希爾頓酒店 (HLT) 2002 Q2 法說會逐字稿

Good afternoon.

Welcome ladies and gentlemen to the Hilton Hotels Corporation second quarter earnings conference call.

At this time I would like to inform you this conference is being recorded for rebroadcast.

All participants are in a listen-only mode.

At the request of the Company we will open up the conference for questions and answers following the presentation.

I will turn the conference over to Mark Grossman, Senior Vice President of Corporate Relations.

Please go ahead, sir.

Thank you:good morning, everybody or good afternoon if you are on the east coast.

And thank you for joining us for our second quarter earnings call.

Before we get into things, just a little bit of housekeeping.

The press release that we put up this morning and this conference call contains forward-looking statements within the meaning of federal securities law including statements concerning business strategies and intended results.

Similar statements concerning anticipated future events and expectations that are not historical facts.

Forward-looking statements in the press release and in our call today are subject to numerous risks and uncertainties which could cause actual results to differ materially from those expressed in or implied by the statements in the press release or in our call today.

I would also tell you that we have a playback number and that will be on line until this coming Friday 8 p.m. eastern time.

That number is 800-997-8642 and this conference is also being webcast and the webcast can be accessed by going onto www.hiltonworldwide.com, going to the investor relations tab and to the conference call link.

So with that, we are going to keep our introductory remarks pretty short this morning, as it is our custom.

We want to leave most of the time for your questions.

We will be fairly brief.

I'm here in Beverly Hills with our Senior Management Team.

So let me turn it over for a few remarks to our CEO, Stephen Bollenbach.

Good morning.

As Mark said, I'm not going to spend a lot of time going over the second quarter.

I think the press release and the numbers are self-explainatory.

The quarter gave us things to feel good about.

We posted strong margins so we are continuing doing what we need to do in watching our costs.

Occupancy levels are good at our big hotels in the 70s and 80s and in a few cases the 90s.

These are important properties.

That helped our EBITDA.

And we have seen an improvement in group business in key cities like Washington and Chicago.

In our time share business, once again was a star performer.

Also all of our brands continued to take market share and we added 38 hotels to the system including conversions for both the Hilton and Doubletree brands.

That's the good news.

On the other side we continued to see a very tough environment which to raise room rates.

The economic growth we saw earlier in the year has decelerated for the time being, at least.

So the business travel remained very soft in the quarter.

We worked through the challenges and came through with solid earnings for our shareholders.

What does the rest of the year look like?

Short booking windows and the current economic uncertainties make it harder to make predictions.

Our best view, at this time, is sort of more of the same.

As I said in our investor conference in June, trying to pinpoint the return of the IBT business, which we and, in fact, everybody in the industry has identified as the catalyst for strong growth, that's really difficult.

I believe it will come, but more and more it's looking to me as if it's a 2003 event.

That means it's going to continue to be a challenge to command real pricing power and our revenue will be impacted.

You can see this from this morning's press release that our expectations for rev-par percentage growths are not as strong as we previously anticipated.

The Company will be as strict as we can on our room rates, but the fact is our focus will be on the following areas.

Continuing to operate at strong margins.

We have already been able to take a lot of costs out of the hotels, and there are more opportunities for cost savings, but it's important we not go overboard and affect our customer's experience.

We are confident we will be able to deliver solid margins, as we have in the past.

Also we'll be focused on building occupancy, putting guests in our hotels enables us to generate additional sources of revenue, especially in the food and beverage side.

By doing this we will be able to maximize our EBITDA.

We'll work to fill our hotels at the best available rates and best available business.

We will continue taking market share.

Our brand management efforts and marketsing programs have already paid off with all of our brands adding to their already impressive market share numbers.

We remain focused on growing market share.

This is very, very important for the long-term.

Also, we will be adding units to the system.

The reason we are focused on market share, is that it is enabling us to stay on track with our unit growth estimates for this year.

Even in a tough environment for hotel owners, we are on pace to open the number of hotels projected at the beginning of the year.

I think that's testimony on the strength of our brands and the confidence our owners place in the ability of these brands to outperform their competitors.

The reputation of our brands is also presenting good conversion opportunities.

Especially for Hilton and Doubletree brands.

We secured a couple in this quarter and we are actively pursuing more opportunities.

We'll also focus on growing our time share business.

If you were at the investors conference in June, you heard about the strength of this business and the exciting new projects we have underway.

