Sunstone Hotel Investors Inc (SHO) 2006 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Sunstone Hotel Investors second-quarter 2006 conference call. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded today, Thursday August 3, 2006.

I would now like to turn the conference over to Bryan Giglia, Director of Finance of Sunstone Hotel Investors. Please go ahead.

Good morning, everyone, and thank you for joining us today. By now, you should have all received a copy of the corresponding press release. If you do not yet have a copy, please contact my office at 949-369-4236, or alternatively you can access it on our website at www.sunstonehotels.com.

Before we begin this conference, I would like to remind everyone that this call contains forward-looking statements that are subject to risks and uncertainties, including those contained in our prospectuses, 10-Qs and 10-K and other filings with the SEC which could cause actual results to differ materially from those projected. We caution you to consider those matters in evaluating our forward-looking statements.

We also note that this call contains non-GAAP financial information including EBITDA, adjusted EBITDA, FFO, adjusted FFO and hotel operating margins. We are providing that information as a supplement to information prepared in accordance with generally accepted accounting principles. Explanations of such non-GAAP items and reconciliations to net income are contained in our earnings release which we filed yesterday. You can find our earnings release by going to the Investor Relations section of our website.

With us today are Bob Alter, President and Chief Executive Officer; Jon Kline, Chief Financial Officer, and Gary Stougaard, Chief Investment Officer. Bob will provide an overview of the operating environment and a recap of the acquisitions completed during the quarter. Jon will provide an overview of the second-quarter results and an outlook for the third quarter and full-year 2006. Gary will provide an update on current CapEx projects, including a status update on the Fairmont Newport Beach, Hyatt Regency Century Plaza, and the Orlando Renaissance. Following their remarks, the team will be available to answer questions.

To begin management's discussion, I would like to turn the call over to Bob. Bob, please go ahead.

Good morning, everyone, and welcome to the second-quarter 2006 earnings call for Sunstone Hotel Investors. The second quarter of 2006 was another strong quarter for Sunstone, our seventh quarter since our fall 2004 IPO, and the seventh quarter in a row that we have met or beaten our earnings guidance. To reiterate that I have said on each of our calls we have consistently told you what we will do and then gone out and done it and continue to underpromise and overdeliver.

Let me take a moment to highlight the acquisitions that were completed during the second quarter and provide a brief overview of the current operating environment. We bought two high-quality hotels in the second quarter, the Embassy Suites La Jolla and the W San Diego. Both hotels are fee simple real estate in robust San Diego County markets and well-positioned within their respective markets. We have commenced planning on a significant cosmetic renovation to the Embassy Suites and expect to have the hotel completed by the end of the first quarter of 2007.

The W San Diego is the market leader in both ADR and RevPAR in downtown San Diego. We expect the hotel to run an ADR of approximately $250 this year with a RevPAR of almost $200. The W was built in 2002 and consequently does not require any significant immediate capital expenditures.

Year-to-date we have acquired over $500 million of hotels, including the Hilton Times Square and the Marriott Del Mar, all located in high barriers to entry markets. We are evaluating a robust pipeline of opportunities but remain disciplined in our acquisition process. Any acquisition must satisfy our key acquisition search criteria of improving the overall quality of our portfolio, as well as long-term growth rate of our cash flow.

We have also been focused on the disposition side. We have sold four hotels in the past 18 months. We have also identified certain assets that we consider noncore, and we are having discussions regarding the possible sale of these hotels. At this point I would like to turn the discussion to the current operating environment.

We have continued to produce strong internal growth on our existing hotel portfolio. Our RevPAR growth and margin improvement has been very impressive as we continue to invest significant capital dollars in our current portfolio, including in particular the Fairmont Newport Beach and the Century Plaza in Century City and other recently acquired hotels.

I would like to note that we continue to see double-digit RevPAR growth from California. The San Diego market has continued to be one of our strongest in our portfolio, posting a RevPAR gain of 12.6% in the first six months over last year. We believe the San Diego market will continue to be among the best performing markets, driven by strength in the business and convention and leisure segments.

We continue to execute our extensive 2006 CapEx program. We have spent over $65 million in the first half of the year and will spend a similar amount in the second half, readying our portfolio to capitalize on 2007 opportunities. This has led to some temporary disruptions in our operations and corresponding cash flow, but we are confident that the best positions of our hotel is to drive aggressive growth in 2007.

