Diamondrock Hospitality Co (DRH) 2007 Q3 法說會逐字稿

Welcome to the DiamondRock Hospitality Third Quarter 2007 Conference Call. The Company is hosting a live webcast of today's call which you can access on the Company's website at www.drhc.com in the Investor Relations section. Many of the comments made today are considered to be forward-looking statements under Federal securities laws.

As described in the Company's SEC filings, these statements are subject to numerous risks and uncertainties, which could cause future results to differ from those expressed in or implied by our comments. The Company is not obligated to publicly update or revise these forward-looking statements.

In this call, the Company will discuss non-GAAP financial information such as adjusted FFO and adjusted EBITDA, which it believes is useful to investors. You can find a reconciliation of this information to GAAP in today's earning press release, which is available on the Company's website and in the Company's Form 8-K filed with the SEC.

I would like to now welcome management. With us today we have Bill McCarten, Chief Executive Officer; John Williams, Chief Operating Officer; and Mark Brugger, Chief Financial Officer. At this time, I would like to turn the call over to Bill McCarten for his opening remarks. Please proceed, sir.

Thanks, Tanya. Good afternoon everyone and welcome to DiamondRock Hospitality's Third Quarter 2007 Earnings Call. Our third quarter performance was outstanding and the balance of the year looks very solid. Here are the highlights.

DiamondRock reported strong operating results in the third quarter, exceeding the top end of our guidance. Same store RevPAR increased 11.5%, same store level EBITDA margins expanded 245 basis points, adjusted EBITDA was $45.8 million, and adjusted FFO per share was $0.36.

About half of our hotels turned in double digit RevPAR growth and transient demand was particularly strong in the quarter. The primary contributor to our strong year-over-year growth included the Westin Boston Waterfront, the Chicago Conrad, two of our newer hotels, the Austin Renaissance, our Manhattan Courtyards and our L.A. hotels. The Atlanta market was generally soft and we also absorbed higher than expected disruption at the Westin Atlanta North. While turning in solid year-over-year growth, Salt Lake City, Oak Brook, and Griffin Gate fell short of our expectations.

We expect a strong finish to an outstanding 2007 with double digit fourth quarter RevPAR growth. Although our fourth quarter group booking pace has slipped since our second quarter call, overall demand and the travel environment remains strong and we expect continued solid fundamentals and strong year-over-year EBITDA growth in the fourth quarter. For the full year, RevPAR growth should come in around 10%, with same store adjusted hotel EBITDA up over 16%, and adjusted EBITDA increasing over 50%.

Barring a significant economic downturn, we believe that lodging industry fundamentals will remain solid for several years. While quite early in the budgeting process, we expect a 2008, with strong, but moderating RevPAR growth. Group booking pace for 2008 looks very good at this early stage with group revenue up 14%. Supply growth, although slightly increased from recent historic lows, remains constrained in our urban markets. We currently estimate 2008 RevPAR growth in the 6% to 8% range.

As a reminder, the following are some differentiating qualities of DiamondRock's portfolio that should allow us to continue to outperform the overall industry. It is concentrated in high barrier to entry gateway cities and destination resorts. Our hotels are primarily in the upper upscale category, which tends to perform relatively better in this part of the cycle.

The Westin Boston Waterfront will enjoy years of outsized growth from the combination of a ramping new hotel and adjacent new convention center also ramping. The massive redevelopment of Boston's Seaport District and our expansion of the hotel's meeting facility is currently underway. Two of our three hotels in Chicago, our largest concentration of hotels by EBITDA, are still ramping up. Moreover, in 2009 Chicago is expected to have its best hotel year ever with record bookings at the expanded McCormick Place convention center, the largest center in the country.

In summary, we believe that we have an extremely high quality hotel portfolio that is uniquely positioned to capitalize on several more solid years of growth in the lodging cycle.

To state the obvious, the late summer credit crisis has created debt market instability and asset valuation uncertainty. We believe it is going to take some months for liquidity and stability to return to the marketplace. When the dust settles, we expect a combination of more conservative underwriting at lower leverage levels and higher costs of capital with cap rates up around 50 basis points.

