Travel + Leisure Co (TNL) 2014 Q1 法說會逐字稿

Welcome to the Wyndham Worldwide first-quarter earnings conference call.

(Operator Instructions)

Today's conference is being recorded. If you have any objections, you may disconnect at this time.

I would now like to turn the call over to Margo Happer, Senior Vice President of Investor Relations. You may begin.

Good morning, thank you for joining us. With me today are Steve Holmes, our CEO, and Tom Conforti, our CFO.

Before we get started, I want to remind you that our remarks today contain forward-looking statements. These statements are subject to risk factors that may cause our actual results to differ materially from those expressed or implied. These risk factors are discussed in detail in our Form 10-K filed February 14, 2014, with the SEC.

We will also be referring to a number of non-GAAP measures. The reconciliation of these measures to GAAP is provided in the tables to the press release, and is also available on the Investor Relations section of our website at WyndhamWorldwide.com.

Steve?

Thanks, Margo. Good morning, and welcome to our first-quarter call. I am pleased to report that we started 2014 with another strong quarter, with adjusted EPS up 10%.

During the last few months, many people have asked me if the extreme weather conditions we are having are having an impact on our Business. Without a doubt, the polar vortex causing record low temperatures in the US, snow and ice storms shutting down travel, as well as our call centers, and historic flooding in the south of England, can all have an impact on bookings and travel patterns of our consumers. However, once again, in spite of the challenges, our business model's proved resilient, and our teams delivered strong results.

In addition, we are seeing some pickup on the macroeconomic front around the world, and overall business momentum is strong. Tom will walk through the financial details, but I would like to take a few moments to tell you about what we are seeing in each of our businesses, and why I believe 2014 will be another outstanding year.

Let me start with Wyndham Hotel Group, which we believe will be our fastest-growing business unit. First, remember that we are the largest hotel franchisor in the world, with 7,500 hotels; a footprint over 15% larger than our next biggest competitor. Our diverse portfolio of strong brands provides a great foundation for growth, especially as the lodging cycle continues to improve.

While we are best known for our powerhouse economy brands, Super 8 and Days Inn, there are other brands in our portfolio that have huge potential. For example, late last year, our extended-stay brand, Hawthorn Suites, unveiled a new hotel prototype, intended to enhance the overall guest experience, while reducing development costs for franchisees. The result was significant savings in development costs compared to our previous prototype, and great interest in the brand.

We also recently unveiled a new Wingate prototype. The more efficient Wingate footprint reduces the cost for hotel owners to build and operate a new Wingate, offering development savings of approximately 10% compared to the previous prototype.

We also continue to make great progress in growing our flagship brand, Wyndham Hotels and Resorts, with the number of properties up over 30% from the first quarter of last year, and close to 75% from two years ago. This quarter, we continued to execute on our strategy to add Wyndham flags in city center locations around the world, including another property in New York City.

We are on target to go live in mid-May with our first umbrella marketing campaign for our hotel brands. Our primary goals are to maximize the efficiency of our marketing dollars, increase general brand awareness, and drive more direct bookings to our brands.

The creative concept is to produce a high-impact multi-brand national television campaign, that also reflects the unique essence of each brand. The television and digital media campaigns will run from May 12 through September 21.

We secured high-profile primetime season finales and premieres, and specials, on the major networks, in addition to cable entertainment and sports. So, stay tuned in May, and expect to see a strong Wyndham brand family presence.

In addition to the umbrella marketing campaign, another important initiative at Wyndham Hotel Group is to dramatically grow our Wyndham Rewards loyalty program. We launched franchisee incentives in the first quarter to better support enrollment, and we are already seeing positive results. We look forward to reporting our progress in the months to come.

We are pleased to report our hotel websites recently won a prestigious eCommerce award, eTail's 2014 best-in-class for search. This award celebrates excellence in search engine optimization strategy, and we were specifically recognized for integrating third-party data and improving relevancy for consumers. The combination of the umbrella marketing campaign, heightened focus on Wyndham Rewards, and our ongoing online strategy should help us drive job number one for our hotel business: increasing the value proposition for our franchisees.

