希爾頓酒店 (HLT) 2006 Q4 法說會逐字稿

Good day, ladies and gentlemen and welcome to the fourth-quarter earnings conference call.

My name is Onika and I will be the operator for today.

At this time, all participants are in listen-only mode.

We will conduct a question-and-answer session towards the end of this conference. (OPERATOR INSTRUCTIONS).

As a reminder, this conference is being recorded for replay purposes.

At this time, I will now like to turn the call over to your host, Mr. Marc Grossman, Senior Vice President of Corporate Affairs for Hilton Hotels Corporation.

Please proceed.

Thank you and good morning, everybody or good afternoon if you are on the East Coast.

Thanks for joining us for our fourth-quarter earnings call.

Before we get started, let me just remind everyone that the press release we put out this morning and the conference call we are having contain forward-looking statements within the meaning of federal securities laws, including statements concerning business strategies and their intended results and similar statements concerning anticipated future events and expectations that are not historical facts.

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

Also tell you that today's call is being webcast.

To access the call on the web, just go to www.Hiltonworldwide.com, go to the investor relations tab and then click on quarterly conference call.

The replay of this call will also be available until February 7 at 8 p.m.

Eastern time.

The phone number for the replay is 888-286-8010, passcode 40962114 and the call also will be archived on our website.

So to get started, we have got a few brief comments from our President and Chief Operating Officer, Matt Hart.

Thank you, Marc, and hello, everyone.

As you know, we like to save on the commercials and devote most of the time to your questions, but I just have to comment on what an outstanding year 2006 was for our Company.

Our two top priorities in 2006 were to run the business well and to integrate Hilton International and we were very successful on both counts.

On the business front, our management and franchise fees increased over 50% for the year and this growth came about through a combination of RevPAR gains, unit growth and of course the Hilton International acquisition.

We added 223 hotels to our system last year and we expect to add another 900 hotels and 120,000 rooms in the next three years.

We made a great start on international expansion of our family of brands, most significantly the deals we signed in China and India and our own hotels experienced big gains in RevPAR profitability.

With regard to the balance sheet, our debt level was reduced by about $860 million from September 30, 2006 and the asset sale program that Bob is directing is going great and we are expecting to complete several dispositions in the coming months.

In terms of the integration, our domestic and international teams are working together beautifully and I am very glad that many of you got to meet the HI team at our investor conference last month.

We are busy installing our operating systems around the world and I can tell you that our team members are pumped.

2007 and beyond looks good too.

We are signing up lots of new deals across our family of brands and we have the largest development pipeline of any U.S. lodging company.

We are continuing to see high demand in cities where we have a major presence like New York, Hawaii, Chicago, London.

Our group bookings are looking good.

Our timeshare business continues to flourish and we have some really spectacular projects underway in our four key markets.

We have a great team in place and we are all looking forward to an excellent year in 2007.

And so with that small commercial, we will go back to Marc.

Okay, Matt.

Thanks.

And I just want to mention also that Steve Bollenbach, our CEO, and other members of our senior management team are here ready to answer your questions.

So with that, operator, let's get started.

(OPERATOR INSTRUCTIONS).

Jeff Randall, A.G. Edwards.

Matt, I wondered if you would comment on the RevPAR outlook for '07.

Three months ago, you guys were looking for 7% to 9% growth and now it is 9% to 11%.

I guess if you could comment on what specifically has changed over the last 90 days to cause you to ratchet up your expectations.

Really what we did is we went out to the properties.

We had been in the process of formalizing our budgets when we had our conference with you all and since then, we have finished that work.

And when you look at property by property and look at the group business outlook and what our people in the field are looking for, that is what came out.

And I guess just as a follow-up, why is it that you are raising the top-line expectation by 20%, but at the owned hotels, you are still looking for basically the same owned margin growth?

It would seem like you would be getting some additional flow-through alongside with the RevPAR increase.

Yes, I think that is a fair question.

We have been looking very carefully at the cost components of the business.

I think we have done a good job on the healthcare side of things over the past couple of years.

One that is a hard one for us to really model is energy costs.