We have continued to capitalize on the strong financing markets and improve our balance sheet. We have essentially 100% fixed-rate debt at an average of 5.80% with an average life of approximately nine years, and less than 25 million of our debt matures this decade. Our better balance sheet has been surprisingly underappreciated by the investment community, and we traded a significant FFO multiple discount to our peers.

With that, let me turn the call over to Jon Kline, our CFO, to take you through the numbers and describe our recent financings. Jon?

Thanks, Bob. Good morning. I would like to cover three topics. First, provide you with an overview of the three months ended June 30, '06. Second, provide an update on our balance sheet, investment and financing initiatives and third, provide guidance for Q3 and the full-year '06.

First topic, Q2. To echo Bob's comments, we are very pleased with the performance of our hotels. At the corporate level, we exceeded the high end of our guidance on RevPAR, operating margin and FFO per share, and we are at the high end of EBITDA. For the second quarter '06, our comparable hotel RevPAR for hotels owned during the entire quarter, excluding two hotels undergoing rebranding and renovation programs, the Fairmont Newport Beach and the Hyatt Century Plaza, increased 10% above our guidance of 7 to 9%. This RevPAR increase was driven by a 6.8% increase in rate and an occupancy increase of 2.2 percentage points. In other words, approximately 68% of our RevPAR improvement was from rate.

Including the two hotels that were undergoing rebranding and renovation programs and the two acquisition hotels, RevPAR increased 9.2%. It is important to note that in addition to the two renovation hotels five other hotels in our portfolio experienced disruption in the second quarter of '06 due to renovation work. For the quarter we experienced double-digit RevPAR growth in California, as well as in our Middle Atlantic and Southern regions.

On an absolute basis, our RevPAR for the quarter was approximately $103. This is our first quarter with RevPAR over $100 and compares to $70 in '04, $80 in '05 evidencing the significant improvement in the caliber of our portfolio.

Hotel operating margin for the quarter improved 210 basis points, again ahead of our guidance which was 150 to 200 basis points. For the quarter ended June 30, '06, adjusted EBITDA was 71.8 million, at the high end of our guidance of 69 to 72 million. Adjusted FFO available to common shareholders per diluted share was $0.75 for the quarter, beating the high end of our guidance of $0.69 to $0.74 by $0.01. Adjusted FFO per share grew 19% over last year's second quarter.

On CapEx we invested $32.6 million during the quarter. Gary will give you more detail on that. Second-quarter results were negatively impacted by the renovation at the Fairmont Newport Beach, which was completed in May midway through the quarter. On the expense side, management fee expense was $7.5 million in the quarter, including 2.4 million to SHP, 4 million to Marriott, 1 million to Hyatt and 100,000 to Fairmont.

Second topic, balance sheet and financing initiatives. We continued to improve our balance sheet in the second quarter. With regard to our balance sheet, at the end of the quarter, we had approximately $1.5 billion of debt and $79 million of cash on hand, including restricted cash. There were a number of transactions that we completed during the quarter or shortly thereafter.

Specifically one, La Jolla Embassy Suites. On May 17 we completed the acquisition of the 335 room La Jolla Embassy suites for $100.7 million. This hotel enhances our portfolio and gives us exposure to the robust La Jolla market. This is our first asset that we have managed by Hilton. The acquisition was financed with a fixed-rate loan totaling 70 million at a rate of 6.6% and cash on hand. The loan is interest only for five years and matures in 2019.

Two, the W San Diego. On June 26 we completed the acquisition of the 259 room W San Diego for $96 million. This is our first acquisition of a W, our first boutique hotel and our first hotel that will be managed by Starwood. As Bob said earlier, this hotel is the number one hotel in downtown San Diego in both ADR and RevPAR. The acquisition was financed with a fixed-rate loan of $65 million with a rate of 6.14% end a draw on our credit facility. The fixed-rate loan is interest only for 69 months and matures in 2018.

Three, the refinancing of the DC Renaissance. On April 28, we completed the previously announced refinance of the Renaissance DC. We paid off the existing fixed-rate loan of approximately $53 million at a rate of 7.5% maturing in '08 with a new loan of 135 million fixed-rate of 5.95% and maturity in 2021.