The ultimate impact on the public lodging REITs is uncertain. REIT stocks at their recent lows dropped over 20% from their February highs, essentially anticipating a 100-basis-point-plus move in cap rates, which we viewed as a significant overreaction. Stock prices have come back somewhat, but still appear to be trading below net asset value. The impact of higher debt costs may be partially offset by the enormous amounts of capital already raised by private real estate dedicated funds and increasing real estate allocations from pension funds.

We think there will also be some net positives for public real estate companies in acquiring assets as they will now be better able to compete for deals against private equity groups that can no longer use extraordinarily high leverage to pay the last dollar. However we also believe that transaction volumes will be lower for some months as debt is more difficult to obtain and many players are taking a wait and see approach to real estate acquisitions. And finally, the changes in debt markets will reduce or at least delay supply growth, perhaps extending this lodging cycle.

Our team continues to review hotel acquisition opportunities through our industry network and our Marriott relationship, focusing on opportunities that improve our portfolio quality and have strong long term growth potential. However, I think it may take up to six months for sellers to adjust their expectations to reflect the higher capital costs. While we will remain patient in this environment, we are also optimistic that more opportunities meeting our underwriting criteria will emerge over the next year.

We have a great balance sheet that provides DiamondRock with at least $300 million of investment capacity and a lot of flexibility in an uncertain environment. Over the next months, we will be watching the markets and evaluating the best strategies for investing our capacity. These strategies include funding internal ROI-type projects, pursuing hotel acquisition opportunities over the next year, increasing dividends and repurchasing shares. Now, I will turn the call over to Mark Brugger, who will cover our financial results in detail and discuss guidance. Mark?

Thank you, Bill. As Bill touched on, DiamondRock had a great third quarter. Same-store RevPAR came in at slightly over $130, which is an impressive 11.5% increase over last year. Both rates and occupancy showed good growth. Average rate was up 6.4% and occupancy increased 3.6 percentage points. Profit margins were strong as well. Same store hotel adjusted EBITDA margins for our hotels increased to 28.6%, a 245-basis-point increase over the same period last year.

Because of the robust RevPAR growth and flow through, the Company was able to deliver adjusted EBITDA of $45.8 million, which was driven by a 22% increase in same store hotel-level EBITDA. Similarly, our adjusted FFO per share of $0.36 represents an increase of more than 24% over last year's historical results. Please note that the third quarter adjusted FFO benefited by approximately $1 million or $0.01 per share from the timing of income taxes as a particular TRS lease expense and hence tax benefit hit in the third quarter that had previously been expected to hit in the fourth quarter. This is only a timing issue and is neutral to the full year results.

Additionally, net income for the quarter and full year are positively impacted from the refinancing of the out-of-market debt of the Bethesda Marriott Suites. The refinancing allowed us to lower the Company's overall effective interest rate. More particularly, the reported net income reflects a gain of $400,000, which is comprised of the reversal of the $2.5 million debt premium on our balance sheet offset by the $2 million pre-payment penalty and the write-off of some unamortized deferred financing costs. Importantly, the reported adjusted EBITDA and adjusted FFO numbers exclude the net gain from the refinancing.

As Bill indicated, our balance sheet is in great shape -- low-cost debt and ample capacity to allow the Company to explore any number of value creation strategies. As of the end of the third quarter, the Company's debt carried a weighted average interest rate of 5.7%, with an average maturity of almost eight years. Our current leverage is conservative with a fixed charge coverage of 3.4 times based on the midpoint of the Company's full year guidance and flexible, with nine of our 21 hotels unencumbered by mortgage debt and thus readily able to be leveraged. In fact, even after deploying our target investment capacity of $300 million, our net debt to enterprise value would be only 40%.

Turning to dividends, during the third quarter the Company paid an annualized dividend of $0.96 per share, providing a very competitive yield of over 5%. It is well covered and represents a payout of only 70% of our 2007 cash.

