing I was hearing was just that, despite on the credit side of things, liquidity there, has moved a little bit, but the equity side there seems to be plenty of equity around for these things I think Chuck mentioned and then the other piece was one of the developers was talking about how, you know, the past two years have really been an anomaly based upon his 40-year history in the industry around the credit availability and so things, he felt like, were moving more towards a normalized situation. And the examples he was providing were, it was pretty easy the past couple of years to get essentially nonrecourse debt and now the banks are looking much more to have guarantees and personal guarantees and security and whatnot more frequently than we were over the past couple of years, but he felt like that, for the long-term, was probably healthy for the industry.

Developers just love recourse than financing.

Yes.

Chuck, actually I had a question for you as well. In addition to just a lot of the established brands being rolled out there by the brand families, there is still a lot of new select service products that are out there, whether it is Cambria or Aloft element, INDIGO, et cetera, (inaudible) out there. I guess in an environment where pressure on your franchisees is likely greater than it has been, say, six or twelve months ago, how do you or maybe your competitors modify what you're doing to keep a competitive advantage, avoid fallout in your pipeline or ensure that you continue to gain share? Do you become more choosey with your development partners or go the step of advising franchisees on how to navigate the financing market or I think someone asked earlier do you become more lenient with fees?

Well, I think you might be a little bit of all of those things. One thing you do, too, I think is be sure that you've fot a product that is the right cost to build, and we think we have that in Cambria which is actually a more attractive development cost per key than some of the brands you mentioned, so we're seeing people that are coming -- that are involved with us and Cambria that are telling us that. We're hearing it from them, so I think that's certainly a positive. And I think you -- you try to put together programs perhaps where you're just more active in trying to put together the developer. What we do is we have a real estate group that actually goes and finds sites. We'll actually find sites sometimes, hand them over to a developer, and then (inaudible) we have relationships with lenders, we'll put developers together with lenders both debt and equity, so that's kind of what you do, and then you try to do whatever you can to help the projects along, so it is in a variety of ways.

On that cost point, and I know there's not a deep base or experience on this point to pull from at deep point because there is not many Cambria's out there. But how is the cost structure of Cambria been looking like in reality versus what you were originally pro formatting out there for investors because anecdotally you've heard, for example, that (inaudible) lost concept was coming in 30% to 40% higher than what (inaudible) would originally suggest to some of their partners. Have you guys been able to control those costs as you've come into reality there?

Yes. I think we're pretty close to where we thought we would be. We haven't seen big over runs in any of the projects that have been built so far, so as a matter of fact they've been very attractively built in price, so I think we design that product, and I think we were -- ended up very close to where we thought we would be. Just one last question. Where are you guys on relicensing fees? I am curious, what change are you seeing in the transaction pace and price among choice branded hotels? Are the credit markets causing a slowdown there? In terms of the pricing so much, I don't have great visibility into that, but in terms of relicensing activities, we haven't seen anything really in the fourth quarter or really so far in '08 that is different than what we expected or in terms of relicensings. Been holding up reasonably well in terms of the number of transactions.

Okay. Great, guys. Thank you.

Sure.

Thank you. We have a question from Michael Millman with Soleil Securities. Please go ahead.

Thank you. Thats actually Soleil. I guess a couple things. The SG&A was up 6% in the fourth quarter. Is that level of growth sustainable or what would be a more appropriate level of growth?

I think that the way we thought about it in our '08 guidance is that it would be a little bit north of that as we continue to do what we need to do to make the right investments in our emerging brands and also the other piece that will make the comparisons a little bit difficult is the acquisition of the UK,which we just closed on and in January. So, you will see a little bit higher SG&A growth for 2008 than what we saw there in the fourth quarter, something you can probably use the 8% -- 7% to 8%, somewhere in that ballpark on a recurring basis.

Okay. Moving on, the pipeline hotels was up 17%, but rooms was up about half of that. And you'd think that with the Cambria that would be benefiting them, but is this being totally offset by conversions which are relatively smaller than average or maybe there is another explanation?

I am not sure I completely concur on what you're asking there. Do you mind -- ?

Well, it looked like the pipeline -- number of hotels in the pipeline, was up 17% year-over-year.

Right.

But the number of rooms in the pipeline looked like it was up about 9%.

Yes. I think that's -- were you using the worldwide numbers there on the rooms or the domestic?

I believe I was using the domestic.

Yes, well, I think thats, frankly just a function of the -- where our brands are and the relative kind of room size and I don't --

Okay. On RevPAR do you have comparable unit RevPAR?

We don't. We don't provide comparable unit RevPAR numbers. We go with our, kind of, system wide numbers is what we traditionally provide.

And so would there -- it sounded like, at least recently, there is at least some bias on the upside related to new acquisitions. Is that correct?

