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Ryman Hospitality Properties, Inc. (NYSE:RHP)

Investor and Analyst Day Conference Call

February 15, 2013 09:00 ET

Executives

Colin Reed - Chief Executive Officer

Mark Fioravanti - Chief Financial Officer

Patrick Chaffin - Senior Vice President and Head, Asset Management

Todd Siefert - Treasurer

Grant Jarnigan - Planning and Analysis and Investor Relations Director

Brian Abrahamson - Vice President, Corporate Communications

Colin Reed - Chief Executive Officer

Well, good morning everyone. And I think I know basically everybody in this room, but for those on the phone, my name is Colin Reed. I am the CEO of Ryman. And with me this morning are I have few of our leadership team, Mark Fioravanti, our Chief Financial Officer, where is Mark? Mark is there; Patrick Chaffin, our Senior Vice President and Head of Asset Management for our company; Todd Siefert, our Treasurer; and Grant Jarnigan who is the Planning and Analysis and Investor Relations Director, and Brian Abrahamson, who is sitting in the back, he is our Vice President of Corporate Communications. I want to thank you all for being with us today, and welcome to folks that are on the webcast.

And what I want to do today, obviously we have got the Safe Harbor, which I am not going to read. What I want to do today is there is a lot of folks that are sort of circling our equity and are trying to understand our company. And so I am going to go into a little bit of detail about our company. And then what I am going to do is I am going to talk and focus really on the future and try and convince all of you that this is a company that is in fact quite different. This is a company that has extraordinary assets and generates and has the capability of generating very high levels of future cash flow. And that’s what I want to do this morning, but initially what I would like to do for those folks that don’t know too much about our business, if you go next one please, I wanted to start basically in early 2004, because this is really when this company started to take traction. I came to Gaylord back in 2011. It was pretty much a mess at the time. We had 15 businesses most were losing money and we spent the first year and a half, two years ripping the guts out of the company really repositioning it.

And in early ‘04, the brand Gaylord did not exist. In fact, it existed we launched it about April of ‘04. From ‘05 to ‘07, we really built a very strong service culture in this company and the meeting planning community really started to take notice of this brand and our business started to really take hold and we did some really good things from a revenue perspective. Late ‘07, two things were going on in the company. At first, we were ready in this business, this hotel, typical average Hilton right or typical average you pick it brand, but we were already in this hotel for opening and we were also under contract to purchase a hotel in San Antonio called La Cantera as stock had just hit $59 a share and life was good, we loved it. It was a great time. But as we got into the early part of ‘08 it became very clear to me and to members of our board that things were falling off a cliff economically. And as some of you know, we pulled on the La Cantera deal and we got a lot of flack on that from the investment community, but I have got to tell you I am actually pretty pleased that we have the fortitude to walk on that deal, because in hindsight going into what we all went into, I am glad we went into that with a balance sheet that wasn’t stressed in anyway shape or form.

By the summer of 2008, as stock have gone from $59 a share down into the mid 20s, and this is when we attracted, what I call, our competitor shareholder from Texas, TRT who came in, in a period of a week, the owner of Omni and bought 13% of our company. Now, I know some of you this is – for some of you this is what I am about to say is sort of toxic and that’s when we decided to put it in the shareholder rights plan after Bob came in and bought. And the simple reason we did that was because we wanted to make sure that if he was going to come and take the company that he would have to pay a fair price. I mean, that’s the reason we did all of that. We then had what we call a hospital phase with Bob which all sort of cleaned up by the early part of ‘09. We made love and peace in the early part if ‘09. And then 2010 came about and we then endured a massive flood in Nashville, a 500-year flood that killed 26 people in that town and it was shocking, but by and our stock by the way by ‘09 by the early part of ‘09 had declined from $59 in ‘07 to $5 a share, which was quite extraordinary now.

Now, I am going give you a piece of data and I’ll show you this in a minute here. But in ‘10, our business dramatically outperformed the ‘09 when the world was falling off a cliff. Our business dramatically outperformed the industry. I’ll show you some statistics on that in a second. By the November of ‘10, stock had recovered to $37 and then by September of ‘11 it had declined again to $18 of share. 2011 for our company was a record year. Opryland had produced $87 million of cash flow, it’s the best year ever had in its 25, 30-year history and our hotel in Texas accomplished almost $70 million of profitability, but our stock was doing this all the time.

