Travel + Leisure Co (TNL) 2015 Q2 法說會逐字稿

Welcome to the Wyndham Worldwide second-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.

Thank you, Shirley. 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 13, 2015, 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?

Thank you, Margo. Good morning and welcome to our second-quarter call. We had another strong quarter with currency neutral adjusted EBITDA growth of 6% and adjusted earnings per share growth of 17% reflecting sustained operating momentum in each of our businesses and continued benefit from share repurchases.

Our Hotel Group achieved double-digit adjusted EBITDA growth in the quarter. In our Exchange and Rentals business, we are seeing continued strong growth in rental transaction volume which is building for the summer. In Vacation Ownership, we grew gross VOI by 3% in constant currency.

Finally as you saw from the press release, we are raising our full-year adjusted EPS guidance based on the progress of our businesses which is neutralizing continued FX headwinds and share buybacks that support future EPS growth.

I will spend a few minutes discussing our operations and then I will turn the call over to Tom for the financial details on the quarter. Let me highlight a few initiatives from our annual strategic planning process that will contribute to our momentum and help us continue to enhance value in the future.

Beginning with the Hotel Group, in addition to the technology and marketing initiatives we discussed last quarter, our strategic plan is strongly focused on our brand standards. These efforts have led to growth in our new construction pipeline. Specifically we have seen strong growth in our Wingate by Wyndham brand which was recently ranked as the highest in guest satisfaction within the midscale segment by J.D. Power, right up alongside our Microtel brand which retained its leadership position in the economy/budget segment.

On the technology front as we discussed last quarter, we are moving away from building in-house systems. Instead we are partnering with best-in-class providers to help ensure our franchisees around the world are utilizing the most technologically advanced systems now and into the future. We are progressing on our plans to migrate over 4500 of our North American franchisees on to Sabre's cloud-based property management system.

As part of the property management migration, our economy and midscale franchisees will also enjoy the benefits of an integrated revenue management system developed and installed by industry leader, Infor. This easy to use tool is designed for owners who may have limited revenue management capabilities. It allows these owners to efficiently and effectively analyze booking information, trends and patterns specific to each hotel on a daily basis. The owner will receive recommendations that can be used to optimize rates based on demand. This level of insight and pricing capability will provide unprecedented value to our franchisees and boost their bottom line.

We currently have 21 hotels piloting the property management system which is proceeding as planned. Later this year we will start adding roughly 100 hotels per month accelerating to about 400 hotels per month until we reach our target. We expect full implementation by late 2016.

On the marketing front, we are seeking to drive growth in our loyalty program. Our 2015 Summer Umbrella marketing campaign is off to a terrific start. It is linked to the recent relaunch of our Wyndham Rewards program which is designed to leverage the scale of our overall system through a very simple and generous earning and redeeming proposition. While still early in the campaign, initial results show a 7% increase in loyalty bookings over the same period last year.

Award redemptions are up approximately 60%, a great indicator that consumers are not only aware but engaged more than ever with our program. Marketing analysts are calling Wyndham Rewards the most simple and reporting loyalty program of its kind. We see great potential for our revised loyalty program in the future.

Now moving to Exchange & Rentals, vacation rentals in the sharing economy have been getting a lot of press lately so I would like to remind you of our value proposition and what sets us apart. Wyndham Exchange & Rentals is the largest provider of professionally managed unique vacation accommodations in the world and our mission is to send people on the vacations of their dream. We do this by providing the right inventory to the right traveler at the right time.

Our inventory spans the globe and includes virtually every non-hotel vacation option, literally from houseboats to castles to timeshare. In addition, we provide a wide array of value-added services not just to guests but also to homeowners and our B2B partners. Our strategic priorities at Wyndham Exchange & Rentals are to leverage our strength across all of our brands including our technology and analytics expertise, the breadth of our inventory, and our distribution capabilities.