Now I would like to touch on the Company's outlook. For the full year, we are maintaining our prior guidance. Because of the overall strong lodging market, we currently anticipate coming in near the middle of our EBITDA guidance of $204 million to $208 million and FFO per share guidance of $1.58 to $1.62. For 2008, the preliminary indications are positive.

Although it is premature to provide specific guidance at this time, because we are in the very early stages of working with our managers such as Marriott of Starwood to develop hotel-level budgets, we do expect 2008 RevPAR growth to be in the range of 6% to 8% based on current operating trends, continued but moderating economic expansion, and a positive supply-demand imbalance in our particular markets. To sum up, we had a very good third quarter and the outlook remains bright. With that, I would like to turn it over to John.

Thanks, Mark. I will focus my remarks on some of the underlying operating fundamentals that drove our strong third quarter results and support our guidance. I will also update you on our recently completed and planned 2007 capital projects.

Ten of our hotels enjoyed double digit RevPAR increases over Q3 2006, led by the Conrad in Chicago, the Boston Westin, the Courtyards in Manhattan, the Austin Renaissance, and the LAX, Frenchman's Reef, Salt Lake, and Griffin Gate Marriotts. The overall 11.5% portfolio RevPAR increase was particularly gratifying as it comes on top of a very strong Q3 2006 RevPAR increase of 14.6%.

Q3 RevPAR in the New York City Courtyards was about $250 and we are seeing very little price resistance. The Atlanta market, and our Buckhead and Westin properties in particular, underperformed in the quarter, partially because of renovations displacement. Waverly recovered somewhat from a weak first half with a 6.8% RevPAR increase in Q3.

Booking pace is strong at Waverly. Fourth quarter definite group revenue at Waverly is up about 15% based versus the same time last year as of period nine. Frenchman's Reef in St. Thomas has seen a significant shortfall in group room nights again as it has all year, because of tough comps due to last year's Mexican hurricane disruption and the resulting 5,000 incremental group room nights actualized in 2006 at the resort and the Mexican resorts reopening and aggressive group pricing this year.

The resort has very effectively replaced the lost group with transient room nights and group revenue on the books for 2008 versus the same time last year is up 50% through September and is on track to recover to record 2006 levels of normalized group sales.

The Conrad hotel in Chicago continued its dramatic growth in Q3. RevPAR at the Conrad was up 38.3% with EBITDA margins up an astounding 1,417 basis points compared to third quarter 2006 reinforcing our conviction that the dramatic shift in strategy we implemented last year was the right decision. The Westin in Boston continues to ramp up with over 25% RevPAR improvement in Q3 over Q3 last year on a comparable basis.

In the aggregate, our portfolio business transient revenue was up 10.2% in the quarter versus last year and group revenue in Q3 was up almost 6%. The definite group revenue on the books for Q4 is up approximately 3% versus this same time last year. Booking pace in the year for the year softened between Q2 and Q3, but 2008 bookings during the same period were very good.

Our 2008 group revenue on the books is strong, up 14.2% versus the same time last year as of period nine. With 540,000 definite group room nights on the books, we are about 50% of the way towards our anticipated 2008 group room night goals. Our leisure and other discount revenue in Q3 was up a strong 17.4%, reflecting strong leisure demand, as well as the replacement of group shortfalls as hotels such as Frenchman's Reef, Orlando airport, and LAX.

Food and beverage sales for the quarter were up 12.6% among comp hotels because of stronger catering contributions and higher outlet sales. Food and beverage margins improved 170 basis points on a comparable basis in the quarter, reflecting the higher volume. For the quarter, wages increased 5.4% across our comparable hotels, benefits increased 5.2%. As a result, wage and benefit cost as a percentage of total sales dropped from 33.7% to 32% for the quarter among comparable hotels.

Other expenses among comp hotels in the third quarter, property taxes increased 15.8%, and for the full year we are projecting approximately an 11% increase. Incentive management fees were up approximately $570,000 in the quarter, a 28% increase over Q3 2006. For the full year, we anticipate incentive fees will increase approximately $2.4 million or 26.5% to $11.5 million. Energy costs rose about 5% for the quarter and we now anticipate an increase of approximately 6% for the full year.