Fourth, the refi of our credit facility. On July 17 we replaced our existing 150 million secured credit facility with a 200 million unsecured credit facility. The new facility matures in 2010 with a one-year extension and can be increased up to 300 million. In addition to being unsecured, the new facility's pricing is based on a grid that is 25 basis points cheaper than that of the previous facility. In addition, the unused fee has also been reduced by 30 basis points.

Five, preferred stock. On April 5 we sold approximately $54 million of additional Series A preferred stock. We used the proceeds along with certain of the proceeds from the DC refi to repay in full the $75 million term loan that was part of our original credit facility. So in essence we replaced a floating-rate loan due in '08 and paying LIBOR plus 225 or 7.7% in today's market with a fixed-rate perpetual preferred stock at 8%.

Six, common stock. On July 19 we agreed to sell 4 million shares of common stock pursuant to a forward sale agreement with Citigroup. I want to make sure that everyone understands the mechanics of this agreement. This agreement has a fixed net price of $111 million to the company subject to minor adjustments and a fixed number of shares, 4 million. We have the right to settle the agreement at our option at any time during the next year in one or multiple settlements.

It is important to note that no shares are issued until we elect to settle. This structure allows us to move quickly on acquisition opportunities and not be subject to the often unpredictable fluctuations of the market. It is advantageous to us because we are able to more precisely match fund our equity raise with the closing of an acquisition, eliminating dilution taken on from pre-funding and sitting on cash.

At this point I would like to turn the call over to Gary Stougaard, our Chief Investment Officer, who will provide details on our CapEx program, and then I will come back and give you Q3 and updated full-year guidance.

Thank you, Jon. I would like to spend a few minutes outlying the general parameters for our 2006 CapEx program and provide some specific details on the status of our renovations at the Fairmont Newport Beach, Hyatt Century Plaza and Orlando Renaissance resort, in addition to some of our other major projects. Our

2006 CapEx plan projected total renovation expenditures of between 130 and $145 million during the year. As of the end of the second quarter, we are on pace with this plan having spent $32.6 million in the quarter and approximately $65 million through the first half of the year. Included in this amount are 13.4 million at the Fairmont, 5.9 million at the Century Plaza and 5.3 million at the Orlando Renaissance resort. Based upon our current spending projections for the balance of the year, we expect to finish the year in line with our planning guidance. The 444 guest rooms, lobby, meeting spaces and other public area renovations at the Fairmont Newport Beach hotel were completed and returned to services during the second quarter. These are the top rooms in the Irvine, Newport Beach market and feature all the latest technology and entertainment options available today, including 32 inch LCD televisions and DVD players.

These renovations have been very well-received by our guests, and we have begun to see improvements in both rate and occupancy, which ramp-up we expect will continue through the balance of the year and into 2007 and beyond.

Importantly, with the completion of these renovations, beginning in 2007 we will have a yield guarantee from Fairmont under which Fairmont is obligated to pay us any shortfall from an 8% net operating income yield on our total invested costs in 2007 which amount increases to 9% in 2008 and 10% in 2009 and thereafter.

We continue to make progress with our planned renovations at the Hyatt Century Plaza. Through the end of July, we have completed and returned to service nearly 200 first-class guest rooms and are on pace to complete the renovation of the balance of the hotel's 728 rooms by mid-October. Lobby and public area renovations have also commenced and are expected to continue through the end of the year.

Our renovation of the Orlando Renaissance resort began in July. This $22 million program includes the complete replacement of all softgoods, installation of 32 inch LCD televisions, and residential style bathroom upgrades in each of the hotel's 780 guest rooms. The renovation plans also includes an extensive renovation of the hotel's 88,000 square foot atrium, including a new media bar, full-service Starbucks coffee store and other retail outlets and the complete makeover of the hotel's three (indiscernible) restaurant and sports bar outlets. The guest rooms and corridors are expected to be completed by the middle of October with the completion of the public areas and other improvements expected by the end of the first quarter of 2007.

The renovation of all the public areas at our Washington D.C. Renaissance hotel, including the complete renovation of the restaurant and all of the ballroom, meeting and pre-function spaces are expected to begin in September and continue through the end of the year. Renovations at the balance of our Renaissance hotel portfolio hotels, excuse me, in Baltimore, Westchester, and Atlanta continue as planned with work expected to continue primarily in the public areas of these hotels through the first quarter of 2007.