By mid August of ‘11, the economic crisis in Europe that we sit and read about surfaced again and our friend from Texas came in and bought another 8% of the company. And so our tools due to expire two days after he brought the stock so we opt the tool for 12 months and basically said to ourselves we got 12 months to figure this out. So, in November of ‘11 I went to our board and said board we got five options here and I am not going to go through them, but we got essentially five options, and we got to look at this, because we cannot subject our shareholders to this extraordinary volatility. We got to do something about this. And the board said okay, going out and look at the five options, came back in February of ‘12 and said we are going to focus on two of them which was converting to a real estate investment trust, and frankly I’ll be very kind of you guys. That wasn’t my first choice. And I think the reason it wasn’t my first choice was because I knew we were going to put ourselves through in a tremendous amount of emotional friction in this company, because so many of the people that we had recruited to build the brand. We were going to have to find any something that I was hoping that, that wouldn’t be the right answer.

The other thing that we looked at back in early part of last year was whether we should sell the company. So, our board said okay, go do these two, go check these two things out on a parallel basis, which we did. We had our bankers go out and talk to handful of PE companies who had came and talk to us in the past. And we explored the real estate investment trust idea. Now, I want to give you one piece of information back in early ‘11, because of the position that TRT had in our company, we bought McKenzie in and asked McKenzie to help us figure out, if we were going to merge our business with a relatively small hotel company, what would be the synergies and the benefits that the merged companies could get and what would be similarly the synergies that we would get, if we were to merge our business with a bigger company.

And what we were trying to understand is what would be the value transfer to the acquiring business? And what was interesting was that the data that McKenzie help us put together back in early ‘11 correlated very, very strongly to the results we came to when we were going through the RFP process with the big operators that wanting to operate these hotels. And so the reason I tell you this is that the cost savings that we have been articulating to you folks back from May of 2012 and since that time, they have been basically validated twice back in ‘11 and also through this process that we have been going through.

In terms of the activity with PE having said this publicly before, but we received two verbal office for the company, the price range was between $32 and $37 a share. Lord knows how many conversations in this period of time with our friend Bob, our friend TRT. And Bob have made the comments to me on multiple occasions that he really loved the business, he would love to own the business, and every time he said this to me I said to him. Well, you know where we are, you just got to come and make an offer for the company. And as you all know that never ever came about. So, we decided the real estate investment trust idea was by far the best idea. And so as you all know after a very aggressive, very detailed RFP process, we have selected Marriot. This wasn’t a heads Marriott wins, tails Hyatt loses or heads Marriott wins, tails Starwood loses, we literally spent three months understanding their delivery systems, their cost structures, their culture. And so I feel very good about the analysis that we did.

Looking back at that phase, I would tell you I think the change of strategy that we have undertaken is the right thing for our shareholders. I have been very – I have become very, very, very much convinced that this is the right structure for this organization. And as I told our board yesterday when we had our meeting here, I have no hesitation that this was the correct decision for the company, it clearly was. So, that’s the history.

What I want to do now is shift gears and talk about first the assets of the company. Some of you – I know quite a lot of you this is the first time you’ve seen this hotel and you are going to get a tour off too, it’s massive and it’s beautiful. But I want to just talk to you quickly about the assets. These hotels and the entertainment attractions we own the wonderful assets. They are very, very large, I am on page eight, they are very large. They have enormous convention and meeting space. These assets are very fresh. We have lots of food and beverage outlets, massive retail outlets, and they are just very, very different. The conditions of these assets, I don’t know you will travel and you will go from city to city, but there is a lot of assets that are in the hands of real estate investment trust that have essentially been start of capital from 2008 forward. These hotels are not in that situation. The only refurbishment that we have remaining to be done is in Texas, where we have a room refurbishment that is scheduled to start later this year, but everything else in these hotels are in great shape.

These are just quickly on page 10. This is some of the meeting space, which is quite different, I guess, bedrooms are quite nice. I hope those of you who have stayed in the hotel last night, stayed in decent bedroom – in decent rooms and they were cleaned and serviced well. The environments that we have in these hotels, we put a lot of entertainment in these hotels. And some of you have heard me say this before, but let me just tell you, I really feel very passionately about the way the meeting planner thinks about convention assets. When meeting planners make decisions to go places invariably they go to places where they have fun when they take their big groups there. And so for us when we build these hotels and we theme them and we put the culture into these places, great room product, great food and beverage product, and great entertainment. People don’t go to places for big conventions that are starchy, they want to go to places that they have fun. So, we put a lot of theming in these assets.