Overall, we are pleased with the portfolio's 47% hotel adjusted EBITDA flow through in the quarter, in light of the 360 basis point jump in occupancy and the significantly higher food and beverage sales.

As we have discussed previously, our 2007 capital projects will total approximately $70 million to $80 million, significantly less than 2006 relative to the size of the portfolio. In Boston, we've begun construction on the additional 37,000 square feet of meeting space in the adjacent shell retail building that we own. We expect to complete construction March 1st of 2008 and the additional meeting space will enable the hotel to be self sufficient in housing group business when the convention center is dark. Insufficient hotel meeting space has resulted in significant missed revenue opportunities this year.

Our other major capital project, the addition of new meeting space and renovation of the ballrooms, lobby, and public space at the Chicago Marriott, is proceeding well. Construction has begun with completion scheduled for April of 2008. The project remains on budget and on schedule. Our other significant 2007 capital projects included a rooms redo at the Atlanta Westin, which is complete, a redo of suites at LAX completed in the second quarter, and the breakout meeting rooms at LAX, which will be completed in the fourth quarter. Total forecast disruption in 2007 is approximately $1.1 million of EBITDA across the entire portfolio.

In summary, our portfolio performed very well in the third quarter and we continue to feel confident in our full year guidance. We continue to benefit from our concentration in major markets like New York, Chicago, Boston and L.A. and we will continue to work hard to maximize asset values through thoughtful and aggressive asset management. With that, I will turn things back over to our Chairman.

Thanks, John. Tanya, I think we are ready to open up the lines for questions.

Thank you. (OPERATOR INSTRUCTIONS). Our first question comes from the line of William Truelove with UBS. Please proceed.

Hey guys. Good quarter. In terms of your 2008 RevPAR outlook, I assume most of that is going to be rate driven. Can you sort of tell us, is there just going to be that's the only real contribution to margins possibly in 2008 or do you believe there is going to be some other kind of activities that you can do at the portfolio level to maybe improve margins above and beyond just the 6% or 8% RevPAR growth? Thanks.

Yes, we have got several -- this is John. We have got several things working on a portfolio basis. As you point out, most of it probably will be rate although we do have some occupancy hotels in the ramping, hotels we discussed. But we have got a parking initiative that is going across the portfolio that has literally millions of dollars of potential. We are only about I would say 20% into that. [Towards] is a good example. We will realize next year about $400,000 of incremental EBITDA from a paid parking system that we are installing in the hotel in December.

We have got an energy program that we are implementing on a priority basis if you will across the portfolio, starting at some of the large hotels and some of the more out of control hotels like for instance, Reef in the Caribbean and working through that. We have done a labor study at a couple of the large hotels which will really kick in next year. We have found some pretty good improvements there. And we are always basically looking for ways to improve the portfolio performance. I think as Marriott mentioned, a lot of their low hanging fruit has already been picked so some of that system-wide stuff we are not so much counting on as we are on our own efforts.

Will, while we are working a lot of these ideas, I just want to emphasize that we are awfully early in the budgeting process, still working with the properties.

Yes, thanks so much. Appreciate it.

Any other questions?

Our next question comes from the line of Dennis Forst with KeyBanc. Please proceed.

Yes, good afternoon. I just had a couple of items. Wanted to hear about the Westin Atlanta North. What's gone on since you completed the renovations? I think those were all done in the third quarter and there was some disruption, I think John mentioned that. But what has been going on since then?

Well, basically since the renovation has been complete, we've been able to book some group business and some local catering business that we would have had to have turned away in the third quarter. Also the transient business has picked up there. We've had a major new tenant come into the office park. So we have reasonably high expectations for the fourth quarter there.

Okay. And then on the depreciation side, your guidance in the second quarter release was for $19.8 million, the actual came in at $17.5 million. What was different there?