Now moving to Wyndham Exhange and Rentals: We are the world's largest timeshare exchange company, with more than double the number of members than our nearest competitor, and we are also the worlds largest professionally managed vacation rental company with approximately 103,000 properties in our portfolio. We continue to innovate in both businesses.

In March, RCI began a new chapter in its mission to provide the best online experience for its members, by launching Program Experience. This multi-year initiative is focused on two primary goals: personalizing the experience at key touchpoints, and simplifying how and when we offer services and products to maximize value to our membership. In our recent March release, we implemented the first phase of Program Experience, unveiling new design, personalization and functionality features on RCI.com, all of which will strengthen RCI's customer experience.

Our focus on the customer experience extends to our rental businesses, as well. For example, Landal GreenParks, our largest rental brand, which is based in Holland, is currently in the midst of a long-term initiative to significantly enhance the Landal online experience. The first phase of the project was delivered during the fourth quarter of last year. Through improved book-to-pay functionality, Landal customers now experience fewer steps to complete a reservation, as well as improvements in the functionality of our website for mobile devices.

With these enhancements, the percentage of mobile traffic has increased from 25% of website visits in the first quarter of 2013, to 40% in the first quarter of 2014. We expect initiatives such as this, in addition to our continued focus on enhanced yield management strategies, to support growth this year and beyond.

In vacation ownership, we're the market leader by any measure: owners, resorts, sales and earnings. We also lead in innovation. Earlier this month, we won the ACE Innovator award at the Annual Timeshare Industry Conference, the ARDA Awards Gala in Las Vegas. The ARDA Awards celebrate the best and brightest in the vacation ownership industry, and the ACE Innovator award recognizes our Company's successful launch of the WVO mobile technology initiative, featuring the Apple iPad platform, throughout the entire sales organization, ensuring our sales associates have the most up-to-date, consistent, and accurate sales information possible.

Our mobile technology initiative is only one example of new sales tools and practices that combine leading-edge technology and best-in-class sales techniques. We are transforming the sales experience by leveraging our most successful practices across our system. For example, some of our larger sites, such as Orlando, have long deployed podium presentations to effectively and efficiently introduce prospective owners to the benefits of timeshare. Rather than a prospect sitting one-on-one with a salesperson to cover the basics, we give small-group presentations, which are fun, interactive and informative.

In the past year, we have rolled out podium presentations across much of North America, using this model for approximately 40% of our current tours. We expect that 60% of tours will include a podium presentation by year end. We believe these new tools and practices will help drive continued growth, by improving the sales experience.

On the corporate front, we are proud that earlier this week we moved further up the list of the Top 50 Companies For Diversity on DiversityInc's Annual Report. Focusing on corporate social responsibility will continue to be an important element of Wyndham Worldwide's identity.

In summary, we have a very clear focus across the entire Organization, to drive innovation and growth within our Business, and we have the talented associates to make that happen. And now, I will turn it over to Tom to review results.

Thanks, Steve. Good morning, everyone. As Steve noted, we are off to a great start with our first-quarter results. Overall, we achieved adjusted diluted EPS growth of 10% year over year, supported by great business execution and shareholder-friendly capital allocation. Free cash flow for the quarter was $2.07 per share, up over 22% from $1.69 per share in the first quarter of 2013.

So, now let's turn to the financial results for each of our business units. In the hotel group, revenues were up 7%, reflecting higher RevPAR and franchise fees, as well as increased hotel management reimbursable fees, which, as a reminder, are EBITDA-neutral. Adjusted EBITDA increased 17%, largely due to the increases in revenue, plus favorable timing of marketing expenses.