I spoke at our last call about enhancing our distribution channels through the use of online booking services such as HomeAway and we have often spoke about analytics in yield management. Equally important to us are analytics are around our customers' preferences. We have been very successful at RCI in customizing member interaction to drive satisfaction and increase member retention.

Now we are leveraging these best practices within our rental brands. In doing so, we have the opportunity to drive higher inventory utilization based on large samples of consumer data. For example, we will often work with homeowners across our rental brands on how to tailor their home to achieve maximum occupancy and yield using our unique knowledge of the individual traveling consumer.

We may work with homeowners on how best to remodel their property for rental. But just as important on a more modest level, we may also help them determine what amenities to offer or whether to allow pets.

We are also able to work with business partners on a larger scale on product development. For example in our Hoseasons Holiday Park brand in the UK, we have launched several exclusive niche sub brands. We package and market resorts under these brands to individual travelers based on their personalized preferences. We also work with the developers on a weekly basis exchanging ideas, expertise and pricing data to drive performance.

The result is an all around win with highly satisfied developers and consumers and higher revenues for us. This is another great example of how the strength of our European rental brand combined with analytics has allowed our businesses to thrive through a choppy European travel market.

Now turning to Wyndham Vacation Ownership, our strategic plan focuses extensively on how to enhance the customer experience and create even more loyal owners. Along those lines, we are pleased with our progress on sales in the second quarter. In addition to making some management changes in key markets, we fine-tuned our sales outreach to owners with a hybrid model that allows for both traditional and the specialist presenter approaches that we launched last year. This resulted in growth in VOI sales and an adjusted owner tour mix which supported higher VPG.

We believe we have hit the right tour balance for now between specialist presenter and traditional owner sales with approximately 60% of tours currently in the specialist presenter or group format.

Remember that our move to specialist presenter is part of a comprehensive initiative to increase and enhance consumer engagement across our brand beginning with how we sell our products to both potential new owners as well as existing owners. We are doing this now because we want to keep our owners engaged and as importantly, keep potential owners eager to engage. We want to ensure we are positioned to capture the next generation of timeshare buyers.

Recent surveys by ARDA have shown that the industry's youngest timeshare owners, those in the millennial and younger Gen X demographics, are highly enthused about the timeshare product. More importantly, the millennial generation is planning on taking significantly greater number of vacations and traveling to destinations where we have an abundance of timeshare product.

To support future growth we will open six new sales centers this year in great locations such as New York City, St. Thomas in the Virgin Islands, Puerto Rico and Las Vegas. Many of these sales centers will be largely committed to driving new owner growth enabling us to reach potential new timeshare owners of all generations in more locations. We see tremendous upside in the timeshare business.

Now let me turn the call over to Tom for details on the quarter's profits.

Thanks, Steve. Good morning, everybody. After getting the year off to a good start in the first quarter with strong financial performance, we sustained that momentum in the second quarter with adjusted EBITDA growth of 6% and 17% growth in adjusted EPS on a currency neutral basis. Compared to the second quarter of 2014, foreign exchange reduced revenues by $48 million and adjusted EBITDA by $12 million companywide.

We exceeded our EPS guidance reflecting better than expected operating results, particularly at Vacation Ownership, expense timing, and share repurchases. We repurchased 1.9 million shares for $165 million during the quarter contributing to a 6% year-over-year decrease in our weighted average diluted share count.

Free cash flow for the second quarter was $428 million, flat compared with the second quarter of 2014.

Now I want to reiterate my comment from the previous call that we expect free cash flow to be lower through the first nine months of the year versus 2014 reflecting the timing of inventory purchases and adverse foreign currency comparisons. While FX movements are currently projected to create a $25 million headwind to our year-over-year free cash flow assumptions, we remain committed to our annual neighborhood target of $800 million.