We started sales on our properties in Las Vegas, Orlando, New York and sales continue to be strong in Hawaii.

We continue to be very enthusiastic about growing this part of our company.

I will wrap up by saying we are, in fact, seeing the gradual improvement we expected earlier this year, and things are getting progressively better.

But unfortunately, the improvement is not as fast as we had originally anticipated.

There's no question that the uncertainty in our economy and the weakness in the travel business will impact us and our numbers for the rest of the year.

This is a difficult time for the lodging industry, but we are well-positioned to succeed in 24 environment.

We own great hotels in important markets where there is little new supply.

We have great brands and are taking market share and a full franchise -- we have a full franchise development pipeline.

We are doing a good job watching costs and we generate a lot of free cash flow.

I believe the basic fundamentals of our business are solid.

For the reasons I mentioned, we are in a good position now, and we will continue to be as we see improvement in our industry over time.

So, that's my comments.

Okay.

This morning's press release, we provided estimates for the third quarter of 2002, and estimates for full year '02 so before we go to Q&A, let me just take a minute and review that updated guidance with you.

As we prepared for this earnings call, we did what we normally do, just as our normal course of business.

That is we talked to our hotels, get reports, very detailed analysis from them on a monthly basis.

We just did this about a week or so ago.

And, you know, as they look forward, you know, they are just not as comfortable that the pricing power is going to be there going forward.

There's more competition for business.

Business in international travel are going to be soft.

And this is what our hotels are seeing and telling us.

So, you know, you add to that the current economic uncertainties that we have and simple fact is that the business is just not going as well as we had previously thought.

All of that, then, put together warrants us to or caused us to revise downward our third quarter and full year estimates.

And we think that that more conservative view is warranted based on this feedback we have been getting from the hotels.

So, let me start with the third quarter.

And tell you we are expecting total company revenue to be about flat with last year's quarter.

Now, that's due to rev-par at our comparable owned hotels we expect to be flat to down 2% and property sales that we made in 2001.

Now, that will be partially offset by a slight increase in fees and the positive impact of adding the. [ indiscernible ].

We are looking at total Company EBITDA in the range of 235 million with owned hotel EBITDA of approximately 140 million.

Owned hotel EBITDA margins are expected to be in the high 20% range.

EPS is anticipated to be approximately 10 cents.

Now, that compares with pro forma EPS of 9 cents in the third quarter 2001.

Let's turn to the full year.

We are expecting a full year revenue decline of two to four percent.

Due primarily to a low single digit percent decline in rev-par at our comparable owned hotels, 2001 property sales and a modest decline in fees.

We'll see some positive offset from the purchase of the Hilton [Whaiculia] Village.

Our estimate for full year total company EBITDA is 1.01 to 1.04 billion.

With owned hotel EBITDA of 635 to 665 million.

We expect to show strong owned hotel EBITDA margins in the low 30% range for the year.

In terms of eps, we anticipate something in the low to mid 50 cent range for the year.

Pro forma EPS for 2001 was 57 cents.

Speaking to cash flow, Steve mentioned we generate a lot of free cash flow.

A couple things have changed since we talked at our June 20th investor meeting.

First and the most obvious thing is that our EBITDA estimate has come down for the year.

On the plus side, though, we sold 52 million of time share receivables.

So when you put it all together, we still expect to generate about 260 million of net cash flow even in a difficult year.

As we mentioned before, our primary use of this net cash flow will be continued debt reduction.

So that concludes our intro duct reremarks.

Operator, we are now ready to take questions.

Thank you.

The Q&A session will begin at this time.

If you are using a speaker phone, please pick up the hand set before pressing any numbers.

Should you have a question, please press one followed by four on your push button phone.

If you would like to withdraw your question, please press one followed by three.

Your questions will be taken in the order they are received.

Please stand by for your first question.

Thank you.

Our first question comes from Joe Grass.

Please state your affiliations followed by your question.

Good morning.

This is Joe Grive of Fulcrum.

I don't know if Dieter is there.

Maybe someone can speak to how price competitive it is for group business and what your price expectations are for group business for the fourth quarter and in the next year?

It's competitive.

But we have been able to, for the year, to have confirmed group business association business, and we are forecasting about a 4% increase with average rate actually up about 3 percentage points.

That's association only?

Association and convention and group business.

Okay.

The marked is softer.

That's where we have seen a bit of a decline.

Particularly in our larger hotels, that has been very solid, and we see that trend for 2003, as well.