As we go through the budgets in October, we have a certain assumption about what fuel costs are going to be and then several weeks later, it is a lot different.

So that one is a little harder for us to quantify.

Bob, do you have some more color on the margin side?

Actually I have color on two points, Matt.

First of all, the guidance that we gave during the investor day was a three-year compound annual growth rate guidance of 7% to 9%.

So it wasn't a one-year guidance target, Jeff.

In terms of the margins, part of the increase or the change from the prior guidance in terms of top-line growth was due to foreign currency, and that wouldn't impact the margin numbers because you are using the same exchange rates for revenue and expenses.

So that doesn't change the margin number.

And then, Bob, if you could comment just on the use of the foreign tax credits.

It looks like your effective rate is dropping from 38% to 33% for '07.

What happens in '08?

Can we assume the rate is closer to 40% beyond '07?

Let me just comment a little bit and I'll just spend a little bit more time in answering your questions directly.

But we did do some judicial tax planning last year to put in place a structure so we could claim a credit on our 2006 tax return for 100% of the taxes paid in foreign jurisdictions.

So that is really what resulted in bringing our effective tax rate down from what we thought was going to be for the year about a 38% run rate to a run rate of about 33%.

We did have one-time credits in the '06 period that brought it down further, but adjusting for those credits, the run rate is 33%.

So we are consistent between '06 and '07 in terms of our full-year effective tax rate.

In '08, two things, two comments on '08 and beyond.

One is that we still have our synthetic fuel JV that will -- that the credits associated with synfuel expire at the end of '07.

So if you take that out of the mix in '08, you would expect to see our effective tax rate go from 33% to 34% roughly.

And the only other caveat -- the second point I wanted to make was in terms of international asset sales.

To the extent that we sell international assets and the mix of income between U.S. income and foreign source income changes, that will also have the effect of moving up our effective tax rate.

But I just at this time can't predict what that impact will be.

And just to clarify something you said on my first question that the top-line growth being due in part to foreign exchange.

Can you give us a sense for what the RevPAR outlook would look like in '07, excluding the impact from foreign exchange?

It would be at the lower end of the guidance range.

Jeff, we're going to give somebody else a shot.

That's great, thank you.

Joe Greff, Bear Stearns.

Matt or Bob, can you talk about the '07 RevPAR outlook and whether the international stuff is -- you're forecasting much different RevPAR growth rate there for the domestic?

Then also break it out how you look at the rate of margin improvement international versus domestic.

Domestically -- basically, the RevPAR growth is the same domestically and internationally.

It falls within the guidance -- the worldwide guidance range of 9% to 11%.

So there is not a blending going on.

There is a blending going on, but it happens to blend to be the same guidance range.

Great.

Then if I look at the other operating expense line on the P&L, Bob, I know that includes some of the timeshare expenses.

If I just look at the non-timeshare expenses in that other operating expense line, how much does that grow in '07 versus '06?

Because I know you've talk about marketing spend and branding spend and things like that.

What is a good run rate for that in '07 versus '06 that is implicit in your guidance?

I don't have with me what the non -- most of the number is timeshare related expense.

The $491 million for the year of that $736 million is timeshare?

Right.

So the other part is what we call other operating expenses excluding timeshare, which is more or less the corporate-related expenses that we allocate to our operations.

Those will increase along with corporate expenses in 2007.

We had talked about on our earlier call costs associated with international development and brand support costs.

So that will be increasing year-over-year.

We also talked the -- Matt mentioned in his opening remarks the rollout of our technology initiatives.

There is going to be an expense associated with that that is going to be hitting both our corporate expense line and those other operating costs.

We have just general level of inflation, and then we also mentioned in our press release that we will have increases in our stock compensation costs, and that is in part due to the fact that we have now included our Hilton International management team members in our equity compensation plans.

And my final question, Bob, in the press release you guys reference asset sales status and that you are past the first round, second round.

How many rounds do you actually go through before you actually have a final offer?

You are a clever one, Joe.

Joe, usually by the end of the second round -- when the second round numbers come in, you pick your lead horse.