Now let's take a look at the financial performance of each of our business units starting with our Hotel Group. They achieved another strong quarter with revenues up 18% and adjusted EBITDA up 11% year-over-year. On a currency neutral basis, excluding the impact of the $4 million benefit from the increase in licensing fee rate the Hotel Group charges our timeshare business, and the Dolce Hotels and Resorts acquisition, revenues were up 6%, adjusted EBITDA up 9%, and margins were up approximately 100 basis points. Results primarily reflected higher royalties and franchise fees.

Now recall that we adjusted the Wyndham brand licensing rate last quarter based on an updated review of market-based pricing.

Domestic RevPAR continued to perform well increasing 5% on a same-store basis. Strong overall performance, particularly in the Pacific and South Atlantic regions where our franchisees have been able to put through rate increases, was somewhat offset by weaker occupancy performance of our hotels in oil-producing regions.

A particular bright spot was the performance of our managed property business. Same-store managed North America RevPAR increase double-digit compared with the same period last year. While our managed portfolio is relatively small, this performance highlights our improved capabilities in this important growth area.

System-wide RevPAR was flat largely due to the adverse impact of foreign exchange and the continued unit growth of lower RevPAR hotels in China. Excluding the China effect and in constant currency, global RevPAR grew almost 4%.

Our Exchange & Rentals segment continued to perform well. On a currency neutral basis, revenues increased 4% and adjusted EBITDA was up 6%. Adjusted EBITDA in the second quarter of 2014 included a $3 million loss associated with Canvas Holidays, which we sold in 2014. On a currency neutral basis and excluding the impact of acquisitions and the Canvas divestiture, adjusted EBITDA increased 3% reflecting tighter cost management in our RCI brand and growth in Wyndham Vacation Rentals North America.

On the exchange side of the business, revenues were flat in constant currency. The average number of members increased 2.2% attributable to new member growth in the Americas. Exchange revenue per member declined 2.7% as a large portion of member growth was from large timeshare clubs whose members generate lower revenue.

Vacation Rentals revenue for the quarter were up $17 million or 8% in constant currency and excluding the impact of acquisitions and the Canvas divestiture. This increase reflects a 6.1% increase in volume, transaction volume and a 1.7% increase in the average net price per rental. Transaction growth across all major brands was highlighted by the strength of our Denmark-based Novasol business, our UK Cottage and Parks business and our Wyndham Vacation Rentals North America business.

Results were strong in our Vacation Ownership business as well. On a constant currency basis, revenues increased 5% and gross VOI sales increased 3%. EBITDA was flat on a currency neutral basis and includes a $4 million increase in the licensing fee rate paid to the Wyndham hotel group. Now excluding this fee increase, currency neutral EBITDA would have increased by 2% as improvements in gross VOI sales in the provision rate were partially offset by higher sales related costs.

Net VOI sales were up 9% or 11% in constant currency reflecting a lower loan-loss provision and a 4.4% increase in VPG net of currency, partially offset by a 1% decline in tour flow. Sales and VPG benefited from a favorable product mix resulting in higher yields and from transaction size in addition to the points that Steve mentioned earlier.

The provision for loan-loss was $60 million, while write offs were also $60 million, maintaining our reserve balance on gross receivables at around 17.5%.

You may also note that WAAM, fee for service commissions declined on a year-over-year basis in the second quarter. This is part of our continued plan to shift WAAM development to the just-in-time model which increases total revenues and EBITDA by allowing us to finance the consumer loan receivables and benefit from the great spread that we earn on our portfolio. We expect this trend to continue consistent with our plans.

In addition, the ABS market remains robust. We just completed our second ABS term note transaction of the year on July 15. The $275 million Sierra 2015-2 transaction had a 2.56% weighted average coupon and a 90% advance rate.

So finally, let's turn to guidance which will be posted on the website after the call. As you saw from the press release, we are increasing our adjusted diluted EPS guidance $0.07 for the full year and diluted share count goes to 120.2 million shares reflecting the benefit of our second-quarter repurchases and a 25 basis point reduction in our full-year tax rate to 36.5%.

