Choice Hotels International Inc (CHH) 2015 Q2 法說會逐字稿

Good day, ladies and gentlemen and welcome to the Choice Hotels second quarter 2015 earnings conference call. At this time, all participants are in a listen only mode. Later, we'll conduct a question and answer session and instructions will follow at that time. (Operator Instructions). As a reminder, this call is being recorded. I would like to introduce your host for today's conference, CEO, Steve Joyce. Sir, please go ahead.

Thanks very much. Good morning. Welcome to the Choice Hotels earnings conference call. Joining me, as always, is Dave White, our Chief Financial Officer.

This morning we're going to update you on the performance for the second quarter of 2015, which includes results of our core hotel franchising business and our key strategic growth initiatives. It's clear that we're very pleased to say that the results from this quarter have exceeded our expectations. There's several factors that contributed to the continued growth of our lodging business this quarter.

Domestic system wide RevPAR increased nearly 7% in the second quarter of 2015, occupancy and average daily rates increased 170 basis points and 3.8% respectively. Once again, our RevPAR performance outpace our competition based on the results reports by Smith Travel Research. For the second quarter, our RevPAR growth rate was approximately 20 basis points better than the overall industry RevPAR growth rate, and the RevPAR growth rate of our chain scales where our brands compete. And as expected, seven of our ten brands reported grew share which is directly related to our distribution, marketing, selling and revenue management efforts.

Turning to development, we executed 139 new domestic hotel franchise agreements for the second quarter of 2015, which is an 11% increase compared to the prior year second quarter. We believe these results reflect the refresh of our comfort brand and our momentum in the upscale segment and strong conversion activity continuing. The Company's domestic pipeline of hotels under construction or approved for development increased 30%, and the total pipeline increased 22% this quarter compared to the prior year second quarter. On Comfort, our brand continues to help fuel development. The improvements we implemented for the Comfort Inn and Comfort Suites brand has helped to generate 30 new franchise agreements for the quarter, a 67% increase.

We're pleased to continue to see new construction agreements drive most of this growth. This significant interest from the development community can be attributed in part to the approximately 300 comfort properties that have been extensively updated as part of the landmark property improvement plan to provide incentives for franchisee's to update their hotels. The properties that have been updated as part of the property improvement plan, are seeing average monthly RevPAR gains which are approximately 400 basis points higher than those strong RevPAR results I discussed previously.

With an early adopter hotels experiencing an average lift of more than 1,000 basis points. We've also implemented higher standards for hotels during the Comfort brand, requiring meaningful property improvement plans at contract windows and targeting substandard or non-compliant Comforts for terminations with a goal of replacement with new product. In short, we are well ahead of expected results for the reinvention of the Comfort family. Let's turn to upscale.

We're continuing to enjoy a wave of now openings and signing's for our Cambria Hotels and Suites brand and our Ascent hotel collections. Our upscale brands increased a combined 8% based on the number of hotels open and online compared to June 30 of last year.

We celebrated the grand opening of the new Cambria Hotel and Suites in Chelsea in New York City just a few weeks ago. This is our first Cambria to open in Manhattan and we're scheduled to open another Cambria in the Time Square area before the end of the year. We have signed seven new Cambria franchise agreements since the beginning of the year. This quarter we signed deals to build Cambria's in major markets including Orlando, Philadelphia, Columbia, South Carolina, and another hotel just outside of Phoenix. The Ascend hotel collection also continues to be a strong growth segment as we add exceptional upscale properties in great markets. Since year-end 2012, the Ascend hotel collection has grown net units at an annualized growth rate if 30%, which compares favorably to the annual growth rate of all of the competitor soft brands put together.

Our Ascend brand signed new franchise agreements in the quarter, including a property called the Peery Hotel in downtown Salt Lake City that we're particularly excited about. The second half of the year looks even stronger for Ascend as we have hotels scheduled to open in such places as New Orleans, Philadelphia and Minneapolis. The number of upscale Cambria Hotels and Suits and Ascend Hotel collection properties in our pipeline of executed but not yet opened franchise contracts increased approximately 62% compared to year ago levels.

We're excited about the momentum we're seeing with our upscale segment brands obviously. Turning to distribution. The revenue generated by our central reservation system continues to grow and we are breaking records on a regular basis. The revenue contribution of our central reservation system increased to 44.1% in the second quarter, up 430 basis points compared to the same time last year and up 720 basis points compared to the second quarter of 2013. We had our first ever $16 million CRS revenue May, and then saw five more before the end of the quarter. We then achieved our highest ever CRS revenue date to that date on June 22nd at over $17.5 million.

