Ryman Hospitality Properties, Inc.
Q3 2013 Earnings Call Transcript

Published: 5 Nov 2013

[Operator:]

Welcome to Ryman Hospitality Properties Third Quarter 2013 Earnings Conference Call. Hosting the call today from Ryman Hospitality Properties are Mr. Colin Reed, Chairman and Chief Executive Officer; Mr. Mark Fioravanti, Executive Vice President and Chief Financial Officer; Mr. Patrick Chaffin, Senior Vice President of Asset Management; and Mr. Scott Lynn, Senior Vice President and General Counsel. This call will be available for digital replay. The number is [phone] and the conference ID number is 85562404. [Operator Instructions] It is now my pleasure to turn the floor over to Mr. Scott Lynn. Sir, you may begin.

[Scott J. Lynn:]

Thank you for joining us today. This call may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, including statements about the company's expected future financial performance. Any statements we make today that are not statements of historical fact may be deemed to be forward-looking statements. Words such as believes, expects or similar ones are intended to identify these statements, which may be affected by many factors, including those listed in the company's SEC filings and in today's earnings release. As a result, actual results may differ materially from the results we discuss or project today. We will not update any forward-looking statements whether as a result of new information or events, or for any other reason. We will also discuss non-GAAP financial measures today. We reconcile each non-GAAP measure to the most comparable GAAP financial measure in an exhibit to today's earnings release. I will now turn the call over to the company's Chief Executive Officer, President and Chairman, Colin Reed.

[Colin V. Reed:]

Thank you, Scott. Good morning, everyone, and thank you for joining us today. I will begin by giving an overview of how our business performed in the third quarter, and will provide an update on where we are relative to several of the critical integration issues that we walked you through last quarter. I'll also touch on some of the macro trends we're seeing in the group sector and how those are impacting our business. And then I'll hand over to Mark to give some more color on the financials before we open up the phones for question. I would not be telling you the truth if I didn't say that the last 6 months have been quite challenging on many fronts for our company, but I can honestly say that I see light at the end of the tunnel and our overall results for the third quarter reflect improvement on several critical fronts. To be clear, we're not satisfied with our overall hotel results, be they revenue levels or margins, but the transitional problems we've experienced are identified and, in most cases, remedial programs put in place. Things outside of our control like the political stalemate and the impact to our overall -- and the impact to the overall Washington market will remain challenging. But I do believe that there are some really good things emerging in our business that give me confidence, particularly as I look forward to 2014. Now let me try and explain why I believe that our results prospectively will look different from what we have experienced over the last 6 months. Our Hospitality business, as you all know, is heavily group centric and has experienced what I believe to be the perfect storm

[Mark Fioravanti:]