Yes, the depreciation, I think the delta there is really -- this is Mark Brugger, is the deprecation of FF&E, which goes -- the depreciation starts when you put stuff back in schedule, back in service. So as you finish up a number of these CapEx initiatives, it starts -- it is just a matter of time when you start the depreciation schedule.

Okay, does that catch up? Because there was no change in the full year guidance, Mark, for depreciation, yet the second or the third quarter was about $2 million -- almost $2.5 million shy of guidance?

Yes, I mean there is a number of various capital projects that are moving pieces there. So on the full year basis, it may be roughly around the same. But it is kind of a very tricky number depending on when we can count things back in service.

Okay, good enough. So it is possible though that the total deprecation for the year will be below your guidance?

Yes.

Okay. Yes.

Depending on the timing of these projects.

Okay, great, thank you.

Our next question comes from the line of Jeff Donnelly with Wachovia Securities. Please proceed.

Good afternoon, guys.

Hi Jeff.

John, I am curious about, I guess call it corporate negotiations for 2008. Any early data points on what corporate users are telling you guys about room demand for next year, particularly around maybe their volume of bookings that they expect?

We don't really have any good visibility on that, Jeff. We are hearing secondhand that in the high single digit ranking of a rate perspective and the volume is good. It really varies by market as well. In New York, for example, it is double digit and it is exceptionally strong and Washington appears to be stronger this year, at least out here in Bethesda. So it kind of varies by market but we are not getting any kind of global read at this point.

And I am curious if you could maybe help us out in that talking about convention markets. As we roll forward into 2008, 2009, or you look out the next few years, John, do you have a sense for the major city markets out there that are expected to have, I guess what I would call an improving basis of citywide business on their books due to just a favorable shift in their convention schedule?

I mean, I will start with Chicago because that got some press earlier. Everybody has to keep in mind that Chicago had a literally record year in 2006, not only from a numbers standpoint but from a pattern standpoint. So some of the more difficult times to fill were very strong in 2006, which is a tough act to follow for '07 and '08. On a citywide basis, they have -- the years are pretty comparable but the hotels have had to work harder at filling those non-peak times. We are facing that very situation in the fourth quarter at the downtown Marriott and the Conrad. And so we are having to scramble for business.

We are a little bit worried about fourth quarter transient rates at some of the other large group hotels, although that is not materializing yet. But we did put that in the forecast because we were nervous about it. So Chicago in '08 should have a similar year as it is having in '07 and '09 of course is off the charts. Boston claims to be at a basically a capacity situation at the BCEC. We don't necessarily agree and we are trying to convince them that some of the in between time or the dark time between conventions could be shortened and some things could be done to double up conventions and things like that. But that is just a process that we have to go through.

But the city would tell you that they are winning all kinds of recent awards from event planners and people who rank convention city destinations and they are very, very happy with the results of BCEC and they feel that they are pretty much maxed out in the prime times and have only the non-peak to work on.

Let's see, the Los Angeles market is really not -- the citywide conventions are not particularly relevant there yet. They hopefully will be as the big downtown project gets done. Atlanta actually is having a better -- had a better third quarter and is having a better fourth quarter citywide convention calendar. But we don't anticipate a lot of benefit from that because we are pretty far out at all four of our properties. And Washington is a complete disappointment from a citywide standpoint and fortunately we don't rely very heavily on Washington. And those are really our convention cities.

And just to jump around if I could, on the acquisition front it sounds like from your comments we shouldn't be expecting much near term acquisition activity out of you guys. But do you think there are a significant number of owners out there that maybe are under financial stress that you could see opportunistic transactions along the way? Do you have a read there?

I think it is a possibility. I mean, I think leverage levels generally have been lower this go around than a couple cycles ago. But that is a possibility. I think it is just going to take some time to shake out and people to get more comfortable with the new valuations.

And just one last question. I am not sure if it is for Mark or John. But a few of your competitors have had issues with keeping redevelopment efforts on schedule and budget either due to shortage of labor or materials, it pushed rooms supposed to be out of service and low profit periods into high profit periods. And I guess how can we get comfortable with your assumptions around timing and cost for the redevelopments? What sort of contingencies do you guys have in your plan?