Choicehotels.com revenue is up 9.2% in Q2 and accounts for nearly a half of Choice's domestic CRS revenue. Our direct online channels, choicehotels.com and mobile, had their first $7 million booking day for the year in May and a total of five such days in Q2 2015 compared to none in 2014 Q2.

Bookings via our mobile applications continue to grow at a fast pace and have yielded an increase of 59% in revenue for the quarter compared to the same time last year. Our distribution strategy is delivering great results.

We are staying ahead of guest booking needs and we are leveraging our distribution channels to deliver an increasing number of customers to our franchisee's hotels.

Changing gears, I'll give I a brief update on SkyTouch technology, a separate division that focuses on developing, marketing an selling cutting edge, cloud based technology products to the hotel industry. SkyTouch boasts a large widely distributed could based property management system. Sky touch has now signed agreements with 181 customers since we established them as a distinct business division and 67 new customers have been signed year-to-date in 2015, representing a total of over 11,000 rooms since the launch.

Sky touch remains on target to achieve the previously provided EBITDA guidance. The business continues to make significant progress and we are excited about its current successes and the potential impact on our future growth. Now let me turn it over to Dave White who is going to share with you these results in a little more detail.

Thanks, Steve. As you read in this morning's press release, we reported diluted earnings per share of $0.62, which exceeded our previously published outlook for the quarter by $0.04 per share.

Our earnings per share out performance for the quarter is attributable to a combination of better than expected performance from our franchising business, a $0.01 per share gain on the sale of our interest in our unconsolidated joint venture and lower than anticipated spending in our SkyTouch division. Our second quarter franchising results exceeded our expectations and reflects continued strong domestic RevPAR gains in franchise development results.

As Steve mentioned, we achieved a nearly 7% increase in domestic RevPAR which out paced the overall industry RevPAR growth rate of 6.5% as reported by Smith Travel Research. The second quarter results represent the third consecutive quarter our RevPAR growth rated has out paced the industry wide RevPAR results for both the industry and for the primary chain scale segments in which we compete, and we're pleased with the continued strength of the RevPAR environment and we expect the RevPAR percentage growth rate to continue to increase in the mid single digit range for the second half of this year.

Our projected RevPAR increases for the remainder of the year are even more impressive considering the tough comparison to the third and fourth quarters of last year. As you may recall, our RevPAR increased nearly 9% in the third quarter last year and 11% in the fourth quarter. On the supply front, we were able to grow the number of hotels operating our domestic franchise system by approximately 0.003% compared to June 30, 2014. As we have previously mentioned, our domestic supply growth numbers continue to be impacted by our rejuvenation strategy for the Comfort brand family.

Excluding the impact of this strategy, our domestic system increased by nearly a hundred units, or approximately 3%. Our efforts to rejuvenate the Comfort brand include the implementation of higher standards for hotels joining the Comfort brand requiring meaningful property improvement plans at contract windows and targeting under performing Comforts termination and replacement with new construction product. These efforts are helping to fuel growth of our development pipeline for the Comfort brand family which increased 33% from June 30, 2014 primarily driven by new construction projects.

In addition, we've had success in repositioning many of the hotels previously flagged under the Comfort brand to other brands within our portfolio, including Quality Inn which has increased nearly 5% compared to June 30, 2014. As we mentioned in the first quarter, we're starting to see a reduction in the level of financial incentives required to execute convergent franchise agreements and this trend continued in the second quarter. Primarily as the result of the opening of these hotels, our system wide effective royalty rate of 4.28% for the second quarter was comparable to the same period of last year, and we expect our year-over-year effective royalty rate to increase over the remainder of this year compared to the same periods of last year.

Overall, these factors resulted in domestic royalty revenues increasing by approximately 6% to $75.8 million.

The growth in our domestic royalty for the quarter was generally inline with our prior expectations.

However, our non-domestic royalties declined approximately 17% from $6.5 million to $5.4 million as the benefit of the international system room growth year-over-year was offset primarily on account of the foreign currency impact of a stronger US dollar. With respect to franchise development, the fundamentals that drive new hotel development and conversion opportunities continued to improve.

As a result, our initial and relicensing fees increased 23% in the second quarter of 2015. We are particularly pleased that our programs to rejuvenate the Comfort brand and incent the development of the Cambria brand are driving development results.