Thank you.

Yes.

Our next question comes from Jay Cogan, please state your affiliations followed by your question.

Hi.

Good morning.

Banc of America Securities here.

Couple questions with respect to the near term outlook.

If you could maybe comment a little bit about the third quarter since you took the numbers down pretty significantly relative to where you probably were thinking before.

Can you talk a little bit about what it really is?

Is it business travel weakness?

Although it's not a big part of the business in the summer or is it leisure demand or groups?

Can you be a little bit clearer there?

What kind of assumptions do you have with respect to any improvement for the back half of the years at all?

Well, we have been really focusing on driving penetration occupancy.

I think we have been very successful last quarter.

That's what we are going to do going forward.

Now, the price compression we don't have, and as Steve mentioned, the business travel has to kick in.

That's what we need.

Now, looking at the segmentation of our business, the group business as I mentioned is strong.

The FIT business is soft.

International leisure business is down.

On the other hand, do midwest ic leisure market is very strong.

Government business have been really, really good in many of our hotels.

That's up about almost 10%.

That certainly helps.

So it's -- the challenge is to get a better average rate.

If you maintain our high occupancy levels, I think we will be able to achieve our objectives.

[ laughter ].

Sorry.

If I could maybe ask one more question.

Or two-part question.

Could you guys talk a little bit about the Hawaii tower with respect to the mold issue?

I guess you mentioned this shouldn't have a big impact on EBITDA.

Can you talk about any further liability related to that?

Matt, could you also talk about the time share finance receivable sale and how we should think about that in comparison to other asset backed sales in the lodging industry?

Let me talk about the time share first.

We are very happy with the time share receivables portfolio that we have.

But it was starting to get pretty good sized, and I think as a Company, you always say to yourself, oh, yeah, the time shire receivables we can sell them at any time.

We wanted to test that market to see if we would be able to do that.

So we did make the sale with ge.

We sold 52 million worth of receivables.

We still have another 130 or 140 left.

And I think we'll do it kind of on an opportunistic basis.

We like the income from that.

Use that to pay down some of our debt.

And we probably continued to look at doing those kinds of transactions on a one off basis.

I don't see any other deals that we have like that, other asset based transactions.

Well, I guess what I was saying is how did this transaction compare, let's say to the deals that Marriott, Starwood are doing?

Are they fairly similar or different?

They are different.

This is an actual sale.

Whereas their deals were more securitization.

So we actually sold the time share paper to ge.

We are going to continue to service it.

We will continue to get a slice of the upside, but it was an actual true sale of the receivables.

As to the Kalia tower, we took a $10 million charge, a reserve which is the -- our current estimate of the costs of repairing the damage in the tower.

And also replacing some of the case goods.

And so that's as much as we know now.

We don't have a better estimate of any other liabilities that may come from that.

It would just be speculation at this point, Jay.

This is what we know now.

Okay.

Thanks a lot.

Okay.

Thank you.

Our next question comes from Todd Jordan.

Please state your affiliations followed by your question.

This is Todd Jordan from Dresdner.

Questions on uses of cash going forward with the free cash flow you are generating.

Historically, you have said you like to get your leverage down to about 3.75.

Has that thought process changed at all with the stock being down, or going the other way, the fact that maybe the time you reached that leverage point, maybe a little delayed given that you have lowered EBITDA guidance?

Well, I think it really hasn't changed and the time frame is pushed out a little as EBITDA comes down.

I will say for next year, though, we don't anticipate a lot of the Cap Ex projects that we are finishing up this year.

So the free cash flow number we would expect next year to go up substantially.

I think the general outline is we have still used the free cash flow to pay the detective service so we get debt to EBITDA which we estimate is a pretty good parameter to be in solid low investment grade territory.

Okay.

My second question is, what was Cap Ex during the quarter excluding the transactions?

Just looking at maintenance Cap Ex and any ROI projects you are engaged in.

It's 44 million in the quarter and so year-to-date is 94 million.

That excludes time share.

Time share runs through the inventory account.

In the quarter we spent about 8 million in time share and 10 million year-to-date.

Okay.

So if I include time share it's 44 plus the 852?

It's 44 plus 8.

Which is -- 5 two.

Okay.

Thanks.

Next question comes from Bryan Egyar.

Please state your affiliations followed by your question.

Credit Suisse First Boston.

Could you speak to your outlook for the first half of September.

I think that's where we have seen the biggest change in group bookings and the feeling about independent business travel.