Thank you, Colin. Good morning, everyone. On a consolidated basis, Ryman Hospitality Properties revenue for the third quarter of 2013 was $221.2 million, a decrease of 1.9% from the prior year quarter, adjusting for the outsourcing of Hospitality retail operations. The revenue decline was primarily attributed to near-term softness in group demand and the transition-related disruption in the group sales process that occurred in the second quarter. During the quarter, the company generated net income of $18 million or $0.30 per fully diluted share. On a consolidated basis, the company generated EBITDA of $57.3 million and $43.5 million in adjusted funds from operation or AFFO per fully diluted share of $0.72. AFFO, excluding REIT conversion costs, was $45.7 million in the quarter or $0.76 per fully diluted share. It's important to remember that the GAAP fully diluted share calculations do not consider the antidilutive effects of the company's purchase call options associated with our convertible notes. As a reminder, the dilution mechanics for the convertible notes, purchase call and sold warrants is available in the investor toolkit on our website. Turning to the Hospitality segment results, driven by Gaylord Opryland and solid transient room night growth across the brand. Overall Hospitality segment occupancy increased 120 basis points to 71.2% compared to the third quarter of last year. Despite increased occupancy, RevPAR declined 2.7% to $112.49 due to a reduction in group room revenue, which was partially offset by the increase in transient business. After adjusting the prior year revenue for outsourcing and retail operations, total RevPAR for the third quarter of 2013 declined 2.9% to $267.52. While banquet revenue per occupied group room increased 3%, fewer group room nights and lower food and beverage outlet spending led to the decline in total RevPAR. Gaylord Hotels in-the-year, for-the-year cancellations in the quarter totaled 9,790 room nights, a decrease of 55.3% when compared to 21,912 room nights in the third quarter of 2012. Attrition rates in the quarter increased 200 basis points to 12.2% versus the prior year quarter. During the quarter, Gaylord Hotels collected $2 million in attrition and cancellation fees. Compared to the prior year quarter, Hospitality adjusted EBITDA decreased 10.3% to $54.8 million. Hospitality adjusted EBITDA margin decreased 190 basis points to 27.5%. The year-over-year decline in margin was primarily attributed to an unfavorable group mix shift that drove a lower group ADR, reduced food and beverage spending associated with lower group occupancy and increased union-related expenses at the National. The Opry and Attractions segment continues to perform very well, producing a record third quarter financial performance in terms of revenue and profitability. For the quarter, the segment generated revenue of $21.9 million and adjusted EBITDA of $6.6 million, representing an adjusted EBITDA margin of 30.3%. With most of our corporate cost synergies in place, the Corporate and Other segment adjusted EBITDA totaled a loss of $4.1 million in the third quarter, a $5.5 million improvement when compared to a loss of $9.6 million in the prior year quarter. During the quarter -- during the third quarter of 2013, the company incurred just under $1 million of costs associated with REIT conversion activities. We anticipate that all REIT conversion costs will be complete by year end. Moving on to the balance sheet. As of September 30, 2013, we had total debt outstanding of $1.17 billion and unrestricted cash of $52.1 million. During the quarter, the company settled its repurchase of $54.7 million in principal amount of its 3.75% convertible senior notes due in 2014, which were canceled, and settled the conversion of $1.2 million in principal amount of convertible notes that were converted by a holder. After these transactions, $304.1 million of principal amount of the notes remains outstanding. The repurchases were made for an aggregate consideration of $98.6 million funded by draws under the company's revolving credit facility. During quarter, the company recorded a loss on extinguishment of debt of $4.2 million related to these repurchases and conversions. In connection with the repurchase of convertible notes, the number of options and warrants underlying the bond hedge transaction related to the convertible notes were proportionally reduced. In consideration for these adjustments, the counterparties to the bond hedge transactions paid the company 157,886 shares of the company's common stock, which were subsequently canceled. On October 15, we paid our third quarterly cash dividend of $0.50 per share of common stock to shareholders. We also reiterated our plan to distribute total annual dividends of approximately $2 per share in cash in equal quarterly payments in April, July and October of 2013 and January 2014, subject to our board's future determinations as to the amount and timing of quarterly distributions. Finally, turning to guidance. We are maintaining our 2013 guidance provided on August 8 on a consolidated as well as a segment basis. And with that, I'll turn the call back over to Colin for any closing remarks.

[Colin V. Reed:]

Mark, I'm going to skip closing remarks. I think we'll, Jackie, open the lines up for questions. I had one of our investors call in to say the line went dead. Hopefully, it was just him and not everyone else. So Jackie, if we could open the lines up, and we'll try and answer questions.

[Operator:]

[Operator Instructions] Our first question comes from the line of Amit Kapoor with Gabelli & Company.

[Amitabh Kapoor:]

Colin, Mark, so just a couple of questions. Looking past the transition issues here, and which seem like they're resolving and behind you, are you -- taking into account where the stock is trading, what do you think is the best use of capital today? And would you consider really an authorization or an increase in authorization for share buybacks? I have another follow-up.

[Colin V. Reed:]

Yes, well, ask your second question, Amit. And then I'll give you -- it will give me time to think about the first.

[Amitabh Kapoor:]

The Opry segment was clearly strong, EBITDA up 9.5%. Should we view this progress as an incremental positive towards the segment becoming self-sustaining and potentially being prepared for adulthood and, at some point, a potential sale or spin-off?