Our applications in house for the Comfort and Cambria brands at the end of June increased 54% and 80% respectively compared to the prior year for these brands. In addition to exceeding our expectations at the franchising revenue line, our franchising SG&A expenses for the quarter were less than we had anticipated as a result of a delay in the timing of certain expenses that we now expect will occur later this year. Franchising EBITDA for the quarter increased by 5% over the same period over the prior year to $69.8 million. Now, let me turn to our outlook for the remainder of this year.

As always, our outlook assumes no additional share repurchases under the Company's share repurchase program. Our outlook also assumes the effective tax rate for continuing operations to be 32% for both the third quarter and for full-year 2015. Our franchising activity guidance assumes that our RevPAR will increase approximately 6.5% for the third quarter and range between 6.5% and 7.5% for full year 2015. Our net domestic unit growth assumption is that net domestic units will increase by approximately 1% and our effective royalty rate will increase by two basis points for the year. Based on these assumptions, our guidance for full year 2015 EBITDA from franchising activities is to range between $254 million and $257 million.

With regards to SkyTouch, we are projecting projections in EBITDA for full year to range between $15 million and $20 million compared to approximately $16 million in 2014. We expect our third quarter diluted earnings per share to be $0.72 and we are increasing our full year 2015 diluted EPS to range between $2.18 and $2.22. Our consolidated EBITDA for full year 2015 is expected to range between $237 million and $241 million. These EPS and consolidated EBITDA estimates assume that we incur net reductions in EBITDA related to SkyTouch at the midpoint of the investment. We're very pleased with our second quarter performance and believe we're well positioned to continue our strong momentum for the remainder of the year. And now let me turn the call back over to Steve.

Thanks, Dave. To sum it up, we had a very strong quarter. Domestic system RevPAR increased, occupancy and average daily rates increased, RevPAR performance out paced our competition and development is up. So we believe that the lodging cycle continues to have positive momentum and Choice is well positioned to continue to build on our strong momentum in the back half of the year and for the next several years to come. So with that, I'll open it up to any questions.

As a reminder, today's call is being recorded. During the course of this conference call certain predicted or forward-looking statements will be used to assist you in understanding the Company and its results, which constitute forward-looking statement under the Safe Harbor provision of the Securities Reform Act of 1995. These forward-looking statements generally can be identified by phrases such as choice, or as management believes, expects, anticipates, foresees, forecasts, estimates or other words or phrase of similar import. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements.

Please consult the Company's form 10-K for the year ended December 31, 2014 and other SEC filings for information about important risk factors affecting the Company that you should consider.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We caution you, do not place undue reliance on forward-looking statements which reflect obligation to publicly update our forward-looking statements to reflect subsequent events or circumstances.

You can find a reconciliation of our non-GAAP financial measures referred to in our remarks as part of our first quarter 2015 earnings press release, which is posted on our website at choicehotels.com under the investors information section. (Operator Instructions). Our first question comes from the line of Thomas Allen with Morgan Stanley. Your line is open. Please go ahead.

Good morning, guys.

Good morning.

Two questions on RevPAR. The first, could you extrapolate how weather impacted your 2Q RevPAR growth? Obviously, there was a lot of rain in place like Texas, I think you have some exposure there, so I wanted to understand that. And the second part of the question, on your 2015 RevPAR guidance, you took down the high end of the range, but it seems like your trends are pretty good, so I want to understand kind of why you did that. Thanks.

Let's start with the second part. We're viewing the RevPAR environment as obviously still very strong, and we looked and kind of went back and forth about the guidance. Our sense was because third and fourth quarter of last year were so strong and we're seeing really steady results, but we're still not seeing, sort of the GDP lift is better obviously than first quarter. But we're still not convinced that we'll see as robust GDP as what we're hearing. And so our view was we're pretty comfortable saying our results being in the seven's is a pretty good place to be. So that's why we brought, our sense was that things would have to get better for us to hit that eight, and our view was that was probably less likely, so we brought it down to 50 bips. At our core position, we really haven't changed much. On the weather piece, we aren't really seeing that as a significant impact. Dave?

On the weather side of things what I would say is if you look at Choice's RevPAR performance for the quarter and were to compare that by region against the industry, generally, directionally they stack up fairly comparably. So kind of specifically if you look at the West South central region, the industry performance was down 0.003%, that includes Texas, Oklahoma, Arkansas, Louisiana, and our RevPAR performance in that market was very comparable. I think what you're seeing in the industry in terms of the weather impact across the different regions is fairly comparable for what's happened for us.