I wonder if you could speak maybe to that time period specifically.

A lot of concern about the anniversary of 9/11 if people will be traveling.

Well, we looked at all of our hotels, and most of our major hotels, actually have sort of group business -- solid group business booked already.

Particularly those with the regional drive to markets the forecast looks good.

We are not saying this is going to be really the best season of the year.

It will be modest, but we have good bookings in there.

In San Francisco for example we are down, but in New York we will be up.

Very much a market by market situation.

Thanks.

Thanks, Brian.

Next question comes from David Anders.

Please state your affiliations followed by your question.

Hi.

Two questions.

First, Dieter, could you talk about kind of expense reduction programs, what do we have left to do?

Are we getting close to annualizing all of those?

Matt, could you talk about the teris insurance issue and notice of default?

It's never ending.

We still have more to go.

We -- as you know, we started our job complexing in various areas from San Diego to New York, from purchasing to sales.

Even on the executive staff and that's a program we have in place and we still have to opportunities.

We have a very strong central productivity measurement system in place where we are looking at each hotel, and we can actually guide the hotels in order to again better productivity ratios.

And all other expenses.

Energy cost our consumption is down.

We are watching it carefully.

We continue consolidating our laundry facilities in Portland and other areas.

The focus is on really maintaining our -- maintaining as well our cost side and looking at new opportunities.

The terrorist situation, as you know it's a very complex issue right now in the insurance industry.

And when our policy was renewed in June, the carriers excluded terrorist coverage from the ongoing coverage.

So we looked into the terrorist coverage, and we found it's very limited.

There's many exclusions.

The premiums and ductibles are very high.

And so generally we thought it didn't make sense to try to get a policy.

In this particular loan situation that we have, we don't believe that we are in a default.

But we were noticed by the servicer who is trying to do their job and get the best deal that they can for their lenders, there's no evidence to us that the lenders want to get out of the loan.

There's good coverage.

There are strong assets.

And basically we are in a negotiation with the servicer over this particular issue.

I believe that we will get it worked out.

My guess is they are on this call, so I have to be careful about what I say.

But, you know, we are working with them, with our insurance people, and I believe that at the end of the day we'll get a solution that works for everybody.

Thank you very much.

Thank you.

Next question comes from Steve Kent.

Please state your affiliations followed by your question.

Steve Kent with Goldman Sachs.

Steve, could you talk a little bit more about your now very aggressive goal of building occupancy and building market share?

Why shouldn't I be concerned this is a euphimism for you cutting prices to fill your hotels and then making it difficult to raise prices as the cycle continues?

Just seems that's sort of what's happened in the past and it looks like you all are going down that road again.

I don't think so, Steve.

I mean, what we are saying is that -- we are competitive with everybody else.

It's not like we are pricing cheaply in order to steal market share.

I think we are just -- we have growing, vibrant brands.

And we feel that, you know, one of our big businesses and when we bought promise from a strategic point of view wanted to be in the business of selling franchises.

And one of the keys to that is to be able to deliver something that the competitive sellers of franchises can't deliver.

So that's what we are focused on.

And I don't think we are doing it by coming in product for product cheaper than anybody else.

We are doing it by delivering a better franchise product, better systems, better programs like our H Honors program.

I think that's the way it works.

And I think, Steve, just to mention our guest satisfaction score card is up over last year.

We are concerned about that, maintaining a good spirit among our team members and delivering the kind of services that we like to do.

One other thing.

Maybe Tom wants to speak to this, too.

Another way to look at it, steve, is that we get really high marks from the owners of the hotels that use our brands.

So they wouldn't be happy with us if they thought that we were underselling their products just to build our market share in the brands.

I think there's too many really smart owners that would let us get away with that.

I think, Steve, the other thing that you need to remember, is that when we talk about market share on a brand by brand basis, that's a combination of rate and occupancy versus the competitive sets.

And so it's both price and volume, and I think you would have to agree, if you looked at our competitors, brand by brand and segment, we are doing very, very well.

And so that's both we are putting more people into our rooms.

Our occupancies are pretty strong.

Generally in this 70 plus percent range for each of our brands.

And we are doing that at come mety testify prices.

That's why each of our brands, through mid-year have actually gained share over their competitive sets.

So, we are not doing it by cutting price, we are doing it by, I think, offering great value and great service to our customers that are choosing to use us more often than our competitors.

Okay.

Thanks.