System-wide RevPAR increased 4%, reflecting domestic gains of 7.6%, partially offset by system growth in lower RevPAR markets outside the United States, unfavorable currency movements, and slower RevPAR growth in certain international markets. System size for the quarter increased 2.4%, reflecting robust development efforts across all of our regions.

In our exchange and rentals business, revenues and adjusted EBITDA were flat, excluding foreign currency and acquisitions. Reported EBITDA included a $10-million charge in the current year, resulting from the currency devaluation in Venezuela. This was a challenging quarter for the exchange and rentals business, in part due to the severe Winter in North America and extensive flooding in the UK, which Steve mentioned earlier.

In addition, the shift of Easter from March, first quarter of 2013, to April, second quarter of 2014, creates a difficult year-over-year quarterly comparison, especially in our European rentals business. The Business managed well, however, primarily through tight cost control. Our full-year outlook for the Business remains unchanged.

The general economic environment in Europe is improving, and we expect operating enhancements that we have put in place, namely technology, enhanced yield management capabilities, and streamlined cost structures, to give us more than our fair share from the economic recovery. As of early April, peak Summer bookings for our European vacation rental businesses were comfortably ahead of last year.

Excluding currency effects, exchange revenues were down 2%. This was driven by a 3.7% decline in exchange revenue per member, primarily resulting from a decline in Latin America, due largely to the ongoing economic and political environment impacting our Venezuela customer base, where access to foreign currency is limiting travel, as well as the impact from the unusually severe weather in North America. The average number of members increased 1.6%, reflecting higher retention rates, and new affiliations in the Americas.

Vacation rental revenues were up $4 million, or 2%, for the quarter, excluding the impact of foreign currency, reflecting a 1.4% increase in rental transactions, and a 0.8% increase in the average net price per vacation rental. Transactions were largely driven by increased customer demand at our NOVASOL business, which is based in Denmark, while pricing benefited from strength in the higher-priced accommodations at our Landal GreenParks business in Holland.

Our vacation ownership business unit had another strong quarter, with revenues up 8% and adjusted EBITDA up 2%. Excluding the $11 million favorable legal settlement in the first quarter of last year, adjusted EBITDA grew 13%.

Gross VOI sales were up 7% year over year, reflecting a 4.3% increase in tour flow, and a 2.8% increase in VPG. Tour improvements were primarily driven by new sales locations, including New York City and Chicago. VPG favorability was the result of improved average price per transaction.

Now, net vacation ownership interest sales were up 15%, reflecting higher gross VOI sales and a lower provision for loan loss. The improved provision was supported by an 18% decline in defaults from the first quarter of 2013, as well as the positive impact of tighter underwriting standards.

On the ABS front, on March 19, we completed our first term securitization transaction of the year, with the issuance of $425 million of asset-backed notes. The Sierra Timeshare 2014-1 was comprised of $328 million of A-rated notes, and $97 million of BBB-rated notes. The notes had coupons of 2.07% and 2.42%, respectively, for an overall weighted average coupon of 2.15%. And the advance rate for the transaction was 88%, another great securitization.

Now, moving to corporate, interest expense was lower than our expected 2014 run rate, reflecting the credit on VAT taxes. We expect interest expense to normalize at around $30 million a quarter for the remainder of the year. Corporate expenses were higher in the quarter than our 2014 expected run rate, and we expect those to normalize around $30 million to $31 million a quarter, for the remainder of the year.

We ended the first quarter with cash from operations at $315 million, up from $274 million in the first quarter of 2013, reflecting favorable timing of working capital. Please remember that we have a number of free cash flow headwinds this year, including a higher cash tax rate and higher timeshare development spend, that will cause our free cash flow in 2014 to be lower than it was in 2013.

In the first quarter, we repurchased 2.1 million shares, totaling $150 million. While repurchasing shares is a great use of excess cash, as we have consistently said, an important capital allocation priority remains to prudently invest in the Business, including M&A, seeking out the highest returns for your capital. However, absent M&A opportunities, it is safe to assume that we will spend approximately $600 million this year on share repurchase.