Okay, thank you.

Thank you. Our next question comes from the line of Felicia Hendrix with Barclays. Your line is open. Please go ahead.

Thank you for taking my questions. Steve, if I could touch upon something that you just said in answer to Thomas' question when you were talking about your guidance and you said to hit the eight, you would think that things would have to get better, so you brought it down. Can you elaborate on that? Do you think better in terms of seeing GDP or something?

Sorry, and employment. What we're seeing is very steady and very positive, right? So we're thinking seven's feels about right. Our sense was to hit eight, if we look at it sort of because we have a good window in the third quarter, obviously, and so when we look at fourth, which was up 11 last year, could we hit that eight? Sure, but things would have to -- you would have to see an improvement in the economy and improvement in jobs from where we are today to probably hit that eight.

Then you have to factor in the fact that we're halfway through the year, so as Steve said we feel good about RevPAR performance and the growth we've seen, particularly as it compares to the competitive set, which is important. But now halfway through the year we're right around 8%, a little over 8% for the year-to-date period and with Q3, against a tougher comp, we're feeling like 6.5 is around the area where we'll be. To get to eight, would have implied for fourth quarter a pretty big number relative to a tough comp last year. We felt it was appropriate to trim the top in the range there.

Off there, thank you. Thinking about your unit growth. If you look at the numbers, it seems that the rooms are declining at the hotels that are leaving the system seem larger than the ones entering the system. Just wondering if you could touch upon how you see your room growth trending over the next few years?

Yes, I would say if you look back at the last several years, our room growth has tended to be slightly below our unit growth in terms of the rate, and my sense would be as we think about that over the next several years that you'll probably continue to see that trend a bit. But having said that, I think what will be important is if you look at where we're adding new construction units in particular and more of our premium brands with Cambria and with Comfort and some of the other new construction brands, I think that we're pretty excited about the possibilities on the RevPAR side and the per room economics, despite a lower room growth. And I would say that's true for Ascend. A lot of times with Ascend, those are historic being boutique, historic hotels that don't have the same room count that our more conditional hundred room prototype does. Over the next several years, we expect as we have seen in the past several years, room growth has trailed unit growth and you'll probably see that going forward.

Thanks. One quick housekeeping. How far through the Comfort re-invigoration are you? How much more of the portfolio do you have to go?

We have roughly about 150 hotels that we're saying at this point would exit the system. Although, quite frankly, the incentive that people are feeling to do extraordinary things to retain their flag is surprising us a little bit in terms of cure rate, but what we are planning for is another 150 that at the end, it will put us at about 600 hotels that transitioned either into one of our other brands or out of the family entirely. And so pretty significant effort, obviously, but the exciting thing that we're seeing is and as we mentioned is people are believers and they are signing contracts like crazy, and the RevPAR performance of that brand, particularly the ones that have done the work is really strong.

So people feel good about the return. Obviously, the ones we incented feel good about it, but now we have everybody else talking about doing it. There's a lot of enthusiasm for the redesign of it and for the impact it has on our performance, and people just like Sleep are seeing real ROI for that investment, which is exactly what you hope for, so the whole thing seems to be working.

We had not gained share of that brand for a very long time. We were expecting this to be a much longer, kind of turnaround story. We wanted to do it within two to three years, but basically we started gaining share last December which was probably 18 months ahead of where we anticipated to do it, and so we're pretty excited about the RevPAR performance for those properties. The franchisee's see what those folks who have done it are getting, so there's a bunch of folks jumping on the band wagon and at some point, like we have done with Sleep, we'll say, okay, that's the standard that everybody is going to live by so we want you to be there.

The really encouraging thing is that people are willing to do big things to retain their flag, even a little surprising to some of us.

Well, great, thanks so much.

Thank you. Our next question comes from the line of Steven Kent with Goldman Sachs. Your line is open. Please go ahead.

Hi, good morning.

Hi, Steve.

Could you just talk a little bit about the environment for financing and whether that's changed because as your pipeline has built up, I'm just wondering if it's in part due to a better financing environment? And then, in the past you've talked about some opportunities in Europe. You can give us some sense for what you're seeing there? I saw some of the numbers, but I just wanted to understand the signing trends, appetite to commit capital to accelerate the growth maybe in that market.