Thanks, Steve.

Our next question comes from Mike Wheatrock.

Hi, guys, just a couple of questions.

Was pretty surprised by how good the margins were at the company-owned hotels.

Was there anything that was in or out of the comp base that would have skewed that one way or the other?

Question for Dieter just just to clarify your answer to an earlier question.

You said the group bookings were up about 4% at 3% higher prices.

What time periods were you comparing that?

Mike, first question first.

Nothing changed in the comp set.

Okay.

And the time period is as of June year-to-date and looking forward for the year the confirmed group bookings we have in our books.

That's a full year '02 number over full year '01?

Yes.

Yep.

Okay.

Just last question for Matt and Steve.

Have there been any issues in terms of the transition the auditor, are you and Steve okay signing off on the financials?

Yes.

Let me talk about the audit thing first.

That has gone very smoothly.

In fact, in kind of a behind-the-scenes update, we were thinking about trying to access the bond market a couple of months ago, and so we were in kind of an awkward situation where Arthur anderson was the last auditor of record and Ernst and Young hadn't signed off on financials.

We had to do was it a FAS 71, Bob?

FAS 71 review where our new partners came in and kind of reviewed all the work that the Arthur Anderson guys hate done and we came through that with flying colors.

They were satisfied with all the procedures we had, and the way that we handle our business now.

Unfortunately the bond market went away from us and we didn't avail ourselves of that, but no issues, and things are going fine.

In terms of the certifications that we will make, we take it very, very seriously.

We may have begun a detailed process of review of the company, and I would say we are probably halfway or so through the process.

And I have no indication that there would be anything that would cause me concern in making that certification.

I fully expect to do it.

Me, too.

Thanks.

Our next question comes from Keith Mills.

Please state your affiliations followed by your question.

UBS Warburg.

Have two questions for you.

The first is on reversed auctions.

I was hoping you could comment on Hilton's strategy as it pertains to the reverse auction process and the likelihood they will be used more going forward.

Is that a corporate strategy or are you going to let the hotels use their discretion in participating in reverse auctions?

The second question is back to the Kailia tower, do you happen to know what caused the mold at this point?

Could you comment on business interruption coverage on it?

Thank you.

Dieter, do you want to start?

I think we have to distinguish twenty electronic RFP and an E-auction.

We do a lot of electronic RFP.

That's intended to save time, paper, and cost efficient.

On the reverse auction, the E-auction, really the intent is to drive down prices.

We don't mind to give a little bit on our rate if we can double the value, that means you have to have a partnership.

You have to have a business performance agreement, and you have too understand the competitive sale.

Therefore we have our guidance to our hotels is not to undertake individually any reverse auctions and, if so, we will do it at the corporate office.

On the Kailia tower issue, the basic issue is excess humidity in the rooms.

And I think the insurance is going to be a very complicated situation.

We have to be careful what we say.

I have Pat Tuwiliger on the line outside location.

Pat's in charge of our architecture and construction area.

Pat, could you do like a minute primer on the basic situation there?

Yes.

We have a team of technicians that are currently at the property.

We are pretty deep in the fact finding and diagnosing phase.

My guess is we are going to find there's a number of different contributing factors here that have created the kind of complicated situation.

All we know for sure at this point, is that it's most likely caused by excessive humidity in the rooms.

But that's about all we can say with much certainty at this point.

Pat, since you can -- since the tower is only a little over a year old, can you go back to the contractor and find that it maybe is their fault in constructing this particular tower, given the fact you are not finding mold in other towers?

We don't really want to debate that kind of issue now because we are really in the early stages of this.

And, you know, so we want to keep open the our -- our options as to how we deal financially with the problems in the tower.

If you don't mind, we'll hold that one back a little bit until we get a better idea of where the responsibility lies here.

Follow-up for dieter on the reverse auctions.

Dieter, are you suggesting Hilton will not participate in any of the reverse auctions?

No.

No.

I'm saying we will participate where it makes sense.

For us, as indicated in thames of having a performance agreement, so but we will participate only from the corporate side.

We don't want the individual hotels to undertake that.

Thank you.

Our next question comes from Harry Curtis.

Please state your affiliations followed by your question.

Hi, J.P. Morgan.

Dieter, it seemed like the city center hotels helped you in the second quarter to outperform.

But that doesn't appear to be the case in the third quarter.

Has there been any incremental change in demand?

Um -- no.

I think the pattern are the same.

