Sunstone Hotel Investors Inc (SHO) 2008 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Sunstone Hotel Investors second quarter conference call. At this time, all participants are in a listen-only mode. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded today, Tuesday, August 5th, 2008. I would now like to turn the conference over to Mr. Bryan Giglia, Vice President of Corporate Finance of Sunstone Hotel Investors. Please go ahead.

Thank you, and good afternoon, everyone, and thank you for joining us today. By now, you should have all received a copy of the corresponding earnings release. If you do not yet have a copy, you can access it on our Investor Relations tab of our website, at www.sunstonehotels.com. Before we begin this conference, hI e would like to remind everyone that this call contains forward-looking statements that are subject to risks and uncertainties, including those contained in our prospectus, 10-Qs, 10-K and other filings with the SEC which can cause 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 the 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 that we issued earlier today.

With us today are Bob Alter, Executive Chairman and Chief Executive Officer; Art Buser, President and Ken Cruse, Chief Financial Officer. Bob, will begin the call with a general update and a review of the highlights in the quarter. Ken will provide an in-depth review of the quarter and discuss our capital structure and credit ratio. He will also provide third quarter and updated full year guidance. Following their remarks, the three will be available to answer questions. To begin the discussion, I'd like to turn the call over to Bob. Please go ahead.

Good afternoon, everyone, and thank you for joining us today. Before we begin with the review of the quarter, I would like to introduce our new President, Art Buser. As you all know, the Board began the CEO search process in March of this year, identifying 20 high-quality candidate. The board selected Art from a distinguished and highly-qualified field of candidates during the comprehensive search process. The Board was focused on selecting a leader who would work well within the Sunstone culture, who had the skills to optimize the performance of our high quality portfolio and who had the vision to set the strategy that will maximize our long term returns to our shareholders. Art brings over 31 years of hospitality industry experience, including 15 years of real estate transaction and asset management expertise, to Sunstone. His wealth of hospitality experience encompasses all facets of the business, including acquisitions, dispositions, asset management and capital markets. I am confident that Art has the integrity, passion and dedication to excel as CEO of Sunstone. Art begin his appointment with Sunstone on July 21st, and he will become CEO in 2009 after a transition period. With that, Art, would you like to say a few words?

Thank you, Bob; and yes, I'll take your cue to keep it to a few words. Good afternoon, everyone, and welcome to Sunstone Hotel Investors' second quarter 2008 earnings conference call. I've spent the last couple of week with Bob touring around and seeing the properties; and again, having just began with Sunstone three weeks now, I'll keep my comments brief. Two things I've noticed about the properties and the people. About the properties, generally I find that they are in excellent condition; but what I'm most impressed with is that the majority of these properties really are performing at above 100% in terms of the competitive set. Really, what I'm most impressed with is many of them are increasing their rank in the competitive set even in these difficult times at the accelerating RevPar.

I think that speaks volumes to the commitment of the asset management people, the asset management teams, and as well as our operating partners -- the latter I've been most impressed with their level of cooperation. I've now had the opportunity to interact are everybody in the team, and I can tell you confidently that this is really a group of people that have both the desire and the ability to be best-in-class, and that's really what attracted me here. Despite the challenging economic conditions, I think Bob and the team have done an excellent job positioning the Company for the future, and I look forward with working with everybody to further Sunstone's program of increasing shareholder value. From all of you listening in, I appreciate the well wishes from you that I've already met; and for those who I haven't met, I look forward meeting many of you (inaudible) in San Diego. And with that, Bob, let me turn it back to you. Thanks.

Thank you, Art; and again, welcome to the team. I am very pleased that we were able to bring Art aboard and feel confident we have completed his -- when we have completed his transition period, Art assumes the CEO position, the Company will be in good hands to guide us through the next phase of growth. I continue to be pleased with our portfolio's performance during the quarter. With our hotels posting positive year-over-year growth in total portfolio RevPar and hotel operating margins, despite a slowing economy and a challenging operating environment. As many of you know, during the quarter, we sold the Hyatt Regency Century Plaza, marking the conclusion of yet another highly successful hotel investment for Sunstone through which we created significant value for our shareholders by renovating, repositioning and rebranding an underperforming asset.