Well, I'll do the European side first.

So the answer is we've put some resources over there. We are in several portfolio discussions, which include kind of incentive monies, but not dramatically different than what we've typically done domestically, and we're seeing a positive response rate to that. In part because of willingness to put some capital into the deals, but also in part because the performance of our hotels and our value proposition has improved significantly as we convert those hotels to our technology platform, for the SkyTouch platform, so they become much more revenue insensitive from a Choice contribution, and so while it's not still at the domestic levels, it has increased significantly and I think that's gotten people's attention.

While we still tend to do reasonably well growing the organic hotel by hotel, what's encouraging is the market's reactions to portfolio discussions and we're in several, ten plus portfolio type transaction discussions that could kind of go our way and we're expecting that to continue to build. And as we've said for years, we view Europe as our next, sort of big growth opportunity, and I think as our story continues to improve, we become a more attractive option with obviously the low cost option because there's no systems involved in changing over to our brands. And it's mostly a conversion opportunity and we're sort of the better or we're one of the premier converters out there because we're comfortable in how we go about it and how it works.

We continue to see that as a significant opportunity. We don't think It's going to add significantly to the numbers for sort of until I think we'll see numbers in the three to five years range versus next year, but we're seeing encouraging signs and we'll continue to be strategic about the capital we put there to try to land more portfolio deals in addition to the organic growth. You want to take the first?

Sure, I'll take the financing. The general answer is that we're continuing to see gradual improvement in the lending environment. If you look at our development results, you can really kind of see how that impacts us. We were able to grow the first half of the year, our new construction executed contracts by about 10%, which I think does obviously support the fact that the credit environment for hotels of that kind of capital size are financeable.

If you think about the franchisee, they're writing a decent size check for an initial fee when they sign one of these contracts, so the fact that they're committing to more deals is certainly supporting the fact that the credit environment is improving them and their ability to finance across the small business administration, across the local lending networks, across various financing companies.

I guess I would say in terms of the terms we're seeing out there, those have not dramatically moved over the past couple of quarters, in terms of the amount of leverage you can put on hotel its and the key terms in guarantees and recourse. If you think back to 2006, 2007 time frame when the hotel lending market I guess some would call it frothy, I don't think we're seeing anything close to approaching the frothiness of 2006 and 2007 in terms of the credit markets for hotels but it's certainly an improving environment and that's reflected in our new construction results.

I think what we see is obviously a better CMBS market because it sort of almost went away, so that's come back in a significant fashion. And then for us, you've got to remember a lot of our folks are going to local banks for their lending and those banks are beginning to lend again which is in part what's also feeding this. But to Dave's point, the leverage levels though haven't moved a lot.

Our guys are pretty conservative anyway. We have some developers that push it a little bit more, but our average leverage level is something like 50%, but the lending terms we're seeing out there in general are sort of in the 65% to 70% range. Which is, I don't know, if you went back two or three years, it was more like 55% to 65%, so it's better. But the thing that's encouraging for us and the reason we're so bullish about the next several years is, if you look at the construction levels, you're not seeing big numbers even now which you've got to look at in terms of performance.

Obviously, the industry is sort of at some fairly high levels, actually historically high levels in terms of overall performance, but at the same time, you're seeing relatively low supply growth, particularly in our segments which is why we're so encouraged for the next several years because barring something unforeseen, we've done all of this without any real help from the economy and without any real job growth. So now if we actually get some real GDP growth and get some job growth, we just think this run is going to continue and you know, it's easy to see this pushing itself into 2018 without I think being too overly optimistic about where we are and how things might run.

So you know, our view is we're obviously going to watch it very closely, but our view is now is a good time to continue to be aggressive about expanding our portfolio and our businesses, and also be aggressive about the re-imaging of our brands and making sure we have the right product and that we're narrowing consistency around the brands because we think we've got another couple years to run.

Okay, thanks, David, thanks, Steve.

Thank you. (Operator Instructions). Our next question comes from the line of Shaun Kelley with Bank of America. Your line is open. Please go ahead.

Hey, good morning, guys. I wanted to ask about two things. So first off was kind of where we sit with the ramp up of SkyTouch. I think you mentioned you're up to 11,000 rooms that are using the system, but can you give us a reminder of what break even potential, what kind of room counted you need to reach to kind of hit a break even type level for the system?