Total Company as well as business unit revenues and adjusted EBITDA guidance remain all unchanged. However, we are fine-tuning our driver guidance as follows. 2015 RevPAR guidance is now 2% to 4% down from 4% to 6%. This reflects an approximate 200 basis point change in foreign exchange from our original guidance assumptions. At this time we will believe we will be at the lower end of that range due largely to the loss of a Center City Hotel that was purchased by Hilton. The hotel had an outsized impact on RevPAR but produced insignificant royalties relative to our overall system.

Remember that a 100 basis point change in RevPAR in general only impacts are EBITDA by $2.5 million to $3.5 million for the full year.

For WVO, we believe we will be at the lower end of the 1% to 3% tour flow range. We will post an updated guidance schedule to the website following the call.

For the third quarter we expect adjusted diluted earnings per share of $1.65 to $1.68. In exchange in rentals note that the now divested Canvas Holidays brand had an $18 million EBITDA contribution in the third quarter of 2014. In addition, our Hotel Group benefited from the signing of a cobranded credit card agreement with a third-party amounting to $4 million of additional EBITDA in quarter three 2014.

We expect interest expense in the third quarter of approximately $32 million, slightly higher than our current run rate reflecting the early termination of interest-rate swaps in the second quarter. For now our full-year interest expense guidance remains unchanged but please be aware that depending on market conditions we may decide to issue some debt later in the year. If that is the case, we will update guidance accordingly at that time.

Finally, remember that we don't assume future repurchases in our EPS guidance. In addition, year-over-year 2015 third-quarter EBITDA comparisons reflect projected unfavorable currency headwinds of $13 million.

To close, we are pleased with our first half and are looking forward to continued progress for the remainder of the year. And with that, I will turn the call back to Steve. Steve?

Thanks, Tom. Next week will mark our nine-year anniversary of listing on the NYSE. Before opening the call to questions, I would like to take a moment to comment on our performance since that time.

Our strong operating results, execution and growth have driven significant increases in EBITDA, revenues, EPS and free cash flow. Between dividend and share repurchases, we have returned $5 billion to our shareholders. To put that in perspective, our market cap at the time of our IPO was $6 billion.

Our total shareholder return since listing including dividends has more than doubled that of the S&P 500 and we still have tremendous potential ahead of us. We see great opportunities to generate growth and value across all of our businesses and we remain keenly focused on capitalizing on those opportunities.

We recently completed our eighth strategic planning process since we launched as a public company and this latest was filled with more opportunity than any I have seen before. I am proud of what we have accomplished but more importantly, I am really excited about what lies ahead.

Now Shirley will open the line for questions.

(Operator Instructions). Joe Greff, JPMorgan.

Good morning, guys. As you guys know from making the rounds at conferences and talking with investors, volume per guest has been a pretty important metric to follow here and you guys obviously executed with some nice results here which was good to see.

Can you talk about what you are actually seeing from the customers' perspective migrating or moving toward this hybrid model? Are you seeing greater success in new potential timeshare buyers or existing? And you may have said this and maybe I missed this, but can you talk about how many sales offices you have left to convert to this hybrid model? And then I have a follow-up.

Okay. Thanks, Joe. First of all, VPG is a heavily talked about metric but as we have said multiple times, it is not a consistent metric, it does move around. So we have had quarters where it has been up dramatically, down dramatically. We think for the full-year it will pace on what we think it will be but again we -- just so we are consistent-- even when we have an up quarter we don't want to put too much stock into that one particular metric without looking at everything else.

But having said that, just to be clear, the hybrid model is a hybrid between the way we previously marketed for our in-house guests which are our existing owners and this new specialist presenter model. So this new specialist presenter model doesn't really touch the new owners as much as it does the old owners. We still do group presentations for new owners so it is not dissimilar but when we talk about the specialist presenter and the marketing impact it has, we are really talking about the impact it has for our in-house customers, people staying at our resorts. That is what we were trying to solve for is a better approach to the customer, a better experience for the consumer who already owns timeshare and is staying in our resort. That is where we have made the changes.