We acquired the Century Plaza Hotel in October of 2005 for approximately $400,000 per room, and implemented a business plan that included conducting a major renovation, installing Hyatt as our new manager and positioning the hotel to maximize its appeal to both the group and business travelers in light of re-emergence of Century City in L.A.'s premier entertainment market. In addition to completing the rooms' public space, we added the successful X-Bar lounge and created a high end Equinox health club in an underutilized 35,000 square foot building on the hotel grounds. During our ownership period, we implemented a number of successful asset management initiatives aimed at marketing new revenue and streams and achieving a strong return on our invested capital. Due to in large part to a successful execution of our plan and strong performance by the Hyatt team, we were able to increase the top line of revenues by 31% and bottom line profits by 190% during our ownership period. Additionally during our ownership period, we received a total of $27 million in yield support payments from Hyatt, which guaranteed an annual 10% return on our equity through the third quarter of 2007. The combination of a well-planned renovation, creative asset management and meaningful yield support from Hyatt enabled Sunstone to realize total IRR on the sale of 19%.

We compounded the value of the Century Plaza transaction by investing 129 million of the proceeds into our own stock, buying back 7.4 million shares or approximately 12% of our fully diluted shares outstanding at a price point significantly below what we believed are warranted net asset values. We hold the remaining sale proceeds in cash, meaning currently we hold more than $5 of cash and cash equivalence per share. Today, our Board of Directors authorized a $100 million increase to our 2008 share repurchase program. With this increase, the Company has 109.2 million remaining under our 2008 repurchase program. As evidenced by this announcement, we continue to believe that our stock is a very compelling investment alternative. We currently intend to retain a sizable portion of our excess cash on our balance sheet as enhanced coverage of our fixed charges and common dividends until such time as the U.S. economy is in more solid footing. We continue to evaluate a variety of shareholder value enhancing investment alternatives for the remainder of our investable cash. I think today's economy warrants a large cash position, and we believe that holding on to the cash and looking at our alternatives over the next few years may be the best alternative for our shareholders. Moving to our performance for the second quarter, adjusted EBITDA was 85.2, million down slightly from last year; and adjusted FFO as a result of our buy backs was up 9% to last year to $0.87.

Second quarter 2008 total hotel RevPar increased 3.7%, driven by a 4% increase in ADR which was partially offset by a 20% basis point decline in occupancy. The result was slightly below the low end of our previous stated range, primarily due to a greater than expected softening in travel. Our total RevPar for the second quarter compares favorably to U.S. upper upscale RevPar, which increased 1.3 in quarter 2. Comparable RevPar, excluding the Renaissance, Baltimore and Renaissance, Orlando -- our two non-comparable hotels -- experienced -- that had experienced material and prolonged business interruption in 2007, increased 2.6 -- also well above the U.S. upper upscale average. During the quarter, we continued to realize the benefit of our investments surrounding the Mayo Clinic in Rochester, as the portfolio continues to realize double-digit RevPar growth, driven in part by the increased demand for our high-end hotel within a hotel, known as the International at the Kahler Grand. We are currently converting 40 regular hotel rooms within the Kahler to an additional 19 hotel rooms in the international section. This project is scheduled for completion in the fourth quarter going forward; we may consider conversion of additional regular rooms at the International, as well as Hyatt (inaudible) conversions within the million -- approximately 1 million square foot of building area comprising our Kahler Grand property.

Although our RevPar results finished below our previous guidance, we were able to deliver EBITDA and FFO per share above the mid-point of our guidance. This impressive bottom line performance is a testament to the asset management capabilities and the value of our relationship with Sunstone Hotel Properties. Our continued focus in 2008 is to maximize the performance of our portfolio. To this end, the asset management team has identified considerable cost reductions throughout our portfolio. Our asset management team continues to work closely with our third party operators to ensure that appropriate cost measures have been taken that will continue to focus on our sale efforts as revenue management strategy to maximize at the hotels' top line performance. Consistent with that, we witnessed in quarter 2 economic conditions continue to deteriorate more than we had previously anticipated. The slowing economy, combined with record high gas prices, reduced airline capacity, will put continued pressure on the remainder of 2008 and possibly into 2009. Because of this lower outlook, we have reduced our guidance for the remainder of 2008.