[Colin V. Reed:]

Yes, okay. Now so first, the first issue, the stock buyback, that's really what you're getting at here. We are getting more and more encouraged that the issues of the transition are behind us. We've still got some work to do in terms of the margin side of the business. There are still -- there's probably about another through [ph] month of work we are doing, particularly on all around the allocation process. And so we look at this, we revisit the issue of stock buybacks pretty frequently. We'll be doing that again here over the course of the next month. We're meeting with our board in early December. The other thing that we get a little nervous about here, like I think everybody does, is just these big macro issues that are affecting the broader economy there. So some of these things are so awful that's going on here. And it's real hard, when you're running a business, to try and get clarity around the political processes, government shutdowns and the like. And my sense is that this is not a time for organizations to be pushing leverage because we could have another economic issue before us. So we are looking at this issue of stock buyback. It -- we will certainly prefer to do things like stock buybacks than invest capital into bricks and mortar at this stage. And look, I think our history over the last few months has been that we haven't been afraid to pull the trigger when we -- when our stock was trading at $43 and $44 a share. So we will be revisiting this issue. As regards the Opry, as I've said to you and to your boss multiple times, who really likes this business, and as do we, that we see our Attractions segment here in Nashville continuing to grow. And the reason for it is that Nashville is a big-time growing tourism city. Tomorrow night, we have the CMAs here, it's going to be a big, big event. There'll be a lot of people in town, a lot of customers in town. And we are -- we will continue to look at ways in which we can create value. And at some point in time, this Attractions business probably does need to be put aside from -- not put aside, that's the wrong word, have -- be operating separately as a business from a typical traditional real estate investment trust. You do not see these types of businesses married up with a real estate investment trust. And this is something we are constantly looking at. And it's, to me, the issue is when one does, not if one does it. So...

[Amitabh Kapoor:]

Colin, just one more, if I may. Can you briefly talk about Maryland and the progress you see there, and the potential upside from a casino across the street, with limited rooms?

[Colin V. Reed:]

Well, yes, yes. Yes, good question. The -- obviously, all of the presentations were made over the last couple of 3 weeks to the gaming control board there. I think that, from everything that I read -- I didn't attend these presentations, but if from everything I read, I think MGM did a really good job. And obviously, if the casino is awarded to the National Harbor location, it will be very good for, I think, Maryland, for Prince George's County and certainly for National Harbor. And it's certainly going to create a lot more traffic into that jurisdiction. And a lot more traffic, and that will all be good for the hotels and the restaurants. And it'll add another amenity, I think, for the organizations, the groups, that like to frequent Las Vegas. So we'll -- more to follow on that. I think we all believe that there will be a decision here sometime between now and the end of the year and the next 4 to 6 weeks, 8 weeks. And we wait with bated breath to see the results of that.

[Operator:]

Our next question comes from the line of Chris Woronka with Deutsche Bank.

[Chris J. Woronka:]

Definitely encouraged to see that lift in the transient rooms from the Marriott system. Can you tell us kind of what the gap on the rate is right now? And is there maybe a chance to close that a little bit over time?

[Colin V. Reed:]

What do you mean, the gap on the rate? What are you comparing it to?

[Chris J. Woronka:]

To kind of your -- I know you don't have a one group rate, but maybe your typical group rate or your good group rates, the rate that you like to get.

[Patrick Chaffin:]

Yes, I mean, the key to that, Chris -- this is Patrick Chaffin. The key to that is getting more group business in because then we can yield up on the transient side even more. If you look at the third quarter, we were down about $3 in transient rate. Most of that is because we had not as much group room nights on the books, and therefore, we drove more occupancy by driving more transient. So the key for us is continuing to drive the group occupancy. And in doing so, we'll compress-in the occupancy and be able to yield up on the rate. Marriott has done a very good job of starting to move us in the direction of yielding that rate more and more and getting more quality rate into the hotels. But the basis or the premise that we have to go with is getting more group occupancy in.