We are all waiting for the business travel to pick up.

San Francisco is probably doing a little worse than we thought.

I mean you would always have, you know in one city you have a citywide convention it helps.

We have better booking pace.

The balance, it's a well-balanced portfolio we have and booking patterns.

Any deceleration in the pace of business from the leisure traveler, then?

No.

The domestic leisure market is very strong, including Hawaii.

Okay.

Thank you.

Our next question comes from Jay Cogan.

Please state your affiliations followed by your question.

Just a follow-up with respect to looking out to '03.

This year has been an issue of mix.

I was wondering if you could talk a little bit about how you he can expect, as we move into 2003, the mix of your business at your own hotels, be it business travelers, groups, leisure, will or will not change?

We thought we were doing pretty good giving you good guidance for the rest of this year, man.

You are hammering us on '03.

In terms of mix, you know, it seems to me that we are going to return to our traditional mixes.

The hard part is to guess whether that's next quart, the following quarter, the following quarter.

That's about all we can do is say -- I don't think there's anything fundamentally changed in the society.

I really don't.

I'm thinking about the fundamental changes that have occurred such as 9/11.

Such as a change in the way we use technology.

I don't think this will fundamentally change travel patterns.

I think we are seeing the results of business slowdown.

At some point, and j, it isn't possible to tell you -- for me to guess what the point is, at some point I think we return to our traditional business mixes.

I understand that.

I guess my question really is, at this point in time, are you going after group business on a volume basis as hard as you did last year at this time?

Or harder?

Well, we want to make sure that we have a good pace and firm bookings in our larger hotels with our discounting.

That's what we are not doing.

And anticipating, then, an incremental pick-up in the business travel.

Okay.

Thanks.

Our next question comes from Joyce Minor.

Please state your affiliations followed by your question.

Sure.

Lehman Brothers.

Just a couple quick questions.

One was on cost per occupied room.

I think analyst day you told us cost per occupied room was down 5% in the first quarter.

Can you remind me if it was for the owned portfolio --

Joyce, this is Bob.

For the number that I gave at the conference was for owned and operated properties which is fairly consistent, when you look at just the owned properties, it was pretty much spot on.

For the second quarter, we were down 5.4% in cost per occupied room for our own properties as well.

Okay.

Perfect.

Thank you.

Then, maybe for Dieter.

I guess, you know what's so impressive is that our rev-par for second quarter were much above your pierce and smith travel and when we look at the guidance going forward it doesn't look that much different.

Are you expecting that out performance can't continue or is that conservatism on your part?

I passed on good compliment to our field they needed good encouragement.

I think we will continue working very hard and aiming at market share.

The I think that's right.

Some of us are more optimistic than others.

Dieter would be on the more optimistic team, I think.

I think it goes back to the introductory comments based on feedback we have been getting from the hotels, putting it into the mix I think a more conservative view is warranted.

Lastly I notice you guys have seen south core purchased your hotels they are reflagging and having you guys manage.

Can you talk about the contract management terms?

Can did you need to put up any money up to get the contracts or is it just that they like you guys?

Joyce, this is Tom.

We haven't put any money into those hotels.

They are -- one will be a Doubletree Guest Suites in Charlotte.

The next will bea Hilton at Mertle Beach, right next to the Embassy on the beach.

We have a good relationship with them.

We manage a lot of hotels for them.

Obviously in brands that do very well.

So they, obviously prefer to consolidate management with brands and management team that makes sense for them.

Thanks, Joyce.

Thank you.

Our next question comes from Bill Crowe.

Please state your affiliations followed by your question.

Good morning, guys.

Most of my questions have been asked and answered.

On the time share we continue to be fascinated the results are as strong as they are.

Could you talk about any trends over the course of the year?

You know, we -- what have you seen since the market took its latest turn down?

At the end of june, are you having to provide better financing alternatives?

Or what is -- what is going on in that business?

Should we continue to see it be as strong as it has been over the next three to four quarters?

It's really nothing has changed, Bill.

It's been very consistent, very strong.

We are always looking for ghosts, you know gee there's a problem or a fall-off or something.

We haven't seen it at all.

We haven't changed the financing terms.

Matt, is there any change in the average price of the unit sold?

It'' been going up.

It was up over 20% offer the quarter.

How many times have they raised the price in Hawaii?

Eleven times or something.

That's what we have been selling more Hawaii and, you know, those are going at a significant premium to what you see in Las Vegas, Orlando.