That said, we believe we are well-positioned to weather this storm. We have recently renovated high quality portfolio located in many of the top gateway U.S. markets and expect we will continue to outperform U.S. upper upscale market. As I mentioned before, we also have significant liquidity to weather the current economic turmoil. Going forward, we expect to opportunistically deploy our excess cash in ways that create shareholder value. With that, I would like to turn the call back to Ken to take you through additional details on the quarter and to review our capital structure and credit ratios, as well as detail on the third quarter and full year guidance. Ken?

Thank you very much, Bob. Good afternoon, everyone, and thank you for joining us today. First, let me spend a few minutes drilling down on our RevPar performance during the second quarter. As Bob said, total RevPar was up 3.7% for the quarter, driven by a 4% increase in average daily rates and a slight decrease in occupancy. And comparable RevPar was up 2.6%, double the U.S. upper upscale average according to Smith Travel. Our California properties generated 1.9% growth in comparable RevPar during the quarter. Total Los Angeles and Orange County area hotels were basically flat to Q2, 2007. Q2 RevPar growth was negatively impacted by weakness at the Marriott Ontario, Sheraton Cerritos and Hyatt Regency Newport Beach. San Diego rebounded this quarter with a1.8% RevPar growth during the quarter. Excluding the W San Diego, which just completed a common face renovation and continues to be impacted by new luxury supply in the market, the San Diego region was up 4.6% for the quarter.

The Middle Atlantic region also turned solid results, with a 3.4% increase in RevPar for the quarter, primarily as a result of strength of the Times Square property, as well Boston. Our two non-comparable hotels, the Renaissance Baltimore and Renaissance Orlando, continued to realize double digit growth year over year RevPar growth, an exceptional improvement in market penetration, as they continue their post-renovation ramp up. We expect this growth to moderate over the coming quarters due to tougher comps and new supply coming online in the Baltimore market. Comparable hotel operating margins for the quarter increased by 20 basis points, slightly less than we had anticipated, but our ability to deliver margin expansion in the context of just 2.6% RevPar growth is a credit to the efforts of our asset management team and our operators, who continue to seek out new ways to implement efficiency measures and cost controls in our property. Sunstone also continues to benefit from one of the lowest management fee structures in the business. Our management fee expenses, including incentive management fees, were just $7.2 million in the quarter, or less than 3% of gross revenues, which compares to our lodging REIT peers. We ended the quarter with $1.7 billion worth of debt, 100% of which is fixed at an average rate of just 5.5%, or approximately 100 to 150 basis points below current market rate.

The average term to maturity of our debt is seven years, assuming we redeem our 4.6% exchangeable note on the first call date in 2013. And we have no significant debt maturities until December of 2010, which is the $81 million mortgage on the Hilton Times Square, which represents less than 5% of our debt balance. We have no near term need for external financing. We have 11 hotels that are unencumbered of debt, including the Fairmont Newport Beach and the Marriott Boston Quincy. These assets provide a means to access significant amounts of mortgage capital should the need arise. Additionally, we finished the quarter with approximately $444 million of cash on hand, and even after adjusting for the $129 million in cash invested in share repurchases, we maintained over $5 of cash per share. We also have no borrowings outstanding on our $200 million credit facility.

We believe that especially in this challenging operating environment, the liquidity provided by our excess cash and undrawn credit facility gives us a major competitive advantage, both in terms of dividend security and our ability to capitalize on opportunities we expect to arise during this phase of the cycle. In July, we completed a stock tender offer and repurchased 7.4 million shares at a price well below our estimated net asset value per share. Year-to-date, we have retired 8.1 million shares. As Bob mentioned, today our Board of Directors authorized an increase of $100 million to the 2008 repurchase program. With this increase, the Company has $109.2 million remaining under the 2008 repurchase program. With our shares currently trading at an FFO yield in excess of 20%, we feel our shares represent a compelling investment. With respect to our credit ratios, we ended the quarter with a pro forma net debt to EBITDA of approximately 5.35 times, which is within our long-term target of 5.0 times to 5.5 times. We ended the quarter with a pro forma fixed charge coverage ratio of approximately 1.9 times, which is slightly below our long-term target level.