So we are pretty close?

I think Matt mentioned in his remarks that we hope to close on the majority of the deals by mid-year.

David Katz, CIBC World Markets.

Along I guess some of the same lines as Joe and Jeff, I'm looking at particularly the outlook for leased hotel RevPAR growth, which basically doubled since your last guidance in the third quarter.

Maybe this is a better question for Ian or anyone.

What goes into that going from 4% to 5% to 8% to 10%?

And I assume the assumption is that it's basically the same pool of properties in there, and sort of how did that occur?

Then my second one is I am looking at your fourth-quarter international RevPAR growth, which seemed a little bit low excluding the foreign exchange, given some of the numbers that we see published on a regular basis.

If you could help me with both of those, I would appreciate it.

Sure.

David, I'll take that.

Is Ian on?

Yes, I can just about hear you.

I will take the question and then if you want to add anything to it, that would be great.

First of all, on the seven leased hotels question, the doubling of the guidance range in RevPAR is substantially due to foreign exchange.

A lot of the leased properties are up in the Nordic region and we saw significant strength of those currencies against the dollar in the fourth quarter.

In fact, the Swedish krona went up 10.5% in the fourth quarter.

So again, much of the increase relates to foreign currency.

However, that being said, we do see and project strength for leased properties across the Nordic in 2007, as well as in Continental Europe and in the U.K.

On the second question regarding the fourth-quarter international RevPAR growth, really a couple of factors.

One is that the Metropoles that we closed on in late November came out of the comp set.

And as we all know, London had a very strong 2006, and they had a strong fourth quarter of the year in 2006.

So that was partially the reason why the RevPAR numbers didn't appear as strong as you may have been expecting.

Additionally, we did see a bit of weakness in our hotels in Germany and they were really related to just a few specific items as opposed to any market trend there.

Ian, was there anything you wanted to add to any of that?

Yes.

I think, as you know, because we've discussed it in the past, our position in the Nordic region within Scandic from a trading perspective was always better, and it just continued to improve in Q4 and look good as we move into 2007.

We had a real strong quarter.

So the underlying business was strong, notwithstanding what Bob has said in terms of the FX gains.

So if we were to split that upside and not holding you to any specifics, but if we were to try and come up with some relative way to split the upside there, it is definitely incrementally more fundamentally positive, but more so on FX.

Is that a fair way to say it?

Yes, I would say that is a fair assessment.

Bill Crow, Raymond James.

On the outlook for '07, could you split the RevPAR guidance between North America and international?

It's the same.

It is the same.

Okay.

You talked about in the fourth quarter that you didn't suffer any interruptions from renovations at the three hotels.

What are you anticipating early this year?

Joe, this is Matt.

We have had the three properties.

We have had Hilton New York, we've had the Waldorf-Astoria and we've had the Hilton Hawaiian Village.

For the full year, the displacement will be less.

We will take more rooms out of service in the first quarter at the New York Hilton, but then we will effectively be done with that complete redo of the thousand rooms.

So we'll really be happy to have that behind us.

The Waldorf, the work will continue through the year and that has been that rewiring project that has been going on.

And the Hilton Hawaiian Village will be also throughout the year.

Light in the first quarter and then we tend to try to do the work when the occupancies are a little over.

So we spread that one out effectively through the year.

Can you help us, Matt or Bob, think about the layout of the year because you obviously have negative impact from the ownership of Hilton International in the first two months of the year?

The RevPAR data we have seen thus far has been pretty uninspired for the industry.

I'm just trying to think about how back-end loaded your results for the year might be or what we should think about for the first quarter?

Well, Bill, we don't break it out by quarter and we just don't want to fall into the trap of thinking about things on a monthly or quarterly basis.

You can look at your typical seasonality of the first and third quarters not being as strong as the second and fourth, but at this point, I think we would rather not get into describing guidance or looking at each individual quarter.

The only thing I would add to that is -- and just in terms of the displacement factor quarter-over-quarter, it probably would be greatest in the first quarter.

Because of the New York Hilton.