Relative to how many are left to do, we are basically done. We think we are at about age 60% rate of specialist presenter now for our in-house guests. We think that is about the right balance. We will probably stay there and see how things track. We could go up, could go down a little bit but we like what we are getting out of that model right now. So we really don't have a lot more to roll out on that side.

And when you look back at the 2Q, what percentage was new versus existing sales? And then, Tom, you had mentioned about the adjustment to the RevPAR growth drivers. How much was the impact related -- the rollout of the impact related to the loss of that one city center hotel? And that is all for me. Thanks, guys.

I will take the first one and I will let Tom talk about the RevPAR piece. We are running about two-thirds, one-third upgrade to new owners. That is the pace that we are on right now. Tom, RevPAR?

Joe, the Center City hotel was worth a little under 100 basis points impact for us.

Steven Kent, Goldman Sachs.

Good morning. Just to follow up on Joe's question, more specifically, do you expect VPG to be positive for the balance of the year and if there is any changes or what could move that around? It obviously does move around quite a bit, probably more than all of us would like, but just give us a sense for that.

And then the second question is could you just talk about if you are seeing or hearing anything from the Consumer Financial Protection Bureau looking into timeshare practices, whether that is one of the agencies that could have oversight of your business? And also if you are seeing any inquiries from any other agencies as to timeshare lending?

Thanks for those questions. We do expect VPG to be positive going forward and we appreciate the lack of comfort with the movements in VPG. I just will remind everyone and again we've said this before, we are constantly changing our marketing programs, we are moving our sales incentives around because we have a very large global sales force that is selling timeshare that we are constantly trying to optimize as best we can. So there will be some volatility in there. It is just the nature of the beast and we shouldn't be surprised by that. We may not like it but we shouldn't be surprised by it.

As for the Consumer Finance Protection Board, they are -- I know that they came out with something that said that in October they will be providing more guidance on consumer lending, and included in that is timeshare, but we have not heard anything specifically about that. We think everything we are doing and we believe-- and we are constantly looking at this from a regulatory standpoint-- is absolutely straight up the middle of the fairway and so we don't see any impact from that. But we haven't seen if they are coming out with something new, it would be news to us.

You also asked do we see any other regulators coming in and creating issues? No we don't. We are happy and pleased to see some of the prosecution effort against people who are bad players in the timeshare industry. We used to talk about the cease and desist issue that we had. The guy who was leading that cease and desist effort was recently found guilty and was sentenced. His sentencing was I think 25 years so that is a big time deterrent we believe to people who want to play badly in our industry.

Okay, thank you.

Chris Agnew, MKM Partners.

Thanks very much, good morning. A couple of questions on Vacation Rental. Observation that the last couple of years pricing appears to be much stronger in the second half of the year. And I was just wondering how seasonality helps your yield management efforts if you could talk a little bit about that?

And then on European demand trends in vacation rental, there has been a little bit of commentary that Europeans are booking shorter stays this year. I was just wondering if you have seen any evidence of this in your Vacation Rental bookings for the summer period? Thank you.

Thanks and your observation on the rental... the rate that we are getting is accurate because of the time of year. There is seasonality to this business and clearly the summer is the biggest time. And so there is more ability to move rate when you have higher demand in the market so that absolutely is a fair observation.

As for the second question which was about shorter stays. I have not heard that and honestly I would have to go back and look to see. I have not heard our Vacation Rental Group say anything about the duration of stay as being an issue and it hasn't popped up as a metric that has moved internally. And I certainly did not see that in the strategic plan that we reviewed with them. I would say probably not there, Chris, but we will certainly get back to you with an answer on that.

Thank you. And then one more question just on acquisition pipeline, lodging and maybe vacation rental, can you touch on that? Thank you.

