Apple Hospitality REIT, Inc.
Q3 2016 Earnings Call Transcript

Published: 8 Nov 2016

[Operator:]

Greetings and welcome to the Apple Hospitality REIT's Third Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host Ms. Kelly Clarke, Vice President of Investor Relations. Thank you. You may begin.

[Kelly Clarke:]

Thank you. Good morning and welcome to Apple Hospitality REIT’s third quarter 2016 earnings call on this, the 8th day of November 2016. Today’s call will be based on the third quarter 2016 earnings release, which was distributed yesterday afternoon. I would like to remind everyone that today’s call will contain forward-looking statements as defined by federal securities laws, including statements regarding future operating results. These statements involve known and unknown risks and other factors, which may cause actual results, performance or achievements of Apple Hospitality to be materially different from future results, performance, or achievements expressed or implied by such forward-looking statements. Participants should carefully review our financial statements and the notes thereto, as well as the risk factors described in Apple Hospitality’s 2015 Form 10-K, third quarter 2016 Form 10-Q, and other filings with the SEC. Any forward-looking statement that Apple Hospitality makes speaks only as of today, and the Company undertakes no obligation to publicly update or revise any forward-looking statements, except as required by law. In addition, certain non-GAAP measures of performance such as EBITDA, adjusted EBITDA, FFO, and modified FFO, will be discussed during this call. We encourage participants to review reconciliations of those measures to GAAP measures as included in yesterday’s earnings release and other filings with the SEC. For a copy of the earnings release or additional information about the Company, please visit applehospitalityreit.com This morning, Justin Knight, our President and Chief Executive Officer; Krissy Gathright, our Chief Operating Officer; and Bryan Peery, our Chief Financial Officer, will provide an overview of our results for the third quarter of 2016 and an outlook for the sector and for the Company. Following the overview, we will have a question-and-answer session. It is now my pleasure to turn the call over to Justin.

[Justin Knight:]

Thank you, Kelly. Good morning and welcome to Apple Hospitality REIT’s third quarter 2016 earnings call. And thank you for joining us on Election Day. There has undoubtedly been some turbulence around this year's elections and a host of other national and global events which have presented a backdrop of heightened uncertainty for the broad economy and financial markets. Despite these challenges, the economic indicators although mix that times continue to signal slow but steady growth as has been the case for a much of this extended economic recovery. That said, we continue to see strength and opportunity in our overall domestic travel and remain confident in the fundamentals of our hospitality platform. Our broad geographic diversification and choice of markets are focused on the upscale select service and extended-stay sector. Our exclusive investment in Hilton and Marriott branded hotels our ongoing reinvestment in the quality of our hotels and our strong flexible balance sheet, all contributed to a strategy design to reduce volatility and generate strong stable investor returns overtime. Turning to the quarter, July RevPAR for the combined portfolio was flat to last year; however, growth in the August and September allowed us to achieve an increase in comparable hotels RevPAR of 1.5%, and by year-to-date comparable hotels RevPAR growth through September to 3%. While we have not adjusted our 2016 RevPAR guidance, we feel most comfortable with our ability to achieve annual growth at or slightly below the midpoint of that range as a re-acceleration in business transient postelection and prior to the end of the year. Our portfolio for hotels achieved growth and adjusted EBITDA of 14.9% during the third quarter of this year, and 12.5% year-to-date through September, consistent with our expectations and in line with our previously provided guidance. We are pleased to have completed the Apple REIT Ten merger on September 1st, strengthening our position as one of the largest upscale select service focused lodging REIT. The merger added 56 hotels to our portfolio, expanding our geographic footprint and significantly growing our platform while maintaining the strength of our balance sheet. We continually monitored the profitability of our hotels, market conditions and capital requirements, and strived to maximize shareholder value by refining our portfolio and investing in properties that we believe provides superior value over the long term. During the third quarter of this year, we acquired a newly constructed a 128 room Home2 Suites by Hilton Hotel in Atlanta, Georgia, for a purchase price of approximately $25 million. Subsequent to the end of the third quarter in October 2016, we entered into a contract for the potential purchase of a 210 room Hampton Inn & Suites to be constructed in Downtown Phoenix, Arizona for a gross purchase price of $44 million. This potential acquisition brings the total number of hotels currently under contract for purchase to four. To further refine our focus on the select service and extended-stay segment of the industry, we have identified two of our full service properties for the potential sale. The 224 room Hilton Hotel in Dallas, Texas and the 226 room Marriott Hotel in Chesapeake in Virginia, and entered into separate contracts for the sale of these properties for a total combined growth sales price for approximately $66 million. Assuming conditions to closing are met, we anticipate completing each of these sales by the end of the first quarter 2017. New construction starts within our markets were slightly down in the second quarter increased again in the third quarter. More than 50% of our hotels now anticipate one or more new upper mid-sale, upscale or upper upscale hotels to open within 5 mile radius during the next 18 months. As new supply enters our markets, the strategic merits of consistent reinvestment become even more for now. Well time to effectively manage projects strengthened the competitiveness and operational stability of our hotels. Within average effective age of four years across the portfolio, we firmly believe our hotels are well positioned to remain competitive within their markets and maintain our grow market share despite an increase in competing hotel inventory. During the nine months ended September 30, 2016, the Company invested approximately $42 million in renovations and property improvement. We anticipate spending the additional $20 million during the remainder of 2016, which includes various scheduled renovation projects and approximately 20 properties. Strategic consistent reinvestment in our hotels will continue to be a key component of our operational strategies, leveraging our scale ownership within specific Marriott and Hilton brands to help reduce the cost of major renovations, increase our purchasing power and strengthen our profit efficiencies. We continue to believe that the strength of our balance sheet is an important differentiating factor for our company providing us with an additional security during periods of volatility and the flexibility to act in meaningful ways to enhance shareholder value. We ended the quarter with outstanding debt at three times of trailing 12 months adjusted EBITDA. We have financial flexibilities to fund capital requirements, purchase our own stock when appropriate and pursue opportunities in the marketplace. With 236 hotels located in 96 MSAs across 33 states, our portfolio is one of the largest most geographically diverse hospitality platforms in the United States. Given our unparalleled access to performance benchmarking data, our asset management team continues to work in collaboration with our 22 independent management companies to adjust business mix and control operating cost in order to maximize property level profitability and drive strong operating margins. It’s now my pleasure to turn the call over to Krissy who will now provide additional detail regarding performance across our markets and the industry overall.