Because of the New York Hilton, right.

Right.

So would we anticipate that we would see earnings down year-over-year in the first quarter?

Is that a fair question?

Can you hit that replay button there?

We were really not going to give quarterly guidance, Bill.

Good try, though.

Fair enough.

Thanks, guys.

Michael Millman, Soleil Securities.

Looking at the industry data for last year, we see that the occupancy rate continued to decline quarterly even before you had the -- I guess the Katrina distortions in the numbers.

I was wondering if your corporate negotiations have changed or if the corporations are taking a stronger stand now than they might have at the beginning of the year because they see that occupancy is going down?

And maybe you'd also comment as why do you see occupancy going down.

Are we, in fact, seeing that supply is coming on at the same rate or better rate than growth?

This is Matt.

On the corporate negotiated rate side, no, we are not seeing pushback.

In the large group segment, it is still a competitive market, but we are seeing good, strong, mid-single digit room rate increases in that segment, and I believe that we are forecasting an increase in occupancy.

We expect for our North American owned hotels for '07, we expect occupancy to be up about two percentage points.

You know the reality against these hotels, these big hotels that we have, we still don't see any significant new build competition and nothing on the horizon.

The cost of the new builds are just not economic by and large in the big cities that count for us, like New York and Hawaii and Chicago.

And on the timeshare, are you seeing any difference between the -- or have a different outlook for the timeshare versus the fractional or the club?

I guess I am thinking of what we are seeing in the housing market, if that is more related to the fractional.

We are not in fractional.

Our focus is strictly on interval ownership, and our strategy has been to focus on four markets.

And I think in the press release we showed pretty strong price increases and pretty strong unit growth.

So we don't see any correlation to weakness in housing to sales and development of timeshare.

Again, I will emphasize what spectacular projects that we have got underway.

Those of you in Manhattan know that that project on 57th Street is going to be a big winner, and Las Vegas continues to be really strong.

We have a third project now in Orlando that we are going to start, and our project in Hawaii, two of them, the one on the Big Island and the one at the Waikikian, are going to be just fantastic properties and we are really, really excited about that.

Just thinking about the timeshare business for us, you have got absolute built-in growth for the next three years or so.

Will Marks, JMP Securities.

I just have a question on worldwide, are we seeing any difference in multiples internationally versus U.S.?

In terms of asset sales?

Yes.

It's really a function of the market, any given market, any given hotel.

We are hearing, if you look at all the broker reports, is that cap rates continue to be compressed both here and in Europe.

It is a little bit stronger in Europe because the belief is that when the buyers are underwriting their purchases over in Europe, they are able to make -- they feel a little bit better about the RevPAR and earnings growth potentials potentially, but really -- it really comes down to the specific hotel and the specific market.

And one other question.

On your recent press release, did you give any kind of expectation in terms of when the Board plans to make a decision on a new CEO.

This is Steve Bollenbach.

I think our Board has done a terrific job over the last couple of years in planning for my succession.

So they will continue to do that and I think we will probably have an announcement -- the Board will probably have an announcement sometime before early summer.

Okay, great.

That's all for me.

Celeste Brown, Morgan Stanley.

Just coming back to the exchange rates, I know you are not in the business of forecasting exchange rates, but can you just talk about what kind of exchange rates you use in your forecast?

If like the pound and the euro come in, what kind of pressure can we expect to see in terms of your own RevPAR guidance?

When we put our final forecast together, we took a look at forward rates for each of the currencies where we have our hotels and we picked a number for each currency and we use that in our projections.

So the answer is we use multiple exchange rates depending on the amount of EBITDA coming from each part of the business internationally.

So I guess my question is are you using sort of the peak, almost peak numbers we are seeing on the pound like $1.96, or is it something a bit more modest than that?

I don't have with me the exact rate we use, but it would be pretty close.

We picked the rate back in the middle of December.

So it is pretty close to where it is today.

And then if exchange rates come in, because again as you mentioned earlier your expenses are in the same currency, we shouldn't see an impact on your EPS.

Shouldn't see an impact on the margins.

On the margin.