[Chris J. Woronka:]

Okay, got you. And then as we think about moving forward and what kind of groups you're getting, are you -- is Marriott shifting kind of the mix, any, in terms of who's booking the business? And what do you think is really important in terms of the drivers? I mean, are things like new product launches and training important? Or are there any of the macro level changes that you're seeing in your kind of customer mix as a result of Marriott?

[Colin V. Reed:]

I -- we're seeing a lot more corporate leads simply because they had 130 -- they have 130,000 corporate accounts. So naturally, we're seeing more corporate leads. But this whole 1,000 room, putting back in place new sales people to go after the 1,000 roomer is an effort to make sure that we're booking the -- continue to book a really quality book of business on the Association. This stuff, 3, 4, 5 years out but so critical for these very large hotels. I don't think we're seeing -- Patrick, I don't think we're seeing a major shift in the quality of bookings or the type of companies that we're doing business with.

[Patrick Chaffin:]

No, I would agree. I mean, to Colin's point, we have seen Corporate improving. We saw a lot of improvement specifically for Corporate room nights booking into 2014 but not a major shift. I would -- the only thing I would point out is we are sitting -- starting to get more exposure to the international group market through Marriott's connections. And as you're aware, Marriott has a lot of preferred partnerships with companies, and we've gotten access to those relationships as well. So not a major shift but some good additional incremental business that will help us down the line.

[Chris J. Woronka:]

Okay, very good. And then just finally, maybe an update on your thinking on the Marriott Marquis opening in May and then, obviously, Marriott's managing that. I mean, do you guys think that, that helps, the fact that they have 2 properties they can shift large groups between? Or at the margin, is there folks that are staying downtown versus outside? Just kind of your thoughts on, as we get closer to that, how Marriott's managing both of those.

[Patrick Chaffin:]

Yes, that's a great question. As you're aware, both properties are selling against one other right now...

[Colin V. Reed:]

And have been for multiple years.

[Patrick Chaffin:]

Because of its location in the district, the Marquis obviously will have a greater focus on the business transient than our hotel does at the National. They are selling against one another. The 2 locations in that market are seen as pretty distinct. So I do -- to your point, I do think that there's an opportunity to move business back and forth based on how the 2 different properties are functioning and performing in market. So maybe a net positive for us, but obviously it still will be competitive to an extent.

[Colin V. Reed:]

Yes, but here's the point. That Marriott Marquis is really a rooms dormitory for the convention center. The convention center has not had a convention center, dedicated convention center, hotel. And so I believe that, over time, this should make sure that more convention-centered business gets booked into that convention center because there now is a convention center hotel, which will also put overflow convention business, that now is not coming to Washington, into to the other hotels in Washington that will, in fact, hopefully trigger compression in that Washington market that will be good for our business. So I don't see this as a negative. And I know, just to drift off your question, a lot of folks have -- not a lot of folks, several people, when you read the analyst reports talk about "the Omni opening are up a month ago in Nashville, and this is going to be a problem for Opryland," let's be clear, we had a tremendous last quarter at Opryland. Our book of business in Opryland to next year is very, very good. We've been booking against the Omni downtown Nashville for the last 3 years, 2.5, 3 years. The convention industry into this town is very, very healthy. And that will not impact our business. So I know I drifted from your question, but it has -- your question has comparables to National too.

[Operator:]

Our next question comes from the line of Andrew Didora with Bank of America.

[Andrew G. Didora:]

Can you just give us a sense for any changes that you saw in 3Q from some of your other big, big customers, whether it's an Association business, government or SMERF? And do you see any changes in the trend in terms of how they book? And then finally, just on bookings, would you be able to give us a sense for what percentage of your 2014 business is -- has a -- has Corporate, Association, government and the like?

[Colin V. Reed:]

Patrick, trends in the third quarter. I know you and Michael...

[Patrick Chaffin:]

Yes, let me give you just a little bit of color. I mentioned already, Corporate was up considerably, roughly about 50%, for 2014. And that's where we're primarily focused right now, it's filling out '14 and starting to sell into '15 and '16...