[Krissy Gathright:]

Thank you. As Justin mentioned, comparable hotel RevPAR for the third quarter increased 1.5% with rate growth of 1.7% and a slight decline in the occupancy of 0.2%, while maintaining a high level of 80%. As we discussed in our prior earnings call, we started off the quarter with flat RevPAR growth due to a shift in the 4th of July holiday. Comparable hotel RevPAR growth improved to 2.3% in August and similarly by 2.2% in the September. We had anticipated September to have the strongest RevPAR growth, but we did experience some negative impact from tropical storm Hermine in our Southeast hotels of Labor Day weekend, combined with transient bookings actualizing a little lower than expected. Our geographically diversified select service concentrated portfolio do not materially benefit from the shift in the Jewish holidays in September, just as we did not experienced a material negative impact in October. We finished the month with comparable hotel RevPAR growth around 2% consistent with the growth in the past few months. There continues to be wide variability in the performance of our market with 33% of our hotels growing RevPAR 5% or more compared to 37% year-to-date. 19% of our hotels had RevPAR declines greater than 5% compared to 13% year-to-date. Our more significant underperforming markets were Houston, Chicago and Austin. In Austin, we faced the tough year-over-year comparison with 15% RevPAR growth in the third quarter of 2015 boosted by flood-related FEMA recovery business. Additional headwinds based in Austin included new supply and softer corporate demand. Markets with the stronger performance included Los Angeles, Washington D.C. and Phoenix. For a little more color on segmentation in the quarter, transient room nights decreased approximately 30 basis points and group room nights increased approximately 50 basis points. Transient and group rate grew approximately 1% and 3% respectively. Our group room night mix remains steady at about 14%. While our corporate negotiated segment mix was down 1.4 percentage points consistent with our year-to-date trend. We saw the offset primarily in the other discount segments instead of the retail segment, which had been the trends prior to entering the second half of the year. This limited our rate growth as the average rate in the other discount segment is lower than the retail average rates. As we are on the mix of budget season, we are working with our management companies to target an increase in corporate negotiated and group business through a combination of rate increases and solicitation of additional accounts were warranted. With the continuous variability in market performance, we are working closely with our management teams to target revenue management strategies to be unique circumstance in individual market. Although down to the previous year, adjusted hotel EBITDA margin remained strong at approximately 39% for the quarter and year-to-date. 90 basis points of the year-over-year decline EBITDA margin is attributable to 1.8 million of settlement proceeds we received in 2015, related to the 2010 BP oil spill and 1.3 million in real estate tax increases. We do expect to offset some of these increases when the outstanding appeals are concluded. Payroll expenses increased 3.4% in the quarter just slightly up from the year-to-date increase of 3.3%. With continued lower unemployment, increasing supply and government initiatives, we are cognizant that maintaining margin and lower RevPAR growth environment will be challenging. As such, our experienced asset management team is working in tandem with our management companies to maximize productivity and minimize turnover costs. We are testing new technology platforms to focus on improved level of scheduling and tracking processes. If occupancy declines become more for now, our room focused product require to less staffing to meet our guest expectations as compared to larger full service hotel, which enables us to maintain our industry leading margins even in a more challenging operating environment. I'll now turn the call over to Bryan to provide additional detail on our financial results.