Well, as we have said before, we are constantly on the prowl and constantly looking in both rental -- you hit the two areas that we are looking. In rental and lodging, we are looking at opportunities. We will only do deals that make sense for our Company obviously and we are disciplined but we do do a lot of work. We have an active M&A group internally that works on these opportunities and some of them are way below the radar screen. They are just small deals that we do in the rental businesses, both domestic and internationally.

On the hotel side if we have anything to talk about, we certainly will bring it forth but we are constantly looking at opportunities.

And then you asked about the pipeline for acquisition -- I think that is the way you phrase the question. I would say the pipeline probably is a little bit stronger than it has been but also expectations are pretty darn high.

Excellent, thank you.

Patrick Scholes, SunTrust.

Can you talk a little bit about your domestic RevPAR growth? When I compare it to what Smith Travel would have suggested, it definitely was the lower and I know you have the Hilton Hotel in there. Do you think it is time for a major refresh of some of the brands in the magnitude that Comfort Inn is currently going over or that InterCon did a couple of years ago with their Holiday Inn?

Yes, thanks for that question, Patrick. It actually is not -- I don't think that we are pushing a reset button on our brand. In fact some of our brands like I mentioned, Microtel and Wingate are getting J.D. Powers awards for best appreciated by consumers. So I don't think we are at the point of hitting a reset like we did with Ramada frankly many years ago.

We are however very, very focused on enforcing our brand standards. We did during the downturn, we did show flexibility with our franchisees and we are not as diligent, possibly, or as aggressive in terminating properties that fell below standards. We gave them more time to fix the problem just out of the fact that we knew that their cash flow wasn't as strong so it takes money to fix physical problems so we were more flexible.

We are much less flexible now and I would say that we will continue to be much less flexible going forward. We think now is the time, when the industry is doing well, that people should be reinvesting in their properties and we see that happening.

I went down to a what we call our Franchise Advisory Council, which was for all of our brands, recently and there were probably 150, 200 people in the room, franchisees, who were the franchise leaders for each one of the brands and the thing I heard most strongly from our franchisees was make sure you keep on the quality of their fellow franchisees. And so that is something that we had dedicated ourselves to and which we are reinforcing.

And so I think we can get a lift just from the sheer fact that we are going to remove some of the weaker players in the market and that is something that we are very, very focused on.

As for RevPAR compared to industry, I don't know that we are much different than the economy sector. If you are looking at the luxury or upper upscale segment, we won't go down as much. We probably won't go up as much as they do so we are probably a more stable play there. But we feel that we are performing well and we track our RevPAR indexes. And as Tom said on the managed properties, we saw a great uptick, double digit uptick in RevPAR at the managed properties.

So we are feeling pretty good about where we are and how our brands are performing. We think that the loyalty program will give a great lift to this but it is going to take a little time for that to build so it is probably a 2016 and beyond impact period.

Thank you for the explanation. Two more questions here. Just a little more color on the 2.7% decline in exchange revenue per member I would have thought that would have been better than that considering lower gas prices and sort of reemergence of the middle-class here. What was driving that decline?

Yes, Patrick, it is largely related to the composition of our exchange membership now increasingly going to clubs and people who are part of larger time-share systems typically pay a lower membership fee and transact less. So that is all it really is. It is sort of an ongoing phenomenon.

To your point, Patrick, we did see an uptick in the members so there are people are out there traveling and they are traveling in good numbers and they are being converted into time-share owners, but as Tom said, it is a mix issue.

Lastly, on the property management systems you just discussed for the hotels, who pays for that, is that mostly the franchisees? And if you are paying for it, how much -- or part of it-- how much are we talking here?

It is not significant. We actually negotiated a deal with Sabre and Infor where the franchisees are basically getting the system for the same thing they were paying before. So we are able to make it a net neutral to them which is really terrific. They are getting a better system, they are getting a lot more capability and particularly this yield management system for the economy hotels, they have never really utilized that before so we think that will have a great impact.