There's two things that happen.

The mix.

The more importantly, in a specific location and Hawaii is the best example we have found the ability to increase price as we have gone in the process.

You know, on -- in the same units.

So --

The biggest issue we have, Bill this is a good problem to have.

Is delivering more product to this sales force.

You know, one they have established themselves in a particular location, like in Las Vegas or Hawaii or Orlando, the time share guys are on us big-time to secure more properties.

Find another deal.

Find another location.

So they can keep the sales force in place, be able to offer the customers different choices.

So we are working very hard to find additional locations in hawaii, for example.

The Las Vegas thing, of course that's a big project there.

They are interested in doing more stuff.

On that note, is the sales force working in New York and do you have any results yet?

They just started this week, yet.

Nothing to report yet, Bill.

Thanks, guys.

Thank you.

Our next question comes from John Duskin.

Please state your affiliations followed by your question.

SAC capital.

I was curious.

In the event you are in default, what are your options in terms of carrying the default?

Well, first we don't think we are in default.

So I don't think we really want to speculate on what would happen if, in fact, we were in default.

So I think we'll just --

I believe, as Matt, believes we'll simply work something out with the servicer.

Great.

Thank you.

One other question if we could.

With visibility being as difficult as it is, can you give us some historical patterns in terms of the sequential rev par trends from Q3 into Q4, how those have trended overtime on an absolute basis given that the comparisons might be a little skewed given with what happened last year.

We think that's probably a better follow-up question.

Not that we are trying to hide anything, but we have to do more research on that.

If you could call Bob afterwards, he could help you with that.

Thanks.

Next question from Kurt Carsinson.

UBS Warburg.

About this mortgage bond default.

Could you verify today you have enough liquidity to take out the 400 million in face value of bonds?

Looks like you have about 543 million in cash in availability in the facility today.

If not,.

Yes, I can confirm that.

But also, we don't believe it's a default.

Okay.

Are there, maybe at a point in time -- if you didn't have the liquidity to take that $400 million in bonds out, are there any cross default implications?

By chance?

No.

We don't see, we have analyzed all of our agreements.

We don't see any cross defaults.

If this were a default, which we don't believe it is.

So no liquidity advantage you had to take out the 490 today, and no big deal?

We don't believe it's a default.

Let's say it was today.

I'm sorry.

Listen, I'm not going to answer any of these questions.

I am sorry.

We have really said all we can say.

Thank you.

It is a private situation with the group of lenders that we are attempting to work out and I do not want to negotiate this thing with other interested people.

Next question.

Next question comes from Fry Nabasian please sait your affiliations followed by your question.

Thank you.

My question really is related to the earlier question on the CMOs.

Could you comment on the availability of terrorist insurance?

You said that what is available now is much more restrictive.

Could you comment on the cost of getting the coverage that you were getting before, if that's available at all?

In general, how much is this type of coverage costing you more these days?

You know, before 9/11, I think that people assumed that terrorism coverage was just covered in the all-risk sections of policies.

After 9/11, insurance companies began excluding those specifically.

And so, you know, when people talk about terrorism insurance now, it's not an easy word to -- it's not a defined word.

So wafer is in my mind when I say terrorism insurance, it would be unlikely it would be in your mind.

We don't have a definition of that.

That makes it impossible, frankly, to talk about what does terrorism insurance cost?

We have looked at so-called terrorism insurance that has so many ex scluxs in it that it's relatively cheap.

I don't know how you would ever collect on it.

So, you no, I don't think that we can really have a clear definition of the cost of terrorism insurance because, as yet, we haven't, as a society, developed a concept of what is terrorism?

I mean fire is pretty simple to define.

Terrorism is not.

So we'll have to leave it at that.

Yeah.

Your point is well taken about the definition.

Let me ask you the same question a different way.

Are you comfortable that under the post 9/11 environment, that you have adequate insurance coverage, not just for normal type of risks, but also events that might be construed to be terrorist type of events?

You know, it's an impossible question to answer.

Because I don't really know what you mean by might be construed as a terrorist event.

It's just not answerable.

It's not something that's unique to our Company.

I don't think it's answerable by anybody.

All right.

Thank you.

Thank you.

If there are any further questions, please press one followed by four at this time.

Hello?

If there are no further questions in cue at this time I will turn the conference back to you to conclude.

Thank you very much.

We appreciate you joining us.

And we'll be talking to you again soon.

Thanks a lot.

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