Yes. We are pretty pleased with where that's going. We're in, as we've mentioned, several big conversations, so we're still on the same track that we were on when we discussed it before. We're still staying about 2500 hotels gets us into that sort of positive break even level and then becomes relatively profitable after that. Our expectation is that still happens within sort of the next, I think we've said 2017 was the year, and so that's still our expectation. And based on where we are in the conversations we're having, we still think that's well within our reach. And obviously we're continuing to evaluate all of our options around that to make sure that we're optimizing it for our shareholders and the nice thing is, there's a lot of interest. So we're pretty encouraged about the run rate, the operations, the interest in it, the conversations that are going on, what we need do to break even. And so from our standpoint, we're staying on track and we've got a lot of work to do between now and 2017, but we think it's well within our reach.

Rough cut, the number of hotels right now is roughly a hundred or so, give or take, based on the 11,000 room count, divided it by a hundred?

It's smaller than that.

We've executed 181, approximately two-thirds are all ready on line, so they come on quickly once we execute them.

And then included in that are systems that are growing and that are big and our capture rate on them is moving up, so when we say that number, the pipeline is actually pretty encouraging. And so the pipeline of signed deals is encouraging of the number of hotels that it could represent, but more importantly the pipeline in the discussion clearly gets us into the ranges that we are talking about if we execute.

Got it. Okay, that's helpful. And then my second question is sort of on the balance sheet and where we sit there. I think you guys did buy back a little bit of stock last quarter, it doesn't look like you actually repurchased anything this quarter and I'm curious. As leverage continues to come down, how you're thinking about total leverage and what's the right level for Choice?

Really no change in how we view what our leverage targets are, which we've stated previously to be in the range of three to four times gross debt to EBITDA.

I think we finished the quarter based on the quarter year EBITDA midpoint estimate at just about 3.75 or 3.25. So we're kind of in the middle part of that range. I think going forward, the Company's philosophy around capital allocation and use of capital is really how do we allocate our capital, which we do think is significant to the best and highest use and as we've talked about includes some degree of investment and growing our brands, particularly in the upscale space with Cambria and to a lesser degree with the Comfort refresh.

And ultimately we expect to use some of the capital as we've talked about before in that way, but over time as we've done in the past, we've been we think good stewards of capital in terms of returning excess capital to the shareholders through either the dividends or we did a recap back in 2012 and we've done share repurchases in the open market over time in an opportunistic fashion. I think you should expect that to continue. That's our number one priority, to return excess cash over time to shareholders.

And I think a way you should think about it, we have convinced ourselves that we should be in that three to four range, and not because of lack of opportunity, let it drop much below that, and we're constantly evaluating what's the best way to utilize it is. And as David said, we use it some to grow the business but the great thing about our model is, it doesn't take a lot. The bulk of our investments going into Cambria, which we're very excited about.

The Time Square property, for example, which we're invested in, we think will probably, unfortunately be out of that relatively near after opening because the property is going to be so valuable, but it will generate close to a million dollars in fees for us. So we think that's a good use of the capital. And we've said over the years what the range would be and we're doing well along against that about deploying it. But then I think the thing you ought to keep in mind is that our number one priority is return of capital to shareholders, period. When we have excess capacity, which we view as below that three to four range, you'll probably see us utilizing it in some form that we think is the best way to return it.

Great. Appreciate all of the color. Thanks, guys.

Thank you. Our next question comes from the line of Robin Farley with UBS. Your line is open. Please go ahead.

Great, thanks. To clarify, just listening to your comments about maybe the EPS in Q2 kind of driven by the timing of SG&A and it sounds like that expense will fall later in the year. Given that and then kind of lowering the top end of your RevPAR guidance, what would you say is driving the EPS range for the full year?

Yes, you're right, that's a good point. Basically the key things are is that our expectations around depreciation and amortization have come down a bit in the back half of the year principally because of the timing of the outlay of some of the key money that had been previously scheduled to happen earlier. As well as we noted in the press release that we had signed a new 5-year credit facility, $450 million credit facility, and there's a decent interest cost savings under that facility compared to our old assumption, so that, plus the gain, the one penny gain I talked about in my remarks on the sale of a joint venture interest are really the key driver there's.

Okay, great. Thanks very much.

Thank you. I'm show no further questions at this time. I would now like to turn the call back to Steve Joyce for any further remarks.

So I think that for joining us. We're obviously very pleased with the performance and where we stand looking forward into a very healthy industry, and we'll look forward to talking about it more with you at our third quarter call. Have a great day.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a great day.