That will be rolled out, but in my opinion it will take a little longer to effectuate because these owners are not accustomed to working in that kind of an environment like a large full-service hotel would naturally do. So we think that this will have a big impact going forward but probably a little bit more of a delayed reaction than some of the other things that we are implementing in the Hotel Group.

That is all for now. Thank you.

(Operator Instructions). Harry Curtis, Nomura.

Good morning, everyone. A quick question, that is really a bit more broad, on the health of the consumer. When we look at the flattish tour flow and then the somewhat softer RevPAR guidance, what would be interesting is your assessment on whether the consumer in your view is a little stronger as we head into the back half of 2015 or a little bit weaker?

That is kind of a tough question, Harry. I think that I wouldn't attribute anything to our RevPAR guidance to the consumer because those two factors, as Tom mentioned, that are impacting it are simply the FX and the fact that we lost this hotel in San Francisco. And believe it or not, it is large enough and big enough that it does move the needle on RevPAR.

That I don't think at all, obviously, that doesn't move in the consumer's direction at all. The tour flow is really a reaction to how we are staffed and how many tours we want to take. One of the things our review showed during this last few months is that we may have been providing too many tours to our salespeople, and that might sound counterintuitive, but if you provide too many tours, then the natural reaction of a salesperson is the next guy is going to be more likely to buy than the one I have right now so let me move on to the next one. And that is understandable, it is a natural reaction but it is not necessarily the right reaction because if we go through the process with an individual, we should see the close rate be about what we historically have experienced.

Now going to the health of the consumer while we are talking about close rate, we actually saw an improvement in the close rate in time-share and that is something that is another metric that we track and it works its way into VPG. But that kind of is an indication of how the consumer is feeling. And so if anything, is he going to feel stronger in the second half of the year. I don't know. He felt pretty strong in the second quarter to us. Is he going to feel stronger? I am not sure. It is a great question; it is a difficult one to answer because my crystal ball is only so good.

Well we will maybe revisit it in three months. Second question, or last question rather, is going back to your expansion in your managed hotels. Can you talk about how competitive the process is to get one of your brands on a managed hotel and whether or not or to what degree you are either providing key money or mezzanine financing to win that or are the economics really appealing without having to lift your investment?

It is a mixture of both, Harry. We do use key money or development advances or whatever you want to call it in some cases, and in some cases we don't. We go on just the pitch of what we can bring to the hotel. So it is a mixed bag. I would probably say more of them have development advances than don't. But that is kind of the standard for that segment in the upper upscale, upscale level where we are doing the management of properties.

But yes, the results that we are seeing are in part the fact that I think we are doing a good job managing. We also have flipped properties into our brands when the brands are bringing good RevPAR lift and again we are watching all of these versus the index versus the market in which they are competing in which is really, when you look at it, how you judge how an individual property is doing.

Just going back on your question about the health of the consumer, the one thing that I would point to is -- and we are not going to get granular with what July looks like because we are only 27 days into it -- but in both the timeshare and the hotel world, we are seeing pretty good reaction from the consumer. So again just trying to give you a glimpse so now you don't have to wait three months. You only have to wait two months because I'm telling you July is looking like the consumer is relatively strong and the same is also in true in Europe with our rental business.

That is really helpful. Just a quick follow-up on that comment. As you look into the summer months, what kind of pricing power is built into your guidance for the summer month rentals in Europe?

Healthy because we are tracking with a fairly good increase in pricing for last year and the first half of this year so we are continuing that trend of pricing; so we feel pretty good about the European rental business.

Okay, very good. Thanks for the help.

At this time, I turn the call back over to the speakers for closing comments.

Thank you very much, Shirley, and thank you everybody for joining us today. Remember to tune into the Wyndham Championship August 20 through August 23 on the Golf Channel and CBS. And enjoy the rest of your summer. Thank you.

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