Finally, let's turn to guidance, which will be posted on the website after the call. As you saw from the press release, we're increasing our EPS guidance $0.05 for the full year, and diluted share count goes to 130 million shares, reflecting the benefit of our quarter-one repurchases. We reiterate all other guidance previously disclosed.

For the second quarter, we expect adjusted earnings per share of $1.11 to $1.13, and a diluted share count of 129 million shares. Remember: Our guidance assumes zero future share repurchases, while some analysts assume repurchases in their models. As a result, there are differences between our outlook and some analyst expectations. In addition, the seasonality effect from our vacation rentals business is changing, as we grow the business; pushing more EBITDA, but less cash flow, into the third quarter.

Now, I'll turn the call over to Steve.

Thanks, Tom, and thank you all for joining us today.

At Wyndham, we have a culture of customer service that is summarized in the phrase: count on me. Our commitment to shareholders is to run this Company in a way that ensures that you can count on us as well. Specifically, you can count on us to have a clear strategy, and to execute that strategy with focus and discipline. You can count on us to never be complacent in any of our businesses, and continually innovate, and you can count on us to be good stewards of your capital.

And now we will take your questions.

(Operator Instructions)

Joe Greff with JPMorgan Chase.

The loan loss provisioning was more favorable than probably most of us had modeled for this past quarter. I know, Tom, you talked about some of the guidance items, the drivers being largely the same as a quarter ago. Can you talk about what your expectations are from here for loan-loss provision improvements, and how much of it is tighter underwriting standards, defaults going down, I know cease-and-desist is probably largely behind us, but if you could give us some additional color on that, that would be great.

Yes, Joe. We expect our number to remain, as we previously indicated, in spite of a really strong first quarter. I think one of the contributors we talked about in the past, was we really did a determined job of dealing with this cease-and-desist situation that we had, and I think that is translating into improved default trends. I point to that as the largest factor in driving default trends down, and giving us comfort on our provision rate.

Is that tied to faster repayments? We see consumer income, that line item has been roughly flattish.

Joe, this is Steve. That is probably more the fact that we are constantly tweaking our cash down payment and what we're trying to accomplish at the sales desk. If we push the compensation sales organization towards more cash down, that will reduce the amount of loans that are out.

There are a lot of things that can affect it. I don't think it would be the work that we did on cease-and-desist that would have impacted that.

Okay and then, you said summer bookings on the rental side is comfortably ahead. I was hoping maybe you could give us some greater level of detail, and that is all for me. Thank you.

Comfortably is a comfortable word. We are running will ahead of last year and again, we saw that in the first quarter, earlier in the first quarter, we mentioned it on our fourth-quarter call, and we are continuing to see that trend continue, which gives us some encouragement for what rental will look like this year.

Is that pricing or volume, Steve?

It is a little bit of both, but I believe it is more volume than it was pricing, it was more volume. And if you -- one of the things we do as we are going through our strategic planning and our business unit reviews, is we look at a lot of the factors that are impacting the consumer around the world. And in Europe you see some positive trending in consumer confidence and spending levels, and in propensity to vacation, so the trending is good as well.

So we feel like this will be a good summer for our rental business. If we look at it right now, we are up high single digits, but I don't want to indicate that, boy, that is going to be a blowout for 2014.

It just means that people are booking earlier. Maybe they want to make sure they get to the right location, and we think that is a great sign, and it gives more power to our yield management models, to increase pricing.

But we don't want to throw out numbers, because we don't want to indicate that this is something that is off the charts runaway. It is a very good sign, and we are comfortable with it.

Great, thank you.

Steven Kent with Goldman Sachs.

Could you just talk a little bit about tour flows impact into the first quarter? You gave some color on it, but I am always trying to understand the balance of new customer mix versus existing customer mix, and any new programs you have in place to boost that volume, on either side of new or existing, over the next 6 to 12 months. Thanks.