At the Tysons Corner Marriott we have commenced the makeover of the entire lobby, including the front desk and retail areas. This work also includes expansion of the existing Shula's Steakhouse into a three meal a day restaurant similar to that at our Troy, Michigan Marriott and incorporates the conversion of space currently occupied by two other restaurant outlets into private dining rooms and additional meeting space for this restaurant.

We also opened Shula's steakhouse in our Portland Marriott in May and are evaluating the possible conversion of the existing restaurant in our Marriott [Wescanuchahawkin] hotel in the Philadelphia area into a Shula's franchise.

We are well underway with the planning for our $9 million renovation program at the recently acquired Embassy Suites La Jolla hotel. The program includes the complete renovation of 337 guest rooms and upgrades to all the hotel's meeting rooms and public spaces. We expect the renovations will begin in November and continue through the end of January 2007.

Otherwise, we continue to progress on schedule with the completion of the property improvement plans we received from the brands pursuant to our October 2004 IPO, all of which we expect will be completed by the third quarter of 2007.

With that, let me turn it back to Jon to give you our updated 2006 guidance.

Thanks, Gary. With regard to our outlook and guidance, I will run through third quarter first and then provide updated full-year '06 guidance. Our guidance does not include any other acquisitions or asset sales, but as Bob mentioned, we may sell certain noncore hotels during '06 which overall represent approximately 5% of our total book assets.

In the third quarter, we expect RevPAR to increase 7 to 9%. We expect adjusted EBITDA to be approximately 67.5 to $70 million for the quarter. Adjusted FFO available to common shareholders should be 39.8 million to 42.3 million, and adjusted FFO per fully diluted common share we expect to be $0.64 to $0.68. We expect hotel operating margins to be up 150 to 200 basis points over prior third quarter and we expect CapEx of between 35 and 45 million this quarter, including the projects that Gary described.

Let's take a moment to discuss our seasonality. On a seasonal basis, the third quarter is a little softer for several of our larger hotels, in particular Orlando and DC. Conversely the fourth quarter, which tends to be a weaker quarter seasonally in most markets, is strong as a result of New York and the inclusion of four of the 13 yearly accounting periods for our 10 Marriott managed hotels as opposed to those three periods in every other quarter.

For the full year, we expect RevPAR to increase 7.5 to 9%, increase from our prior guidance of 7 to 9%. Adjusted EBITDA should be 260.5 to 265 million, up from 257 to 263 million. Adjusted FFO available to common shareholders should be 157.1 to 161.16 million. Adjusted FFO per fully diluted share is expected to be 254 to 262, up from 252 to 262, and hotel operating margins to be up 150 to 200 basis points for the full-year over '05 with CapEx for the year of 130 to 145 million.

While operating results and trends remain robust in most of our markets, including California, as we have said before, we have been negatively impacted by the large renovation projects at the Fairmont Newport Beach and Orlando Renaissance.

In addition, we completed our property insurance renewals on June 22, and while we were expecting a significant premium increase, we were nevertheless surprised at just how bad the insurance market is. We are pretty good negotiators and got hit with an increase of approximately 20% on the all-risk side but 65% on the catastrophic coverage side, which for us means earthquakes since we do not have much wind exposure. This results in an increase in premium of approximately 650,000 per quarter going forward.

One positive item related to '07. Our group booking pace for '07 in the SHP portfolio is up 14% in terms of definite room nights on the books right now relative to this time last year at an average rate increase of more than 8.5%. Our pace for '07 for the 16 brand managed hotels is up 15% year-over-year in definite room nights and 25% in revenues. While we are not -- while we are obviously not providing any specific guidance for '07, this bodes well for the continuation of strong RevPAR growth industrywide.

I would like to address one last topic, valuation. As we have said before on these calls and in conversations with many of you, we are disappointed that we continue to trade at a huge discount to comparable hotel rates on an FFO multiple basis. Based on consensus '07 FFO per share numbers, we trade at a 250 basis point discount to host, a 250 basis point discount to strategic, and over a 300 basis point discount to LaSalle.

We believe that the market is missing a fundamental distinction in our capital structure. The fact that we have essentially 100% fixed-rate debt with a nine-year average life and less than $25 million of our debt maturing in the next four years with a weighted average rate of 5.8%. The market tends to get things correct over the long-term, but it's missing this major point right now in our opinion. Each turn on the multiple in rough numbers is $3 a share, so we are talking about $6 to $9 per share of valuation discount.