[Colin V. Reed:]

The bookings in the third quarter for '14.

[Patrick Chaffin:]

That's right. Association and the SMERF business was down a little bit but only really because we were taking more Corporate business. So we've seen some healthy trends on the Corporate side. It's not back fully to where we'd like to see it, but it's definitely moving in the right direction. As we look at next year, I'll just give you kind of a quick overview, we have a great -- a better mix of business going into '14. We have a higher concentration of Corporate, to the tune of, as of the end of September, we were up about 60,000 room nights in Corporate; on Association, up about 10,000, 15,000. So a higher mix of Corporate in '14 and we're seeing better booking performance from the Corporate groups as well. So it bodes well for '14 as we move towards it.

[Colin V. Reed:]

And lead volume is good, a lot of Corporate in our lead volume too.

[Andrew G. Didora:]

And then Colin, how would you describe kind of where you are now in the integration issues relative to where you thought you would be at this time, back in June?

[Colin V. Reed:]

We -- back in June, I think we had a fairly high level of confidence that we could fix the revenue side because -- not because. We could fix the revenue side because we were seeing the lead volumes back in June, but we weren't converting the way we wanted to convert, particularly with this, the 10-to-300 which is the in-the-year, for-the-year stuff. The -- back in June, we were -- we had some very high levels of concern as regards the margins of our business. And we didn't have our arms around the primary drivers for this and the implications that these negative margins would have going out into '14. As we have done a lot more work in this third quarter and we have seen consistent margin improvement, I think we've concluded that a large part of the issues that we encountered at the end of the first quarter and into the second quarter were really, frankly, an overwhelmed hotel management team because of the magnitude of the issues in transition. And I think the -- they didn't have a high degree of familiarity on the basic tools that you need in a hotel -- in hotels of our size, which are labor management tools, food and beverage management tools. And I think, as familiarity and retraining has taken place, we're seeing improvements in the margins side. And as I sort of previewed in the formal part of the script, Andrew, we're going to do a lot -- we are doing a lot more work with our operator in terms of allocations because the margins aren't where we need them to be at this stage and we're still finishing up. This week, we'll get more data on this whole health and benefits issues. Now I -- our manager has told us that we don't expect to see any health, benefit cost increases in 2014, but what we want to do is absolutely understand why we've had these issues in '13. So I'm giving you a long-winded answer to say I feel that we're probably 70% on the margins side there. I think more work will need to be done over the next month to 2 months. But I have a high degree of confidence that the important part of the business, not to say that margins aren't important, but if you don't generate the revenue, it's real hard to make the margin. And I believe the revenue side of this business is getting to where it needs to be. And I'm encouraged by the way '14 is setting up.

[Andrew G. Didora:]

And just finally, one last one for me, just in terms of how -- kind of in your prepared remarks, I think you said you were on track for the -- I guess, the Marriott synergies to be in full effect in 2014. Can you remind us what that synergy target was? And if you're -- if you expect -- I guess, in your 2013 guidance, do you expect any synergies on that?

[Colin V. Reed:]

Well, we -- when we -- just to remind everyone, when we had our day back in February, which seems like an eternity ago, we had 2 buckets of synergies, Corporate synergies in the 16 million to 18 million. We're at 21 right now, that's all great. In the hotels, we said that our synergies would be in the sort of 35 to 40, offset by 20 in management fees, somewhere in that region, Mark. And what I've been -- what we have been saying to the investment community, Andrew, over the last 1.5 months is that I think the synergies that we're going to be getting in 2014 for the hotels, not Corporate, Corporate is going to be all fine as we projected, is going to be somewhere in this 30 million to 40 million range. And it's not whether it's 0, it's going to be in the 30 million to 40 million range. And the work that we are doing on things like allocations and the processes, managing food and beverage and labor, and just the whole procurement side, reservation side will determine whether it's 30 million or whether it's 40 million. But we are going to see synergies in our business in '14. And you can imagine that we are very animated with our operator to ensure that we get what we thought we were getting back a year ago when we made this decision to convert from a C corp. to a REIT.