This decline in our fixed charge coverage ratio from the last quarter's level is in part a product of our substantial cash balance, which, while very safe, is much lower yielding than a typical hotel investment. Based on the mid point of our 2008 guidance, our common dividend pay outs will be below 70% of our cash available for distributions, or CAD. Going forward, we will continue to evaluate our dividend level and stock repurchase policy with an aim to maximize the return to stockholders. With respect to guidance, as Bob mentioned, considering the current economic outlook, the expected impact of lower airline capacity, and the reduced (inaudible) we are seeing across all segments, we have adjusted our full year guidance. I want to also point out that the guidance we are providing at this time is based on the expected performance of our existing portfolio, including all completed acquisitions, dispositions, debt repayments and stock repurchases. Our guidance does not assume any additional acquisitions, dispositions, debt repayments or stock repurchases.

As for the detail of our guidance, it can be found in our earnings release. I'll just walk you through the highlights at this point. For the third quarter, we expect the change in total RevPar to range from zero to a decrease of 3% as compared to quarter 3, 2007. We expect comparable RevPar to range from down 1% to up 1% over Q3, 2007. And we expect both total hotel portfolio and comparable portfolio operating margins in the third quarter to be down approximately 50 to 100 basis points compared to the third quarter of 2007. For the full year, we expect both total and comparable RevPar to range from a decrease of 1% to an increase of 1.5% over full year 2007. We expect both total and comparable hotel portfolio operating margins to range from flat to negative 100 basis points over 2007, depending on revenue growth and the continued effectiveness of our cost efficiency measures. I'll wrap up my comments by saying that considering the challenging economic and operating environment, we are very pleased with our performance during the second quarter of 2008.

In spite of softness in the economy and changes in our organization, we remain focused on our plan. Through this continued focus, we believe we have positioned the Company to produce solid results this year and beyond. I speak for the entire team when I say that we are looking forward to a new era of growth under Art's leadership. Thank you very much for your continued support and interest in Sunstone, and I'll now turn the call back over to Bob.

Thanks, Ken. Even in these uncertain economic times, we believe the lodging sector is fundamentally sound, and we'll remain focused on execution and improving our effectiveness in maximizing the value of our assets. We own a geographically diverse portfolio of high quality, primarily upper upscale hotels. The implementation of increased levels of discipline and accountability continue to bear fruit, as our second quarter results demonstrate. We believe our balance sheet provides strong dividend support and capital resources to take advantage of investment opportunities we expect to rise during this phase of the lodging cycle, as less well-capitalized hotel owners become compelled to sell. The lodging industry, as I've said many times, is a street corner by street corner business. We believe we have the best growth potential among our peers. Our assets are located on great street corners. Our capital deployment strategy is focused on intelligent repositioning, rebranding and renovating projects.

Our asset management expertise is second to none, and our current strategy is to focus on internal cost efficiencies while maintaining a conservative balance sheet and a discipline approach to investment. Doesn't hurt to have a little bit of cash in the bank, as well. Historically, the greatest opportunities are found during this phase of the cycle, and we have positioned the Company well to take advantage of such opportunities as they arise. We appreciate your time today, as well as your continued support of Sunstone. I am very proud of what this team has accomplished to date and look forward to talking to you again in the coming months. Thank you. With that, I'd like to open it up to questions. Operator, please go ahead.

Thank you. (OPERATOR INSTRUCTIONS). Our first question comes from Jeff Donnelly with Wachovia Securities. Please go ahead.

Good afternoon, guys, and welcome aboard, Art.

Thanks, Jeff.

I guess the first question I have might be for Ken. On the one hand you are talking about the benefits of holding cash, and yet you guys are authorizing more share repurchases. I guess which is it?

Both. Jeff, as we mentioned on the call, we had $444 million of cash in the bank at the end of the quarter. So the $100 million share authorization doesn't put a much of a dent in that balance, and obviously --

So the math is 444 less the 100 we brought, 300, and we are authorizing an additional 100 million. So cash in the bank plus additional stock repurchases.

And I guess, what if any capital reinvestment or special dividend obligations might you have, I guess, lingering for 2008? And Bob, how do you think about maybe a cash dividend versus a share repurchase?

Well, first of all, we don't know the answer to the first question because we don't know where our final net operating income will wind up at the end of the year. Clearly, our cash obligation of the Century Plaza gain will depend on what that gain is -- the net income is at the end of the year versus our dividends, so we have to kind of get closer to the year end to understand that. And then as we think about shareholder dividends versus stock repurchase, I think they're much more stockholder repurchases, or much more tax efficient for shareholders than the dividends. And so the purpose in our view of a REIT is to be -- maximize the taxable distributions -- the nontaxable distributions. So that's the approach we are taking.