At this point I will turn the call back to Bob.

Thanks, Jon. That is a very important point, and the FFO in my opinion is still the most important measure, and we seem to be underappreciated in the financial community on that issue.

As many of you are aware, I plan to retire from active duty at Sunstone at the expiration of my employment contract in October of '07. At that time I would expect to become Chairman. Our Board of Directors has recently formed a special committee to identify potential successors. The committee has been directed by the Board to consider candidates and has begun the process. While a formal timetable has not been established, the Board's goal is to name a successor by the end of the year.

Again, thank you for your interest in our Company. We are very excited about the opportunities in our industry and continue to take advantage of them, our competitive advantages that we have and will capitalize on.

At this point we are pleased to take any questions you might have, and thank you for calling in this morning.

(OPERATOR INSTRUCTIONS). Jeff Randall, A.G. Edwards.

I just wondered maybe, Jon, if you would comment, did you mention the management fees paid during the quarter? Did I hear you say 7.5 million?

Yes.

Okay. And then what about share and unit count as of the end of the second quarter?

Share and unit count? You mean number of outstanding -- (multiple speakers)

There is no LP units, zero, and the diluted share is 62.2 million -- 62.27 million.

Okay.

Remember the 4 million shares that we did on the forwards don't come into play until we them down and issue them.

Okay. Bob, I wondered if you would maybe comment just a little bit on the transaction environment in the upper upscale luxury segment. What are you are seeing in terms of transaction multiples, which way they have gone over the last six months, just give us a sense for the environment would be great.

Competitives and multiples have gone up. No, not to be a wise guy. We still see incredible amounts of capital chasing acquisitions. When something comes on the market, there is a tremendous amount of buyers. Obviously the institutional money that is coming into the market both from pension funds, opportunity funds and private investors, as well as the public companies all seem to be aimed at major markets.

I think it is less competitive in the midscale and upper upscale, but it is certainly a frothy market out there. That is why we have focused on only the best markets and have passed on a number of opportunities.

I would say in the last quarter we have probably had expansion of one to two multiple turns on EBITDA in terms of acquisitions or on the conversely I would say cap rates are probably down .5 point in the last three months. So again, we see that. We hear that, for example, the Renaissance portfolio we bought in June of '05 at the same time if you remember Marriott put together a package and sold a number of those hotels to the Walton Street opportunity fund along with Rockpoint, those hotels I understand are coming back to market. So there's a lot of turning of assets, but there is certainly a lot of capital chasing assets at this point.

Okay. One last question on the forward, the forward sale agreement in place, is there any risk that I guess current and perspective shareholders would be reluctant to maybe invest in Sunstone shares today given the below-market arrangement with the other investor? I mean understand it creates a floor on the stock price to some extent in terms of raising capital, but doesn't it also create somewhat of a ceiling as well?

No, in my opinion it is totally unrelated. Those 4 million shares are sold and are in the market, so they are in the hands of investors. It is just like every other share that is out there. The only difference is that the Company has not issued those shares, and so when we actually issue them, then Citigroup goes back and pays back the accounts that they have borrowed the shares from.

So effectively there is some people that own stock that have "loaned" it to Citicorp. Citicorp has gone out and sold in an anticipation of us going out and actually issuing them the shares. But the actual market will see no effect as a result of that next issuance. The 4 million shares were actually sold into the marketplace the day we executed the transaction. Do you get that?

Maybe if I could just add one thing to this. It seems to have created confusion. We have got a lot of questions on this.

The deal was done just like a regular stock sale, and we effectively are borrowing Citi's balance sheet so we don't have to count the shares as outstanding. So it is an accounting benefit for us from the standpoint of the number of shares that are outstanding, and it enables us to match that in terms of when we need the cash to when we draw those shares, if you will, or issue those shares I should say. But, as Bob said, from the market standpoint, the fact that we happen to have this arrangement with Citi is blind and completely irrelevant. We almost should have not announced it because it confused people.

The shares have been distributed. The deal is done, and it is exactly the same as any old -- any regular stock sale. We felt comfortable with that price, and our people have said, gosh, is this a bearish signal on your stock? No, the stock price at which we issued was higher than the previous deal which was higher than the previous deal. So every one of our stock sales, and we know we have been reasonably active in issuing stock, has been an increasing price.