But you would see an impact on EPS, you would.

Right.

Okay.

Right, because you don't have the exchange rate.

All right, thank you.

Jay Cogan, Banc of America Securities.

I have got a few questions for you.

First, Bob, can you tell us what your assumption is for energy cost increases in 2007 embedded in your guidance?

Our energy costs are different from North America versus outside of the U.S., and it's just really a function of the ground-up forecasting that we do.

But I think in general, putting everything together worldwide, we are expecting energy costs to be roughly flat.

Got it.

And as it relates to the spending for the growth that you are doing as you have highlighted in those different areas, I take it, just to confirm here, that it doesn't change the long-term outlook through 2009 as it relates to the guidance you provided at the Analyst Day?

I'm sorry, I didn't understand the question.

Try it again, Jay.

What I am saying basically is that it has been somewhat of a black box.

You have been highlighting before that there is going to be some incremental spend both for the brands and then also for the international development.

Although we never really got this specific in regards to numbers as it relates to '07.

And so what I am just saying is that as we continue to look at the long-term view of the Company in regards to the 2009, let's say, earnings guidance range that you provided at the Analyst Day, I take it that hasn't changed over the last few weeks.

It is just now we are a little bit clearer on how much you'll actually be spending on those initiatives in '07?

No, it hasn't changed, Jay.

Just wanted to confirm that.

And a couple of others.

As it relates to the balance sheet, if you are this far down the road in regards to first, second round bids, etc. on these many, many asset sales, which could be fairly significant in terms of gross proceeds.

Has the Company, has the Board contemplated becoming maybe more aggressive with the buybacks sooner than later, given how the stocks had a big run already in order to continue to create more value for current holders?

This is Steve.

The way that we think about the buybacks and the way the Board thinks about it is that we don't want to keep investment capacity in the Company just to have it, and so when we feel that we don't have good investments available for our shareholders, then we do intend to return money to the shareholders.

Having said that, we are moving along very quickly.

These asset sale programs obviously help the case, and so while it is not necessary to sell these assets to reduce our debt to an investment grade level, it looks like that is just going to happen.

So the summary I guess is that the availability of cash inside the Company for stock repurchase I think will happen sooner than I would have said a year ago.

Right.

Okay.

That is what it seemed.

And then as maybe a final question or so, on the pipeline if you are going to add 40,000 rooms or maybe 35,000 in '07, 40,000 in '08, what should we expect the net to be just to kind of get back to that?

You were talking 7% growth rates before, which that is on a gross basis.

Should we expect to see that many rooms coming out on a net basis to get it a little bit lower, or will it be pretty close to 7% net too?

Well, if it were close to 7% net and gross, that would mean we wouldn't be reducing any hotels in our existing portfolio.

And you know that we've got Hamptons that are now 20, 22, 23 years old and we will continue to cull those out at the end of their useful life and add perhaps new Hamptons in the areas where they have been removed.

So I think our removals will probably look a little lower going forward than they have in the past, just because we have had some big ones come out like, for example, in Q4 you will notice we had nearly 4000 rooms come out.

Half of those, almost half, were the Coral hotels that were in the Caribbean.

So that will be something that we won't be repeating going forward.

So it won't be 7% net, but it will be a good healthy number.

Jay, I wanted to give a little bit of color to the question that I thought you had asked at the front, is that we have all this growth planned and we are staffing for it and I think, Bob, in our budget, we go from like 25 development people to almost 75?

85, yes.

85.

So we are hiring really good people.

There is a lot of excitement in the international marketplace among the development community, and so that was a sizable chunk of what that additional cost is for the Company, but we think that is the right investment for us to be making.

And that for the most part then is going to be an ongoing cost for the next few years, but built into the '09 numbers?

Yes, and I think once you have got the team established, there is not much marginal cost involved.

And the model for that of course is in the States here where we probably have about the same number of development staff over the past several years, but once you get the machine going, it really can cook.

But all that is baked into the long-term forecast that you saw in December.

Harry Curtis, JPMorgan.

A quick question on timeshare.

You have the isolated the 2007 pretax shift of $60 million.