Sure, thanks Steve. Just to talk about the new customers first, I think we said on the last call that we are targeting just north of 30,000 new customers this year, versus I believe we were about 28,000 or 27,000 last year. We do have a slight push to increase, as we will as our base gets bigger, because we want to keep enough new customers in that base, that our upgrade for the future has good strength.

So right now, we are running at about that pace, to be able to deliver about 30,000 new customers this year. Just north of 30,000. And so that talks to the new customer side of it.

As to the tours, our tours were actually up this quarter, a little bit more than we had forecasted for them to be up, and it is a science to a degree, but you never know what your capture rate is going to be on some of the marketing programs. We always shoot to be able to exceed our tours, so that we never fall short of our tours.

Bear in mind that we have sales people at all of our sales offices, waiting for those tours to show up at the front door. If we can't deliver them tours, we have very ineffective salespeople, and so we make sure we have enough tours to feed the sales force pipeline.

I think that this quarter, probably tour flow is up a little bit more than we expected. If it had been a little bit lower, our VPG probably would have been higher. There is a play-off between tour flow and VPG.

The bottom line, as we drive the business to produce EBIT in that business, and produce cash flow, and they did another spectacular job. So they took all those tours they got, they turned them into sales, and it really was a great quarter for WVO.

A second question for CFC, if Tom could mention, or give us a feel for the securitization market. What he's seeing there, and what you all are seeing there, I think that would be helpful, because it seems pretty strong lately.

Steve, the conditions in the ABS market are terrific. If you look at the trend of our transactions since 2008, 2009, you just see improvement in every way. In the investor appetite for the notes, the advanced rates, the cost of funds that we are raising, it just shows continued improvement.

And I think we are benefiting from favorable market conditions, but I do want to acknowledge the work that our WVO team, our consumer finance team, and the treasury group back here at corporate have collaborated to really put Wyndham on the map in the ABS market, in a way that investors are seeking out our notes, and we are getting the terms that we are getting. Some of it is about great market conditions, and it remains robust going forward. But some of it is the terrific collaboration among our three different business units within the Company.

Okay, thank you.

As well as what is going on at the sales table, because we have tightened up who we are selling to, and we have tightened up the amount of cash we're getting down, so it really is across the entire business unit, a great effort.

Thanks.

Patrick Scholes with SunTrust.

A couple of questions for you here. In light of increasing investor demand for the single-A and AA timeshare paper, I was a little bit surprised to hear you folks talk about increasingly tighter underwriting standards. Do you expect those standards maybe to loosen up a little bit, given that demand for the single-A or AA or even below at this point?

Patrick, the underwriting standards we were referring to are our underwriting standards at issuing consumer loans to timeshare buyers. Not the other way around.

Okay, just to be clear. And secondly here on your loan loss provision at the moment, how much lower can that really go to? It has dropped significantly over the last year. How much lower is that going?

It's a great question Patrick, and the original question I attributed the improvement in provision to some tactics, but Steve did bring up an important point that needs to be made, which is all of this movement, this positive movement started in 2009 when the Company restructured, and re-profiled the type of customer that we wanted, and brought in a higher credit-worthy customer. And I think that we knew that we were going to get an improvement as the years worked through, when the economy normalized.

And right now I think -- what was our number for the quarter? 17%, around 17% of gross COI. We don't have a crystal ball to know much further it can go to, but I think we have positioned ourselves well to continue to see improvement, because of the real structural changes we made to the business early on in 2008 and 2009, with an enhanced customer profile. So we are not quite sure where we will end up, our fingers are crossed that it will continue to improve, but we can't predict at this point.

In that regard, when you talk about enhanced customer profile, that is something that you want to have that new level of FICO score going forward maintaining that, not really going down the FICO score chain, so to speak, to attract new customers at this point?

No, our intention is to stay right where we are, we feel good about it.