[Bryan Peery:]

Thanks, Krissy, and good morning. As both Justin and Krissy highlighted although growth was not as strong as the last few quarters, we believe we continue to enhance our strategy and highlight its benefits. While increasing the geographic diversity and product focus of our portfolio of hotels, with the acquisition 57 hotels this year, we have been able to increase adjusted EBITDA to 104 million during the third quarter and 283 million year-to-date. Increases of almost 15% and over 12% respectively compared to 2015. Modified FFO per share grew to $0.49 for the quarter and $1.41 year-to-date, representing growth of 6.5% for the third quarter and almost 14% year-to-date. Although as Krissy discussed, adjusted hotel EBITDA margins were challenged during the quarter, adjusted EBITDA margins were flat and have increased 60 basis points for the year due primarily to the structure of our incentive plan. The Company senior management annual performance incentive plan is based 50% on shareholder return metrics and 50% on operational metrics. Through the September, these metrics are likely not to be met or will be at the low end of the payout range. The impact related to the incentive plan for the quarter was a reduction in general and administrative expense of approximately $3 million as compared to the third quarter of 2015. With the completion of the merger with Apple Ten on September 1st, the Company issued 49 million common shares and $94 million to the former Apple Ten shareholders and assumed approximately 257 million of debt, maintaining our leverage ratio at three times trailing adjusted EBITDA. Subsequent to the end of the third quarter, the Company reached an agreement in principal to settle the previously disclosed litigation related to the Apple Ten merger which is still subject to court approval. Included in transaction cost for the third quarter is an estimate of the growth settlement of $32 million. Of this amount, an estimated $10 million to $15 million expected to be funded from insurance proceeds and other parties due the settlement. These estimated amounts are expected to be recognized in our financial statements in future quarters as they are finalized. We do not intend to comment further on this settlement until that has been finalized and approved by the quarter. At the end of September, the Company had approximately $1.3 billion of outstanding net debt for the current combined weighted average interest rate of 3.3% for the remainder of the year. Excluding debt issuance cost and fair value adjustments on acquired debt, our debt is comprised of 474 million in property-levels act and 877 million outstanding on our 1.1 billion of unsecured credit facility. Subsequent to the end of the quarter, we entered into a 10-year $70 million mortgage with an annual fixed rate of 3.55%, and as Justin mentioned, we entered into contracts for the sale of the Dallas Hilton and Chesapeake Marriott for a total of $39 million net of debt to be assumed by the buyer under the Dallas contract. In September, the Company established a written 10b5-1 trading plan under our previously announced share repurchase program. No shares will be repurchased during the quarter; however, 147,000 shares have been repurchased under the trading plan since the end of the quarter at an average price of $17.81. During the third quarter, the Company paid distributions of $0.30 per share. Our Board of Directors has authorized a regular monthly cash distribution of $0.10 per common shares to annualized $1.20 per common share represents a 6.9% yield based on our November 3rd, closing price of $17.48. We have provided 2016 guidance based on the current view of both operating and economic fundamentals of the Company’s existing portfolio of hotels and hotels under contract. RevPAR growth guidance includes properties acquired including those acquired through the Apple Ten merger as if the hotels were owned as of January 1, 2015. Adjusted EBITDA guidance includes results for hotels acquired beginning on their acquisition day. Our guidance does not take into account the impact of any unanticipated developments in our business or changes in the operating environment. For the full year of 2016 based on our performance year-to-date and our visibility and business drivers for the remainder of the year, we anticipate adjusted EBITDA of $370 million to $390 million for the full year of 2016 and comparable hotels RevPAR growth of 2% to 4%. Thank you again joining us this morning. We will now open the call up for questions.