Do you mean the -- well, I would say that the number, if you're looking at Cambria openings which are very small relative to quality in conversions which are relatively large, the quality conversion would offset and when you look at overall kind of RevPAR. So, you can break it out by brand when -- so I don't think there is enough. You know, you're looking at the year-over-year comparisons for the entire system, so to the extent that you have the type of properties that you're bringing in, obviously have an impact on the overall because of the -- like you saw in Rodeway, if you peel that off, we had some higher -- a little bit higher growth RevPAR type properties in that particular segment. Some of the others -- and relative to what's in the system already, may require more time to ramp up and that, so it is a very dynamic number. It's -- it has a lot to do with the mix that's coming in. I am not sure that that answers your question, but I am not sure we really have a lot of visibility to how you sort of slice and dice the -- looking forward what's coming in and how -- what the impact that has on RevPAR.

I guess it gets down to when we model certain RevPAR growth, we're making the tasset assumption that it's comparable.

Yes, yes. I think thats -- I think if you look at the mix of properties probably over the last couple of years, that's a pretty good assumption because I think thats been, there hasn't been dramatic shifts in the -- amongst the brands.

And then the question which I am surprised hasn't come up is the economy question of what you're seeing out there, are you seeing anything that suggests that there is a recession, any shifts in how customers are making reservations or not making reservations, anything that would shed a bit of light on this broad subject?

Yes. I don't think we're seeing anything differently than most everybody else. We've moderated that first quarter a little bit RevPAR because of what we're seeing, so there is a little bit of a softening there. We think that we sort of follow what the broader market is looking for in terms of RevPAR for the year, so I think that sort of implies that you're going to have perhaps a little bit of the softness maybe in the first part of the year and then maybe a little stronger second half. Which, depending on what economist you choose to listen to, you know, agrees or doesn't agree with that, so we haven't seen -- we don't have a lot of visibility out because the booking window is very close. People aren't making two-month out, kind of, type reservations in the types of properties we have, so it's hard to see any trends there. You can look at call volumes and those things which are still pretty strong, so our conversion rates which means calls converted or -- is still high. So, I would say that we're seeing a little bit of softness, but it's not anything dramatic or precipitous or anything like that. I mean, I think we -- just like any consumer-driven product, we're going to be subject to consumers stop spending money, we'll see a little bit of that spill over into our segment. It doesn't seem to be as -- hit as hard as some of the other -- there doesn't seem to be quite as much substitution of not taking the trip, not going out, and the travel industry or hotel industry as others, and we haven't -- in our leisure, we skew more leisure and we skew a little bit older, per se, for our products and that may help us a little bit because we're not going to have the concentration and some of the larger business travel type markets where if there is a deeper recession that's where you start to see it. The other thing to say is just by virtue of the business model, where we don't have incentive management fees and things that -- there is no operating leverage, per se, on the property level in our business models, so we don't have the down draft that if things do get a lot tougher, but we haven't seen that. We really are not seeing anything in our numbers that would say that -- or our visibility sitting here today that I could make a case frankly, either one way or the other.

Great. Thank you.

Sure.

We'll go next to Chris Oh with JH Whitney. Please go ahead.

Hi, I just wanted to touch a little bit more for the financing environment. And if you look at your pipeline of new construction (inaudible) 728, how many of those have all of their financing secured to be built?

Yes, it's not something that as a franchiser we're always privy to their financing arrangements, so it's whether they the number that actually have committed financing in hand is not something we have perfect visibility into.

We do as we analyze that pipeline, though, we go through where how long do you leave something in the pipeline before you take it out, and so there is a time sort of some timeframes that we look at when -- an executed contract which is really just -- an executed contract is just somebody putting hard money down and it's basically non refundable. So, they've got a period of time under which they need to get things moving, and there is always exceptions, but I am not sure if we are seeing any dramatic changes in that process. As a matter of fact, that pine lines increased, so, -- and we're pretty careful about parsing through that pipeline to be sure that they're legitimate projects that is we think are actually going to open.

So, I guess basically if you look at the pipeline now, the financing availability, is it pretty much similar to sort of what you've been seeing in the past?

I don't know that we know that answer to that. I think as I said what happens is that the contract is executed and then you have a period of time to get the property open and get the financing, so I guess really the question is -- is it taking longer to get financing secured than it might have been in the past, and I think the answer to that question is yes probably.

Okay. And then how many total rooms do those 728 properties represent and sort of how crucial they are to getting to -- to meeting your goal of the 5% net domestic (inaudible) target?

The total rooms related to the 1,000 units in the pipeline was 79,342. If you look into '08, we think -- we think probable around 75% or so of our gross openings would be conversion hotels, the other kind of 25% would be new construction. So, the mix in the past -- I think is like 345 or so conversions and then the difference was on the new construction side of things in terms of the number of units.

Okay. Thank you very much.

Sure.

Thank you. (OPERATOR INSTRUCTIONS) And, gentlemen, we have no further questions. Please go ahead with any closing remarks.

Okay, well thank you for your very good questions and your attention and we'll talk to all of you soon. Good day.

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