Okay, and lastly on the hotel RevPAR, this could be a question for just the general midscale and economy segment. What do you think click in the first quarter? Was it weather, run rate for that economy had been about 4% for the last 2.5 years, and it went up to 6% to 7%. What changed to make that happen in the first quarter?

I think it closed the gap with the growth of the other segments of the business, frankly, upscale and upper upscale were very close in the first quarter, I think on travel. And I think it's a number of factors. Long-term, you are looking at not a lot of construction going on in the economy midscale sector.

Most of the construction has been in the upper midscale and upscale sector for the most part, so that is just a simple supply and demand thing. In addition, if you look at -- I was just looking recently at the last 28 days, that Smith Travel reported, there has been a lot of strength regionally within the central American regions.

And fortunately, in the central America region, there is a lot of economy and midscale products, so it could also be just regional travel and also the weather that impacted. We never use the weather as an excuse, but it does influence the way people travel. When it's really bad and planes aren't flying and people want to go visit someone, they might get in a car, and they might drive to wherever they want to go. That certainly helps.

I think there is a lot of factors playing into it. But we are encouraged by what we are seeing, and we think it's going to be a good summer for frankly all sectors of the lodging marketplace. I don't know if I can answer your question any more specifically than that, Patrick, because I don't know if anybody has the real full answer to what you have asked.

I've asked around, and I think its just opinions, and there really is no right answer, but I wanted to hear your opinion on that. Lastly here, you may have touched on this, Tom, in the prepared remarks, you did 257 basis points of margin increase in the lodging segment. What was the primary driver of that? Was that just the RevPAR, or was something else going in there with the owned hotel?

It was RevPAR for sure, Patrick, and it was also the timing on marketing spend. That was about 150 basis points of it. So I think those are the two key drivers.

Great, that is it for now. Thank you.

Nikhil Bhalla with FBR.

Tom, the first question is for you. You talked about Easter shift having some impact in Q1. I was wondering if there is any way to quantify how much of that impact was, and if you see a reversal of that in the second quarter, maybe see a little bit of a benefit of that Easter shift and back [reverses]?

Hard for us to quantify, but we expect that it will contribute positively to EBITDA, and yes, it will be a mix shift favorable result for the second quarter, because it was absent in the first quarter.

Will that just be in the exchange and rental segment, or do you think you could see some benefit on the lodging site and VOI side, too?

The comment that I made was specifically about exchange and rental, so certainly for exchange and rental, but Steve, your thoughts on --?

Nikhil, just one other little bit of color on it. In the US, we have spring breaks happen all different times. Schools take spring breaks.

In Europe, it is much more concentrated, it is right around Easter. So when Easter moves, the school calendar moves.

In the US, that is less the case. The school calendar is often set and Easter can come and go whenever it does, but the school calendar is set to have the spring break at a certain time of the year.

So definitely Europe is more prone to swings from spring breaks around Easter, than you would see in the US. So that is part of the reason that it is more pronounced in the rental business, because that's where 90% of our EBITDA comes from in rental, is from the European rental.

That is great, thank you. Just a follow-up question on the loan loss provisions. Tom, do have the loan write-off number, off the top of your head here?

Not off the top of my head. But we will get it for you, we will retrieve it for you. Do you have another question, Nikhil?

Yes, sure. One other thought on acquisitions. Steve, you have talked about acquisitions in the past. Any update on that? What are you seeing on that front?

The market, the pipeline out there is about what it has been for the last couple of years. There is opportunities out there, there is still high-priced expectations, and I am not sure how much we will move quickly, but there is a good amount of activity out there. But not any different than it was probably last year at this time.

When you just think back to fourth quarter of this year or maybe even a little bit earlier, you're not seeing any material change in either the size of your pipeline at this point in time, or just your expectations for how many of these things may close?

No, and as I said continually, it is really hard to forecast opportunity. We look at a lot of different opportunities, we are acquisitive, we would like to grow our business, particularly the fee-for-service businesses.