And just -- I guess a question or two for Art. I know you just joined with Sunstone, but maybe just drawing upon where you came from. Can you speak a little bit to how buyers are underwriting assets right now? I mean, specifically, what sort of expectations for growth, be it RevPar or cash flow, and maybe terminal value they were looking at for 2009, 10 and beyond?

Sure, Jeff. I can tell you the amount of buyers that were out there when I left the intermediary field about a month ago was about a 10% level that they were a year ago. So for some reason, there's not a lot of buyers looking. I think the big question that people had was what is happening with RevPar in 2009, 2010. Terminal cap rates, I mean, people have kept pretty close to the historical levels depending on the quality of asset, as well the discount rates. I think the other big question was if we were assuming an acquisition today with some sort of refinancing in year two or three, which you might imagine really reduces your IRR, and I think that is where I saw some big deltas -- 60, 65, 75% leverage in a two year period, and I think that's where you'd see the delta in values. But I think overall what I would say is there's a real lack, both the product for sale as well as buyers that are out there. There's a lot of people sitting on their hands waiting on the sidelines for some clarity.

Well, I think there is a huge disconnect between absolute main street and Wall Street in terms of valuation, and that is (inaudible), and we see that in our share prices, right. But we had the opportunity with Century Plaza to go out and redeploy those assets in a 1031, and we went around and looked and talked to a lot of people; and at the end of the day, we just didn't find the values as compelling as, in this case, our own stock. And I think when you do an underwriting today, you are going to have to look at 2009 as a flat year with maybe maximum 2% RevPar, with probably a maximum downside of 2 to 3%. And I think you have to kind of run underwritings in that way. It will be great in 2011, but who knows what it's going to look like between '09 and '10, between now and then.

And I guess just one other follow up. I mean, has there been any material change, specifically for -- in the larger asset category, in the financing markets, in let's say the last three to six months? I know it's difficult, but have you seen any loosening or tightening in that area?

What I saw was financing terms both availability and (inaudible) spread deteriorated from last year till about April, and then they really hit the bottom. There was some choppiness three weeks ago with all the uncertainty in the banking market, but I did not see a lot of banks doing loans above a hundred million, you know, all in rates at 7%. The key issue was coverage of one for current, no forward-looking credit given; and when we look at the few transactions that have been done, they really fit that. The larger transactions -- loans above 100 million -- are very difficult to get -- Century Plaza, case in point.

Case in point.

Somebody got a loan. $200 plus million based on what I know about the terms, which are not discloseable, I thought it was a reasonably good deal for this time in the market. So there's money out there. Obviously, they came in with a large down payment. But I think the -- there is money out there for transactions. It's just not as inexpensive as it was.

Thanks guys.

Thanks, Jeff.

Thank you. Our next question comes from Michael Salinsky with RBC Capital Markets. Please go ahead.

Hey, Michael.

Hello. Good afternoon, and welcome aboard, Art. A couple of quick questions here as it relates to the second half of the year. CapEx for the year, I think you've given a range of 80 to 90 million. Is that still a good number?

Yes, the original CapEx number is pretty good at this point. There are always some moving parts in the latter half of the year, but you can continue to use the 90 million.

Okay. Given what we are seeing right now and Bob's comments about 2009, 2010, should we expect to see that pulled back a bit? Or are you looking some of the projects differently at this point?

I would say that our CapEx planning has -- certainly we've given our feel, the idea that they need to pull in reigns for '09 and '10. I think that in 2006 and 2007, we spent over $130 million in both years on big renovations as a result of acquisitions. As it relates to 2008, we completed three major projects, including the Hilton conversion in Houston from the Wyndham. We also have a big renovation of the Holiday Inn in downtown San Diego, and we had a fairly large investment in the International in Rochester. In 2009, we have just two major room renovations planned, and not a whole lot of other things other than the ordinary course of business, and both of them that will determine on whether we acquire additional hotels.

Okay, that's very helpful. In the fourth quarter of this year, I think you guys are supposed to receive a guarantee payment at the Fairmont. What is the size of that right now?

Unknown until we see what the year end is. We have a forecast in our numbers that keeps moving around based on their actual results. They actually had a reasonably decent second quarter, and we are optimistic about the third and the fourth quarter. They've done a great job of keeping base business on the books. So we are optimistic.