Okay. Thanks, guys.

Will Truelove, UBS.

Can you give us a little additional color about Southern California? When we looked at the Smith Travel data, we saw a marked slowdown in the San Diego market. Other operators have mentioned that Southern California saw some weakness. Can you see -- can you say if you saw any weakness and what is sort of your outlook for the Southern California market?

Jon, do you want -- (multiple speakers)

Yes, San Diego was huge in the first quarter. Our hotels were up almost 20%. In the second quarter, it was a little softer. It was a little north of 5%, and we expect sort of 10% plus in Q3 and 15% or so in Q4. There is a huge convention calendar in this back half of the year in San Diego. So, on a full-year basis, it is one of the better markets in the country. There was a tiny bit of softness in Q2, but the second half is phenomenal.

Great. One follow-up question. In terms of the sale progress that you're making on your midscale hotels, how far along do you think you have gotten in that process?

We have had properties in various stages of contract with due diligence being done. But in these kinds of sales, especially this quality of assets, we don't consider it probable until it closes because it is always nip and tuck, and our track record in the past on closing contracts and letters of intent on these quality assets have always been rather sketchy until that. So we don't like to talk about them until they are done.

Sure. But you are at least getting interest in there and people are seeing them, right?

Absolutely.

[Dean Frank], [Dane Securities].

Great quarter. A couple of questions. First of all, can you quantify like Fairmont Newport Beach what your expectations are, some kind of a range of increasing EBITDA next year over this year?

Dramatic (multiple speakers)

This year we are going to have zero to negative EBITDA for the year as a result of the renovation and extensive repositioning. Next year we will report an EBITDA equivalent of 8% of NOI on our total investment, which is slightly north of $100 million. So slightly north of $8 million of NOI in 2008 -- in 2006 -- 2007 -- 2007. That 8%, most of it will come from the hotel, but any shortfall to that will actually be a check written by Fairmont because we have this guarantee.

The next question, it relates to the discount you're talking about. You mentioned some names I believe your hotels are competitive with, but there are some other names on this list you trade to significant discounts, and so that includes FelCor, DiamondRock, Equity Innkeepers, Winston hotels, and to top it off, Eagle Hospitality. They all traded higher '07 and (indiscernible) multiples than you do. (multiple speakers)

You are singing to the choir.

What?

You are singing to be choir.

So if that is the case, you said that you traded at discount. You have complained about it on the call. Others have complained about it, but on the other hand, you just said that you were comfortable with the price you issued stock. Should we assume that you won't be issuing anymore stock in the future? How should we be looking at this? Because if you trade at a discount, how does that ever get recognized if you continue to issue stock?

Well, we believe that the stock that we have issued over the last 18 months has helped us really grow the Company and really position our Company for the future. I believe most investors buy for tomorrow's results, and we believe that the results that we are going to have in the future as a result of the portfolio we have amassed here is going to be significantly better than most of the names you mentioned.

We are executing a business plan that includes major markets. Some 75% of our earnings come from the top 25 markets in the U.S. We continue to improve the type of asset we own into more upper upscale assets, and we continue to sell our midscale and upscale assets. And as a result, we think for the long-haul this is a very solid portfolio that will outperform for a number of years. We issue shares because we want to make sure we have the right balance sheet, and going back to Jon's point on balance sheet, we have got a very conservative balance sheet here with less than 50% leverage with all fixed-rate debt. Therefore, funds from operations, which is what is available to pay increased dividends, is what it is all about.

In that case we just believe that every time we issue shares we issue them because we believe that the proceeds are going to be well used, and I think we have proven that over the last couple of years. I would say that we now have the powder to complete this year's acquisitions without issuing anymore shares.

(OPERATOR INSTRUCTIONS). Management, at this time there are no further questions. Do you have any concluding comments?

Just to conclude, again I would like to thank all of our managers and team members for the great quarter they produced this quarter for us. We appreciate everybody's interest in our Company, and certainly I appreciate the support of our team here at Sunstone. So thank you very much.

Thank you. Ladies and gentlemen, this concludes the Sunstone Hotel Investors second-quarter 2006 conference call. If you would like to listen to a replay of today's conference call, please dial 1-800-405-2236 by entering a passcode of 11065345 followed by the #.

Thank you for participating. You may now disconnect.