Does that shift end at 2008?

How should we be thinking about 2008 timeshare as it pertains to the percentage of completion impact?

This is Bob.

We would expect most of that deferral that we are having to record in '07 to reverse in 2008.

That answers the question.

Thank you.

Will Truelove, UBS.

Congratulations on the good quarter.

I have three questions.

First of all, the first question is about the external growth of the 900 hotels.

Can you give us either a breakdown on how much you think that will be domestic versus international, maybe not just by hotels, but maybe by earnings potential?

My second question relates to timeshare.

Has there been a change in the trend in what I will call the tour to buy ratio?

Has that changed at all?

And then the third question is it looked like you bought two Scandic hotels potentially in the fourth quarter.

Are those two that you bought going to be part of the assets that you sell going forward or what was the thinking behind that?

Thanks.

Maybe starting with the first one, Tom, do you want to talk about breakdown between international and domestic?

Over -- I think you have got to look at more than three years.

Over the next five years, we expect that we will open 1000 hotels in North America and over the next 10, 1000 outside of North America.

So take two or three years before the international growth will accelerate beyond what HI already has in their pipeline.

Our pipeline of 770 some hotels is -- about 10% of that is international, and that will begin to accelerate as we execute against, for example, the two major deals that Matt talked about earlier; as we execute against the DLF deal and as we execute against the deal in China and begin to approve specific projects within the overall numbers.

So it will shift to a greater percentage of international than it is today, but it will take three years, four years, until you see that major change.

And on the timeshare, there hadn't been much of a change.

Our marketing cost as a percentage of our sales has been pretty steady for the last several years.

I think the biggest change that we face is that the properties that we are developing are higher-end.

They are in really the most desired four-season vacation markets.

So the cost of what we are building is higher.

The product that we are offering is higher.

The average price per unit is higher.

So we are having to seek a little bit different customer.

The person that was -- you would sell for a $12,000 a week unit that would finance most of it is a much different purchase decision than someone who is buying a week that costs $70,000.

So it is a refinement in the target market for what we seek, but overall the statistics have stayed relatively the same in terms of margins and marketing costs and so on.

And then the third question was --

On Scandic, we had exercised an option to acquire a couple of Scandic hotels properties for really the very low price option and these are properties that were in our leased portfolio that are now owned, but they are all included in the sales process for the whole Scandic portfolio.

Steve Kent, Goldman Sachs.

Two questions.

First, just on '08 profit flow-throughs.

As you get further out, Matt, do you expect that some of these initiatives, the technology initiatives, the marketing initiatives will start to come off a little bit and then you will start to get a more significant profit flow-through?

Maybe you could walk me through that sort of specifically.

Then the final thing is -- the other question is you have done a very good job of doing better than the overall Smith Travel statistics for the industry for the fourth quarter in particular.

I'm just was wondering when you look at that relative to your peer group, are you taking marketshare?

Is it because you are in specific markets?

Is it type of hotel?

All of those things have been things you've discussed in the past, but maybe you could identify which one specifically this quarter or going forward seems to be the biggest driver?

So you asked about 2008 and of course we don't give 2008 guidance.

Yes, but, Matt, you've made a very big point of saying that you are doing things to improve your flow-through and your profitability.

So if you could start to talk about how that starts to -- if that in fact starts to happen in the next year or two.

And the answer to that is yes.

We always -- we always target investors.

We don't necessarily target ourselves.

We would like to target higher because the RevPAR growth has been coming so much from rate, but we generally like to think in terms of our business as a 1.5 times flow-through.

In other words, if RevPAR is up 5, we would expect EBITDA to be up 7.5.

We have been very aggressive particularly on the Hilton brand for the last couple of years, increasing the marketing allocation.

Of course we have done a lot of things in the rooms and we definitely see that paying off and that leads to the second question is are we taking marketshare from our competitive set and the answer is absolutely yes.

All of the things that we have been doing -- it's been very, very gratifying to see the numbers coming through.