Well, first of all in '06 we had great fortune and we had no projects go over budget or significantly run over from a time standpoint. In '07, we ran into some difficulty at Griffin Gate, which dragged our project about an extra month. The contractor went broke and we had to step in and finish the job. That was a pretty good example of what people are encountering. We only got one bid on that job and so we had to take it and we had to try and support him as best we could. But as I've said, we ran into problems.

With respect to the big ones that we are working on this year, Chicago is -- we kept about a 10% contingency at Chicago and we are still holding about an 8% contingency and all the various subs have bid and we have firm prices on those bids and contracts signed. From a timing standpoint, it is inevitable that things will slip and slide, but overall it looks like we are going to be able to keep it on schedule and that is a function of a very good contractor.

Boston, which is a very aggressive market right now because of all the development going on in the city and particularly in the seaport district, we had an overrun but it was within our initial contingency. We have added an additional contingency now for unforeseen things going forward. But that too seems to be on time. So we will absorb the cost overrun in our contingency and I think it is just a function of contractors being very busy and obviously commodity prices being pretty high and that is a pretty heavy construction type of project.

Jeff, this is Bill. Just to sort of sum up, we've invested over -- well over $100 million in our portfolio since we started and it hasn't been that long. And we haven't had any disasters. I mean, we've had a couple where we have had some issues and that has to be expected. But overall, I think we've managed it very well.

Great, thank you guys.

Our next question comes from the line of David Loeb with Baird. Please proceed.

Mark, I wanted to just get a little clarification on the Bethesda refinancing. Was that -- what was the purpose of that?

The debt we had there was about 7.7% interest rate, which we viewed unfavorably in light of our kind of average cost of debt. Additionally, the prepayment penalty which had been kind of running -- a kind of complicated calculation, but it had been running $4 million kind of got down to about a $2 million level, which made the numbers work well for us so we -- that's when we kind of pulled the selection and refied it.

So was this then designed purely to lower interest expense? Or was there some thought to selling this hotel and financing it in such a way that would make it easier to sell?

Yes, well, that's an upside. But the decision at the Company was to do this just to lower our average cost of debt. The numbers worked out in IRRs, it made all the sense in the world for us.

So you will get a pretty quick payback assuming current floating rate interest rates?

Yes, and the way this particular management agreement worked is there are some advantages to the incentive management fees as well.

If you have lower interest expenses.

Well, the way the contract works, we get some benefit from the reduced incentive management fees because Marriott helps participate in the financing cost.

Yes, okay. Is there anything in the management contract that limits your ability to sell this asset?

No, I believe this one has some -- we can't sell to a convicted felon or someone of bad moral character, but besides that there is no limits.

That should narrow the pool slightly. The reason I am asking is just because we noticed that you did buy back some shares and we are wondering if that is -- if share buyback in a meaningful way is something that you are looking at and if one way you would finance that is by selling assets that have somewhat slower growth prospects or strange ground leases or high management incentive management fees?

Two things. I think what you are seeing in the share buyback is when we have shares vest for the executives of this Company, essentially we net that by the Company buying back the shares to pay the taxes from the executives. So the Company hasn't bought back, except for that hasn't bought back shares. And as for share repurchases going forward, Bill mentioned we are exploring a number of strategic alternatives kind of on a regular basis with Ford. So that is something we haven't made any announcements about or decisions at this point.

So the share purchases were specifically buying -- it was essentially a surrender of shares on the part of management for taxes?

David, the Company writes the check for the taxes and the employee is paying it by giving up shares.

Got it, so they are not open market purchases. They are just taking shares out of circulation that were earmarked for your vesting.

Exactly.

Okay, thanks.

Our next question comes from the line of Michael Salinsky with RBC Capital Markets. Please proceed.

Good afternoon, guys. Quick question. Looking ahead to 2008, I know you guys are in the preliminary budgeting process. But are you looking at shifting the demand -- I mean, shifting the focus in any markets from maybe group to more transient or transient to more group?