[Operator:]

Our next question comes from the line of Patrick Scholes with SunTrust.

[Charles Patrick Scholes:]

Question for you, actually, on the rest of this year. As I calculated, it looks like, for the first -- through the first 3 quarters, RevPAR for your company is tracking at about negative -- down negative 2. And when I see how you haven't changed guidance for the year, and RevPAR really implies up mid single digits for the fourth quarter. I mean, is that really realistic at this point? I mean, are you seeing that? It just seems -- I guess I'm skeptical, after the results that have been posted so far this year, that it can grow mid single digits in the fourth quarter.

[Colin V. Reed:]

Well, Patrick, if we didn't think that would be what it is, we wouldn't be reaffirming guidance. We don't do it that way. But just to give you some color, I think, Patrick, not Patrick Scholes but Patrick Chaffin, I think, Patrick, our leisure room night, up in October year-over-year, was up 15,000, 16,000 room nights year-over-year. And that's good. And as we all know, our fourth quarter is more leisure dominated. It is the [indiscernible] that's sort of different to a lot of the -- to the other 3 periods in the year. So Patrick, what else would I say here?

[Patrick Chaffin:]

Yes, no, just to add to that, our October performance is just starting to really come in and we're at preliminary status right now. But our -- for October, we forecast to beat prior year. And we have handily now beat the forecast. So we're up at very healthy level in terms of total revenue in October over prior year. And as Colin already pointed out, a lot of that in October was transient. We had good group production as well, or group performance. And then as you look at November, we feel good, pretty good about transient right now as far as how it's pacing. So I would tell you that, as we've said, we're comfortable with our guidance, and that implies that we feel good about where RevPAR is heading.

[Charles Patrick Scholes:]

Okay, that's good to hear. The last question

[Colin V. Reed:]

Well, let's be clear what actually happens. We had a -- we've been looking at the Palms expansion. We had a deal with Osceola County dating back to, like, 2007.

[Mark Fioravanti:]

2008.

[Colin V. Reed:]

2008. And then of course, there's -- the big recession hits us. And every 2 years, what we've done is we've re-opt the rights to do it with Osceola County that costs us a bunch of money. And so we came together with Osceola County about a month ago and said, "Look, it's not likely that we're going to be adding 500 rooms to this market over the course of the next 1 to 2 years. We can agree that we're not going to be doing it," and that's the way we think it's probably best for our relationship with this county that's given us great support over the years. And so it's not that we're not going to expand that hotel, period, it's just that we're not going to do it in the foreseeable future. And that's why we put out the release or why the -- I think, there was press comment down in Osceola County today. It wasn't a press release by us, but it's just that we've agreed that we're not going to be doing anything here over the next 12 to 24 months, and therefore, we're not going to come out of pocket to have the rights to do something that it's highly unlikely that we would do. And look, if we decide because the world changes on us 12, 18 months from now that we need to add 500 rooms, we'll go back to Osceola County and we'll work with these folks like the likes of which we have over the last 10, 12 years and we'll figure it out at that point.

[Operator:]

[Operator Instructions] Our next question comes from the line of Joshua Attie with Citi.

[Joshua Attie:]

Outside of the bookings process, you discussed some disruption at the property level that's related to the adoption of Marriott systems and procedures. Can you talk about what some of the larger issues have been and how they're being resolved?

[Colin V. Reed:]

Yes. We could start with the entire labor management system that we have. When you employ, Josh, 2,500 people in a hotel like Opryland, you need a pretty slick labor management system to manage the schedules of folks when you're when they're not. These people don't just work a standard 40-hour week, and you have a bunch of on-call people. So putting in a new labor management system that people didn't fully put their arms around and comprehend created labor creep in the business, and that showed up in the second quarter, into the first quarter and the second quarter. There's been efforts in retraining people on this particular system. And what we're seeing now is our labor scheduling being more akin to the way we have seen it in the past, and that is showing and reflecting itself in labor costs. Patrick, do you want to talk about procurement? Do you want to talk about reservation? I mean, it's everywhere.