Okay. I think you previously mentioned the 2.9. Obviously, conditions have changed since then. Is it still in the ballpark?

Yes, that still is in the ballpark number.

Okay. That's helpful. Finally, looking at the group bookings here for the second half of the year and 2009 pace at this point, are trends flowing up pretty well at this point? Or --

Our forecast that we just gave indicates that our group pacing number is up 2% over this time last year.

Okay. And for 2009 pace?

That's '09.

For the second half of the year here?

Oh, second half of 2008? They are both 2%. 2% up over previous first half of the year. for the second half of the year, and our 2009 is up 2%.

Okay, and that's all in, both rate and occupancy?

Primarily in rate. Room nights are up slightly. Room nights are slightly down, but rate is up.

Okay. Thank you.

Thank you.

Your next question comes from David Loeb with Robert W. Baird. Please go ahead.

Can I come back to the tax question and the special dividend? My understanding of the way the rules work, share repurchases aren't going to make a difference in your distribution requirement. Right?

Correct. Our net operating income is what determines what our distribution requirements are.

Right, including the gains?

Correct.

So at this point, given your relatively low payout to begin with, there's likely to be a need for some special dividend.

That's a good assumption at this point. We are not going to know the size or the nature of that special dividend until the year progresses.

So the question really is then how, much of your cash you use for the special dividend, how much for share repurchase and how much do you hold on to for opportunities in the future?

Yes.

Okay. And how long do you think before you start seeing those opportunities?

Seeing opportunities to do --

Make acquisitions.

Opportunities to do what?

Make acquisitions.

Oh. You know, tell me when people are going to cut their expectations in the marketplace. When the seller of a high quality property in the downtown markets that we are interested in being in moves between 100 to 200 basis points, and when our shareholders decide that the value of our Company is high enough that we look at our weighted capital, and it comes down to an acceptable level. Based on our share price today and based on the cap rates that are asked on buyers, we don't see those opportunities.

It seems to me, though, Bob, that those two measures are going to move in the opposite direction, that the market is currently attributing a much higher cap rate to your stock than what you guys would believe is appropriate. And yet, what you are saying is you think that asset values in the market -- we need to see CapEx rise by100 to 200 basis points. And to some degree, does that mean that the value of your portfolio will be less as a result of that? I mean the real value, not the current market implied value.

Well, I mean, that's kind of a subjective question, because you have to say to yourself, at what point do you see a compelling opportunity, and use your cash to take advantage of that. On the other hand, clearly at this levels -- at these levels -- no one is going to be issuing additional shares when we believe our stock is so undervalued. So I think that you have to have a lot of things change before Sunstone becomes an acquirer of assets again; and I think we are sitting on the side lines to see how that plays out.

I see.

Remember, our assets are a function of the cash flow of those assets, and then the combination of financing and cap rates. So we can't always tell where that is going to head; but what we do know is that we like the assets we own, the one's we don't like we are out in the market trying to sell, and then we continue to try to increase our cash flow. And that's -- that's our mission that we are telling our shareholders what we're going to be doing for them.

Okay. Thank you.

Thanks.

Thank you. Our next question comes from Michelle Ko with UBS. Please go ahead.

Hi, Michelle.

Hi, how are you?

Good.

I just wanted to see -- some of your peers have said they are trading at about a 10% cap rate, but they are worth about 7 to 7.5%. What do you think Sunstone's portfolio is worth?

I don't think that is appropriate. It's only speculation. We happen to value our assets a heck of a lot higher than what our stock is trading at.

Okay. In terms of -- since you had such good success with selling the Century Plaza, are you still trying to sell some of your other non-core assets or other assets?

We constantly look at our portfolio, decide what we think has the most growth in it, what assets we don't think have growth in it We've talked to folks about what they would be interested in buying from our portfolio in an attempt to try to maximize our shareholder value.

Okay, thank you.

Thanks, Michelle.

Thank you, and there are no further questions at this time. Management, would you like to continue with any closing remarks?

Thanks for dialing in. Until next quarter.

Thanks for your interest. Appreciate your help. I would like to just reiterate the information in our press release. I think the management of the Company has continued to be very confident in the actions that they've taken and look forward to a successful third and fourth quarters. Thanks very much.

Thank you. Ladies and gentlemen, that concludes the Sunstone Hotel Investors second quarter 2008 earnings conference call. Thank you for your participation and for using ATT.