The hotel as well as the rental businesses, and the management business on the timeshare side. So those are three areas that we are very focused on.

But it is not -- I don't think it's a lot different than it was before. Some of the same opportunities that were out there a year ago for us are still sitting out there, and we will continue to look.

That is great. One final question for you on margins again. One, on the lodging segment, you just talked about the timing of marketing spend having some impact. Through the rest of the year, if you could just remind us, what that impact may actually look like?

We anticipate that we will see some of that margin improvement in our hotel group sustained, but obviously, the timing benefit will disappear.

Got it. And Q1 was primarily the quarter where you saw the benefit, and you are not expecting any of that stuff for the rest of the year now?

The timing benefit?

Yes.

It may happen in the second quarter as well, and then we will spend it subsequently, but by the end of the year, it will not exist.

Okay, great. Thank you.

Let me answer the question I didn't have the answer for. The amount of loans written off were $63 million in the quarter, compared to $77 million in the first quarter of last year. So a meaningful drop-off in the amount of loans that we have written off.

Thank you so much, I appreciate that.

Chris Agnew with MKM Partners.

Apologies if I missed this, but working capital benefits in the first quarter. Do those reverse at any point this year, and do we need to be aware of any particular working capital timings in any quarters, through the year? Also on the higher cash taxes, what is the view beyond this year? Thanks.

Great. Chris, as it relates to the timing of the working capital benefits, they were small items in each of our working capital lines, they're definitely going to reverse, and so the upside that was created in the first quarter -- we believe will reverse itself by the end of the year. As it relates to cash taxes, not only are we paying higher cash taxes because we are generating more earnings this year, but we are also paying higher cash taxes because of the rate at which we pay cash taxes is increasing, so we are catching a double whammy this year. Next year, we don't expect the rate to change materially, but our expectations are that we will continue to grow the business, and so there may be some increase associated with the growth in the business, but not an adjustment in the cash tax rate.

Great, thank you. And a question on vacation rental. It was very durable through the downturn, which I guess is a good and bad thing.

Bad, because there is perhaps less leverage in the upturn. Just bigger picture, the acquisitions you have made in the last several years, particularly I think a couple in the UK, are those arguably more economic -- more sensitive to an economic upswing in Europe?

And also, the yield management system. Do you think -- how much leverage do think you can capture from that in the recovering European economy? Thanks.

The yield management system should help us both in an up market and a down market. Quite frankly, it is a basic fundamental way of maximizing the yield that we are going to get from the unit that we have to rent. I don't think that would necessarily be rocket fuel to an upswing, but I think it will be good in the upswing, and it will also be good for us during more difficult times.

And you are absolutely right, the business has been very resilient during the downturn, and it has been resilient about -- with almost every thing we have seen since I've been involved in the business, the only thing that took us down at all was back in 2003, I think, hoof and mouth disease stops people from traveling in the UK, because people couldn't walk through the fields, and that really did hurt the business. But beyond that, that business has shown incredible resilience economically, as well as with challenging weather, which we definitely had with the flooding in southern England this year.

As for the new acquisitions, are they anymore or less resilient? I think that was your question.

One of the businesses that we bought about two years ago, maybe three years ago now, is more of a fly-to business, flying from the UK to the South of France and Italy. And that business has done really well for the last couple of years, and continues to do will this year. It came out of the blocks strong.

I think all of our businesses are really performing well, both the ones we've had for some time, our largest being Landal and Novasol up in Denmark performing well. As well as the new businesses, like James Villa, which is that fly-to business, that is part of our UK business mix.

Excellent, thank you.

Harry Curtis with Nomura.

Quick follow-up on Pat's first question. As far as the strength in the first quarter in RevPAR domestically, do you think it is sustainable, given what you're seeing in booking trends for the balance of the year?