[Operator:]

Ladies and gentlemen, at this time we will be conducting a question-and-answer session. [Operator Instruction] Our first question comes from the line of Ryan Meliker with Canaccord Genuity. Please state your question.

[Ryan Meliker:]

Hi. Good morning guys. I just had a couple of here. First of all, I was wondering if you could give us a little bit of color on the RevPAR guidance and I guess RevPAR results in terms of any breakdown between the legacy portfolio and the Apple REIT Ten portfolio. I know that when you guys close on the acquisition you had lower guidance to plus 2% to 4% on RevPAR. I’m wondering, if that’s any deceleration in terms of your outlook for the legacy portfolio and across the business, will that just a market mix bringing the Apple REIT Ten portfolio in and overall across your business you feel the same?

[Justin Knight:]

Good morning, Ryan. I'll start and then Krissy can join in. We are obviously seeing significant impact in finite number market and because of the concentration within Apple Ten, there has been negative impact on the overall portfolio for RevPAR growth standpoint, specifically because of the concentration, relative concentration in Chicago and Huston primarily. As we look at the operating environment pulling those two markets out of both portfolios, the portfolios actually produced relatively close numbers in terms of growth. And what we are seeing more broadly I think it is very similar to what you've seen in the start numbers that were generally reported. That's being said, Krissy mentioned in her earlier remarks, we saw approximately 2% growth for the entire portfolio in October. We didn’t experience in the same way the holiday shift, the Jewish holiday shift that somewhat appears to have more heavily concentrated in the gateway markets experience, and we have seen dumping of the stabilization. But we anticipate those markets will continue to be a drag on our portfolio through the remainder of the year. And because we had ownership in both companies in those markets, the drag occurred in both but is more pronounced because a smaller portfolio those markets make up a bigger percentage of the Apple Ten portfolio.

[Krissy Gathright:]

And, Ryan, just to give you a little more color on that, if you exclude Chicago and Huston which are two of the markets that we picked up additional on properties; and with the Apple Ten transaction, we would have had 80 basis points higher RevPAR during the quarter just excluding those two markets. And then you had in Austin and that's another 30 basis points. So, those three markets equate to 110 basis points less in RevPAR. And Ryan just business and cash adjustments, we've seen pretty consistent just a softer business traveler, and so we are not seeing that decelerate any further, it's just a softer business traveler across more markets than we had previously.

[Ryan Meliker:]

That’s helpful. So it sounds like your outlook is somewhat slowed in general across the industry, but it also sounds like, if I look at the 2% to 4% full year guidance that you guys issued. The legacy portfolio is probably towards the higher end of that range and the Ten portfolio is probably towards the lower end. Is that safe assessment?

[Justin Knight:]

Yes, correct.

[Ryan Meliker:]

Just want to make sure I understood that. And then the second thing I was hoping, you could give us some color on was -- you announced the two full service non-core asset sales in Chesapeake and Dallas. Can you give us any color on either; A, cap rate through EBITDA multiples; and B, potentially how the sale process progress, but there is wide demand et cetera for those assets?

[Justin Knight:]

All right, I am going to give you less on the first and more on the second. As you know, we typically don’t report cap rates and multiple on individual transactions. I can tell you both cases, we were great comfortable with the sales price. There are two very different assets and two very different markets and so disposition for us meant different things in each case. Chesapeake is the market that’s been negatively impacted by lower government business and increase in supply. That market has historically been heavily dependent on navy and other military business, which has been less strong over the past couple of years. And that hotel is also in need of renovation, so it was coming up on a full renovation. Those were the factors that played into our disposition on that particular asset. With Dallas asset, is very different scenario, an asset where we acquired the hotel very well, and did significant renovations and changed our management and significantly enhanced the value. And we felt in that particular market that we were in a position to capitalize on our efforts and to lock in significant profit on the deal. The two together balanced out in a way that provides us a strong profit to our original investment across the two combined. And exiting those assets is consistent with the strategy which we’ve articulated in the past call to dispose overtime when appropriate of our full service hotels. And to double down on our core strategy which is to invest in our upscale select service and extended-stay hotels where we feel we can operate most efficiently and effectively.