We survey our own guests and we see our satisfaction and loyalty tracking numbers have gone up steadily over the past couple of years, especially for the Hilton brand and the Hampton brand, by the way.

We are seeing that the Smith travel numbers, of course, are showing higher RevPAR increases.

And we are seeing the surveys that we do from outsiders, J.D.

Power in particular, have shown very strong linkage between guest satisfaction and then we, of course, link that to our ability to raise the rate.

So it was very gratifying, it is all working.

And I honestly, I don't see any additional initiatives that we are going to have to do.

So I think it is just kind of doing more of the same.

I think also, Steve -- this is Mark -- the second part of what you said in terms of where we are and you think about the boxes that we own in Hawaii and New York, you know, those markets have been so strong and we are in the bull's-eye locations with the most meeting space, and then that is certainly a contributing factor to outperforming the Smith Travel numbers.

Let me just give -- this is Tom, Steve -- a little more color on the industry, not on our big hotels.

Matt was right, every single one of our brands had increased customer satisfaction by our own studies throughout the year, and every single one of our brands gained marketshare year over year.

So I think that is a statement about how customers like our brands, but also as you noticed the industry numbers, occupancy has been flat for the industry to just a tick down over the last two or three months.

So what that means is that in a lot of places, people have more choices because hotels weren't quite as full as they were in the past.

In those environments, our brands do even better.

They gain marketshare.

So if the industry does slip a little bit more, I think our brands are going to continue to gain marketshare and they are all at substantial premiums, as you know.

And the fact that we have gained marketshare and the customers are happy is translated directly into the largest pipeline in North America of any North American company that Matt referenced earlier.

So it all works in that wonderful circle.

You are going to make Tom show his circle chart he showed at the Investor Day.

It's how it all works.

I have it up in my office.

Thank you.

(OPERATOR INSTRUCTIONS) David Anders, Merrill Lynch.

Matt or Tom, maybe you could comment a little bit about if you could break your customers, your end customers into business transient group and leisure, give us a little observation on kind of what the trends are.

Is RevPAR being carried by business transient or the group business; how do we think about that?

Going forward?

Yes.

Going forward, our expectation is that the group business and the IBT business will be about the same.

We will probably do a little bit more on the group side.

I think if you look back at our company the last couple of years, and I guess the Internet has something to do with it, we probably haven't done as much group business as an ideal for us would be, mainly because of the food and beverage side of things.

It has been painful for us the past couple of years.

We said, well, the RevPAR was up, but the EBITDA wasn't quite where we thought.

And it was because our food and beverage and banquet business wasn't what it should have been or could have been.

So we are going to try very hard in '07 to kind of maximize what the -- kind of a yield management, both in terms of the rooms business and the food and beverage business.

So we are going to try to get an even larger portion of our business on the group side.

We will see a little bit higher rate we think on IBT, but we are hoping that with more group business we will be able to get more banquet and food and beverage business, which will help that flow-through.

I don't know if that answered your question, but that is kind of the direction we are going in.

Just generally speaking, though, are you still shifting away from the leisure traveler -- Hawaii aside for a moment -- and trying to orientate your business more towards business?

Not really.

You know, it's hard to differentiate those.

It is hard to say, okay, this person is a leisure traveler and this person is IBT.

It is easier to differentiate between the group and the individual traveler.

Okay, that's fine.

Dave, I think also when you think about Hawaii, certainly a big leisure business, but the fact is at the Hawaiian Village we do a whole lot of group business there as well, and group incentive and conventions and everything else.

So it is really even more of a business and group hotel than you might ordinarily think.

At this time, there are no questions in queue.

I would now like to turn the call back over to Mr. Marc Grossman for closing remark.

I think Bob has something he wants to add on here.

I assume that everybody saw this morning the upgrade from Fitch.

Fitch had upgraded us to BB+ plus and changed their outlook on us from stable to positive.

So we think that is great news and we certainly appreciate it.

And a good way to end this call.

So we thank everybody for joining us this morning, and we will be talking to you soon.

Thanks a lot.

Ladies and gentlemen, this concludes the presentation.

You may now disconnect.

Thank you and have a good day.