[Mark Fioravanti:]

Yes, we've -- food and beverage, we've seen month-over-month improvement as systems have -- training has been done in systems. Peak RD usage has improved sequentially month-over-month. So we're seeing more benefits on procurement. Labor productivity, as Colin mentioned, has improved. So it's really across-the-board, Josh, and it really is retraining efforts and holding people accountable, really, at the property level to utilize the systems and use the programs.

[Patrick Chaffin:]

Yes. And what I want to accentuate is I'm really proud of what the properties have gone through as far as the learning curve because it's a double whammy. Not just the system and the process associated with that system, whether it be labor management or purchasing, et cetera, but also their entire P&L structure completely changed. And so when you go to a new system, at least you can fall back on the P&L and understand where the costs are coming through. But when the geography of the P&L completely changes, it takes an incredible amount of focus to get back on the horse and understand exactly where you're heading and where the opportunities are. So it was across-the-board exacerbated by the changes in the P&L structure.

[Joshua Attie:]

And as an owner-operator, you're able to kind of customize your procedures and systems to your unique properties. Are there any kind of procedures and systems that you're finding with the Marriott system that you just kind of say to yourself, "You know what, this is more -- this is inefficient for our properties relative to what we had before?" I guess my first question is, are there things like that happening? And then two, if they are happening, are you able to kind of negotiate those with Marriott? Or are those things that could stand in the way of full synergies being realized?

[Patrick Chaffin:]

Yes. No, that's a good question. And yes, we have identified some opportunities where there's an opportunity for some customization or some modification to existing systems. I would say, especially on the sales side of the business, we are now utilizing the platform known as CITY, consolidated inventory total yield, and we do see opportunities for that to be further modified and enhanced to better support the volume of group business and the specifics around capturing that group business the right way. I would tell you the same thing on the group housing because we have such large groups coming in, and how we move them in and out of the hotels. So yes, there's a number of system opportunities or process opportunities. And to their credit, I would tell you that Marriott has been receptive to, "Let's understand the business case for making this change. And then let's pursue that together."

[Joshua Attie:]

And just one last question. Colin, I think you mentioned in the prepared remarks something about reducing the system fees that you pay to Marriott. Can you just elaborate what you meant by that?

[Colin V. Reed:]

Well, I didn't say reduce the systems fees. I said we are reviewing the systems fees in great detail because our margins aren't where they need to be, period. And we are going through a pretty deep dive with them in terms of the allocation methodology and process into our business, and because we are not going to turn off of the volume of noise into their company until our margins are materially north of where they were when we handed this business over to them. So that's what's going on here right now, a lot of work. But as Patrick said, we've got a receptive manager. Marriott want the same thing that we do, which is -- these assets of ours are very unusual. They're not like the typical traditional hotels you see in this country. These are assets that will probably not get replicated in the markets that they're in. And what we all want is these hotels to be operating in a very high level of revenue and occupancy and a high level of margin. And we may have different approaches at times, but I would tell you that this is not like the Democrats and the Republicans where the 2 sides are completely at odds with each other, this is not what's going on here. We have a desire to create a very profitable business, and that's what we're finding here. So more work on this and we'll see where this comes out over the next 1 to 2 months.

[Operator:]

That was our final question. I'd now like to turn the floor back over to Colin Reed for any additional or closing remarks.

[Colin V. Reed:]

Jackie, thank you. No, that's the end of it. If anyone has any additional questions that they would like to ask, they know where we are. We're going to be -- Mark and I will be at NAREIT next week. Mark, is it next week in San Francisco?

[Mark Fioravanti:]

Correct, yes.

[Colin V. Reed:]

And look forward to meeting a lot of the sell-side and buy-side analysts, as well as investors, direct. So look forward to that interaction next week. And thank you very much, indeed, for taking the time.

[Operator:]

Thank you. This concludes today's conference call. You may now disconnect.