[Ryan Meliker:]

All right. Thank you. That’s helpful. And then one last thing just real quickly from the color that you mentioned about Chicago, Austin and Houston, that’s helpful, obviously. As we lookout to 2017, it seems like supply is going to continue to be a challenge for Austin, and Houston has challenges that don’t seem to be dissipating anytime soon. How to Chicago look for you guys, I know the convention calendar looks better, but supply is also picking up. Does the convention calendar have that big of an impact on your portfolio in Chicago? Do you think Chicago is going to be a tailwind next year or still going to be a challenge?

[Krissy Gathright:]

Because most of our hotels aren’t located in the central business district has lesser than impact on our suburban hotels. The convention calendar we look at more conventions that actually compressed, and so we look at compression room night. And if you look at compression room night, you’re actually down slightly. There is Hotels of O'Hare in particular was somewhat impacted this year by the ramp of the Rosemont Hotel, the new development there. We do feel there’ll be less of an impact going forward on O'Hare and then Rosemont will continue to ramp. So, we do see net, net growth a little bit of growth in the O'Hare market. The other Mettawa markets Warrenville, Mettawa has been impacted by business that is going to neighboring office park that a large clients have moved out. We are seeing some signs that there are some new smaller companies moving in. And so we expect to be able to pick up from business there as well as we have renovation of one of the hotels and then we'll start renovation of another one. So following renovation, we feel god about those. Warrenville, we actually did have a large client Kanegra moved to Downtown. So, we have to wait and see on that one. We’re going to -- there is going to be some additional supply and we need to pick up some additional business. So, it’s a -- overall, it’s not going to be as -- I wouldn’t it's a tailwind, but I wouldn’t say either as much of the headwind as we experienced this year in that way.

[Operator:]

[Operator Instructions] Our next question comes from the line of David Loeb with Robert. W. Baird. Please state your question.

[David Loeb:]

Just a follow up a little bit on the RevPAR question. What impact you think the direct booking initiatives from Marriott and Hilton are having on your RevPAR? And are you seeing any sort of offset in OTA commissions and how much of that decrease you think is being offset in terms of the impacts to the bottom line?

[Krissy Gathright:]

So, I'll take that one. I would say with looking at those Marriott and Hilton, I would say Hilton was probably a little bit more negatively impacted in the short-term in the quarter. And you can see that across the performance of some of the select service hotels as well. And that’s primarily because they were the first group to come out, the first brand to come out. And one of the OTAs decided to dim and de-rank their hotels, which in the summer months cost a little bit of less business for that particular brand. What we have seen there was that, I believe the OTAs have realized very smartly that those brands convertor very well and they since stop that dimming and in de-ranking. And they are also looking for more -- for better ways to partner and understanding the things are changing, and so they are looking for other ways that they can help via customer acquisition tool for the brands without necessarily your increasing commission. In terms of our overall commissions, we did see an increase in commissions and about 20 basis points increase in travel agent commissions. What we have seen is our OTAs room nights while they're up, they are up less than last year. Their OTA room nights in the quarter were up 17%. Our brand.com business was also up at strong 9%, which we believe was driven by the initiative of marketing around the direct looking strategy. And if you look at our channel shift on that our brand.com business increased from 32% to 34.1%, which is an increase of 210 basis points where OTA next increased from 8% to 9.2%, an increase of 120 basis points. So, if you actually look at the differential there, it's about 90 basis points increase our channel shifts from OTA mix to brand.com. And we definitely see that's as more of a long-term strategic play. The OTA commissions, the cost for bookings is actually going down as the brand has done a better job of working with the ownership community and bringing down as commissions cost. But the overall commissions are still going up because the volume is up.

[David Loeb:]

So, Krissy, just a follow-up on that, with the growth in those two channels you talked about that shifting some of that growth between one in the other. What channels are shrinking?

[Krissy Gathright:]

Voice continues to strengthen a little bit and property direct shrinking a little bit.