As you know, Harry, a lot of our bookings are short-term bookings. We don't do a lot of group business, so we don't have the long-term visibility like some of the other players who play in the group space would have. We think our -- based on everything we have said, as I said, everything we have seen rather, has indicated that the summer is looking good, but again our visibility into that, other than in the rental business, where we can look a little further in, is difficult for us, since we are a shorter booking window.

And then a follow-up is, the strategy that you are pursuing for the pipeline of growth in lodging space. Can you talk a little bit more about what you're seeing from the developers' point of view? What brands are they most keen on? And then the competitive landscape, because it does appear to be some sort of build-up in midscale without food and beverage pipeline.

Addressing the second part of that question first, the landscape has always been very, very competitive. Midscale without food and beverage has been a hot spot for probably three years, I'm just guessing. because it has been so long, that it has been an area of heavy focus.

From the developers' standpoint, we are seeing more new construction come into the pipeline, both domestically, but really internationally in a big way. There's a lot of new construction coming in, and that is probably because the economies are doing a little bit better internationally, and there is more emphasis on the tourism sector.

As for what developers are looking at right now within our product mix, as I said, the Microtel, actually what I mentioned was the Wingate product has a lot of interest right now. We redesigned the prototype there. Microtel also has strong interest, Hawthorn is doing well, with its new prototype.

So it's really -- all of the brands have something that they are working on, to try to push growth. Some of the brands we are very focused on, on doing some cleansing, which is what you do with larger brands like a Days Inn, to make sure that we are taking out that which is not appropriately within the brand. So we've got a great portfolio, we manage them very aggressively to maintain the quality of the portfolio, but also to drive the growth.

And then just a quick follow-up. A far as the Wingate prototype, you mentioned that developers are seeing 10% savings. Not that I am going to ask you to divulge anything proprietary, but is there anything interesting that you can share, that gets you that kind of savings?

Some of it is -- a big part of it was reengineering. The prototype for Wingate had not been touched in several years, and so we went through with the engineers and the construction folks to actually determine what it was that we could do in this environment, to try to drive down the overall cost of it.

We also are making some changes to the common areas, the common space. It's a lot of little stuff, that frankly, has given us the ability to drive down that cost.

And frankly, we probably should have done this a couple of years ago, it is just we were so focused on other things, and the new construction market was not as warm as it is right now, so this was the right time to go in, I think, and do that, and I think we will see great results from it. We have gotten a lot of interest from groups who would like to do package deals with Wingates, which is wonderful.

Very good, thanks very much.

Carlo Santarelli with Deutsche Bank.

Really quickly on the deal front, and what you are seeing, if you could benchmark maybe the landscape relative to what you saw this time last year, in terms of deals across all three of your businesses, and other players potentially at the table, from an acquisition standpoint. Is there anything new you could share?

No, as I said before, pretty much I would probably say the landscape of M&A looks about the same as it did last year. We are pretty consistently in the market, looking at opportunities. It is not as if anything big or small that is out there hasn't gotten a good look from us.

It just really depends on value pricing, and what we think we can bring to the opportunity. If the opportunity presents itself that we think there is great chances with synergies, with our ability to impact the growth of the business, those are the types of deals that we think are best suited for us. So really not much has changed from a year ago, or really, thinking back now a couple years, the landscape is pretty much similar.

Just to follow-up, is it more of a disconnect between fit for the Company, or is it more of a bid-ask spread at this point?

Probably more bid-ask then fit.

Understood, and then, Tom, really quickly, in your remarks, you talked about interest expense. Did you mention a VAT benefit in this quarter, or was that a reference to last year's comparability?

A VAT impact this quarter. First quarter.

That was how much?

I think $3 million or $4 million.

Great, thanks.

Thank you. At this time, I will turn the call back over to the speakers.

Thank you very much, everyone, for joining us today, and have a great spring, and we will speak to at the end of the second quarter.

Thank you. This does conclude today's call. We thank you for your participation. At this time, you may disconnect your lines.