Yes, this is John. We have in particular the two airport hotels, our primary strategic objective is to shift out of contract business and into group business. We are realizing success to some extent, not completely for some political reasons in Los Angeles and some market reasons in Orlando. But we are I would say about halfway along that strategic target. In Torrance, we are doing the same thing. We increased the size of the meting space and we are shifting into group. But in general, I would say there is no grouping down strategy if you will.

We are -- we are maintaining our group mix in most of our major convention hotels. Boston has, because we have had capacity as we don't have enough meeting space to really book the hotel efficiently from a group standpoint, Boston has had a surprising level of transient business which we will continue to enjoy, obviously. But no strategic decision to group down or group up as a portfolio.

Okay. Secondly, I mean once again, I know you are in the preliminary budgeting process. You have got $70 million to $80 million of capital spending planned for this year and how the Boston will carry -- your work at the Boston should carry into next year. Is there any kind of thought process right now as to what the capital -- what your capital spending outlook is for 2008 at this point? I mean, should we expect a further pullback in 2008 or relatively flat or I guess, what is your thought process on that at this point?

I think on a sort of GAAP basis, it is going to be lower. I think we are in the 70 to 80 this year, so I am guessing GAAP basis, we could be 50 to 60. But that includes the funding on Boston and a portion of the funding on Boston and Chicago that we view to be 2007 projects getting underway.

Yes, on I'll call it a cash basis, that is not the accurate term, but on a comparable basis to the 70 to 80, I think we are probably going to be in the 30 to 35 or 40 range next year. Again, as Bill says, we will actually on a GAAP basis be spending more than that because of carryover from Boston and Chicago. But we are carrying both of those in the '07 number.

Okay, and then a final question. You mentioned that from the second quarter to the third quarter, your group booking pace slowed a little bit for the fourth quarter. Was there any reasons for that or any large cancellations or anything?

This is Mark. I think we talked about this, a little bit of slippage in the group book. The longer term groups are there. There were some in the quarter for the quarter groups that didn't show up, particularly in markets like St. Thomas, again John mentioned kind of the advantage of the Mexican resorts which are lowering their rates half as well as somewhat in Atlanta, some in the group. So some in the quarter, for the quarter stuff hasn't showed up. So it is being backfilled by transient now.

And I think you were also getting at sort of cancellations. We are not seeing any kind of a pattern emerging in cancellations if that might have been part of your question. Just off the top, I think there was a cancellation in Chicago significant, Accenture group and there may have been one other one or something possibly. But we are not seeing a big pattern of cancellations.

Great, thanks guys and congratulations on a good quarter by the way.

Thanks.

Thanks, bye.

(OPERATOR INSTRUCTIONS). Our next question comes from the line of [Juan Kim] with JMP Securities. Please proceed.

Hi, good afternoon gentlemen.

Hi.

Can you talk a little bit about your RevPAR outlook for the rest of 2007? It looks like, just based on industry data, Atlanta is looking really strong for the past few weeks or so, as well as all the cities and I was wondering if you could just talk about maybe why RevPAR outlook wasn't raised or given especially given your strong Q3 as well?

What was that? I couldn't hear.

Yes, just [from] the questions as I understand it, it was a little hard to hear you. You are curious as what the outlook is for RevPAR for the balance of the year and given our strong year-to-date performance, why our outlook isn't more bullish on RevPAR, is that correct?

Yes, that is [actually] and especially given industry data showing pretty strong RevPAR growth throughout the country over the past month or so.

Well, I think our year-to-date RevPAR is up about 10% and looking at the fourth quarter, we are going to be in that ballpark too. So the fourth quarter actually is quite consistent with our performance year-to-date.

Okay.

And I view 10% to be quite strong relative to any benchmark.

Right, okay. Thank you.

Sure.

There are no further questions at this time. I would like to turn the call back over to management for closing remarks.

Okay, well thank you very much for taking the time and your interest in the Company and we look forward to talking to you again at the end of the next quarter. Bye.

This concludes the presentation. You may now disconnect and have a great day.