[David Loeb:]

Okay and as we go through this transition were brand.com is really being pushed, do you think they will eventually be a tradeoff that you will see lower OTA commissions, not just because the rates are lower, but because there is just less of that? And will that essentially offset some of this RevPAR decrease or ADR decrease?

[Krissy Gathright:]

I do. I think that -- and I think that as you go move into next year as well, the initial RevPAR decrease is from the initial discount that you are offering upfront. But as we move forward as part of the longer term strategy, I think the brands will continue to look at the discounts and the discount rates. But also they’ll emphasize and put greater emphasis on the other value that it’s provided by booking direct, not just on price, but the other amenities and things that you can only get from booking direct like straight to room, picking your overall room key, that type of things. So, overtime, again, we’re very supportive of the strategy. And we feel that there will be less emphasis on the actual discount. And we already are starting to see and working towards where we can, adjusting revenue management strategies to increase where we’re able, and increase the rates of the discounted less anyway.

[David Loeb:]

Got it. Okay. One more sort of related topic, its sounds like the brands are doing much better wrestling with this whole hotel direct bookings phenomena, but how about cancel and rebook. You guys must see a bit of that maybe not as much as some of the urban hotels. But, do you think the brands are taking that seriously? I’m trying to figure out how to stop that or lessen that?

[Krissy Gathright:]

Here, we feel we do see you’re correct, David. We do see less of that in our particular hotels primarily because we are suburban and a lot of our extended-stay hotels about third of our hotels are also extended stay, they see less of cancel rebook. But the brands are taking it seriously, what we would like to see, one of the options that we would support are may be adding tiers of pricing, a growing percentage of guests are actually booking within seven days. So, if we could transfer some of the 24-hour cancelation guest into another price tier, where you maybe offer a little bit of discount, but not as much of the discounted, but not fully nonrefundable advance purchase. That would spread out our cancellation window and essentially have a built in -- it allows us to kind of have a built in premium versus just charging a fee. So, we are looking for encouraging our brands to look at the different strategies to be more like similar to what you see in terms of the airlines, so you have to pay premium pricing for the more flexibility.

[Operator:]

[Operator Instruction] Our final question comes from Ryan Meliker with Canaccord Genuity. Please proceed with your question.

[Ryan Meliker:]

Hi, guys long time to talk. Just one quick one follow-up I had was related to operating cost obviously you guys talked a little bit about the quarter with margins down a 140 basis points. As we think about margins and operating cost going forward, what type of RevPAR growth do you feel like you need to maintain flat margins as we look out to 2017?

[Krissy Gathright:]

Somewhere north of 2% or closer to 3% or above, we are unless -- as I mentioned in my comments, Ryan, we are facing some challenges. You have the normal increase in wages that’s going through with a minimum wage increases and leaving wage increases although they have less than tact on our portfolio because there is a primarily year towards the Gateway City. In addition, you have just additional supply which is putting pressure at Downtown, San Diego, Austin and Nashville. And some of these markets that are just natural low unemployment are driving up this wage rate. So, we are clearly going to stay on top of that we’ve talked about the technology opportunity. We’re working with our managers to reduce contract labors as much as possible. There are brand programs that where you can and basically offer a small amount of frequency points in lieu of daily housekeeping. I mentioned earlier we have extended-stay hotels and then I think about extended-stay hotels is that you have lower turnover cost, you have longer term stay for that lower turnover cost. There is less exposure to those in wages. The labor is going to be the biggest challenge. Utilities have been stable for year-to-date so we will have to need to watch that. Again, I would reiterate somewhere north of mid 2% or so.

[Operator:]

That does conclude our question and answer session. At this time, I'll turn it back to Mr. Knight for closing remarks.

[Justin Knight:]

Thank you for joining us this morning. Overall, we're pleased with the performance of our hotels during the first nine months of 2016. Our experience in lodging industry expands multiple economic cycles and we are confident, we are well positioned for the remainder of the year, despite our expectations from more moderate growth on a go forward basis. We hope that as you travel, you will take the opportunity to stay with us. And if you haven’t already, we would encourage you to vote. Have a great afternoon. And we will look forward to talking you soon.

[Operator:]

This concludes today's conference. Thank you for your participation. You may disconnect your lines at this time.