The group hotels in the United States, the big ones these are the top 10 group hotels in the United States from size of meeting space and size of hotel rooms and now to hotel rooms, and we our company owns 4 of the 10 big hotels in this country. Now, I want to switch gears now and talk a little bit about the customer, because forgive me being very direct like this, but so many of you really don’t understand truthfully or truly, the niche that we go after, because I get so many questions from the investment community and the analyst community to say well, a convention hotel is opening up here in Washington, isn’t that a major competitive threat. And here is why it isn’t. The customers, this chart that we are going to show up, put it all up, thank you, Todd, so I want you to look at the green in the middle, these are the 400, these are the hotels that have between 400 and 799 rooms and there is a bunch of those in this country.

Then on the outside, you’ve got the customers that want – these are the customers that are 3,000, 4,000, 10,000 at a time. And these are the customers that tend to want to go to large convention centers that are space hogs. And they have to then be diffused around into 10, 15 hotels and the customer has a hard time with transporting their goods around to get them to convention center. But because of their size they have to go to this massive City Convention Center Hotels. The group that we primarily – this company has been primarily focused on is the group that typically are 600 peak plus up to about 1500, 2000. And these customers want this all under one roof experience this crazy group that we have in town for the next two to three days all these kids to dress up in funny stuff those of you here last night know what I am talking about, those of you arrived this morning have no clue when you do your tour be ready. But these folks want to be under one roof and are prepared to pay for it $200 a night they are here for three days over weekend in cold wet Washington in March. And this group is not a group that wants to be diffused around they want to be cocooned so they can communicate and do business. If you look at the part over here, our advantage is we have far more meeting space per a guest bedroom than the competitors in REIT land and that’s very important and it’s important for the attraction of the group customer.

I want to share you this slide, the next slide please, Todd. Okay, so what this is 1000 room hotels that owned by a real estate investment trust in the 19 states. Host has 13 hotels over 1000 rooms and they control 1.8 million square feet of meeting space, 1.6 million we changed the numbers on the overnight. We own four hotels for 1.9 million square feet of meeting space. And then all the rest of the other REITs these four hotels that essentially have 300,000 feet of aggregated meeting space. And the point of this is in REIT land we are the big dog in the group sector by far and I don’t think that’s an important statistic.

Next one, so, this is the basic summary of the first section about these assets, these hotels of us are we believe a very unique the conditions of these hotels are great. The supply of meeting space we basically have the majority of the meeting space in the REIT sector and then we believe these assets are pretty good. So, now let’s talk about visibility and volatility, because I think this is a very important part. So, first of all I want to give you on this slide, I want to give you snapshot of the way our business works. So, the fall part of it, we had of all the customers that walk through our doors every year. Approximately 77% of our customers are group customers and about 23% this is historical our trends in customers.

When we take the group side of it, it’s broken down essentially about 40-40-20, 40% are corporate, 36% are association and 21% are other. And other would be religious government groups stuff like that. Now I want to tell you something that middle analysis is very, very, very important and here is why. Back in ’09 when the world was falling off the cliff, we had about 125,000 room nights that were cancelled and paid for by different customers. But 95% of those customers were corporate customers. The association market turned up in the worst recession this country seen since in 1930s. We like association business and the reason we like it, we think it is essentially almost like an annuity for us.

Now, the booking window of these customers as you will see from this slide. Corporate customers tend to book about one and a half years ahead of time. Associations book a long time ahead of time. So, once they make their commitment 4.5 years on average, 4.4 years on average ahead of time, these boys and girls turn up and turn up very well. The other groups, the religious groups, the government groups tend to be shorter term.

The other statistic I will give you just drop back a second, I am going to give you one other statistic on this. In that middle section over here, that is the group profile broken down between Corporate, Association and Other. 80% of our groups are large, I beg your pardon 80% of our business comes from large groups, but they only represent 10% of the groups, 80% of the revenue comes from about 10% of these large blocks of groups, 80% of the – 10% of the groups generating about 80% of the revenue.

So, now let me – if we could go on to this next one, and I am going to show you something in a minute, I don’t think you’ve seen before. But on the revenue mix typically what tends to happen is that about 40% of our revenue comes from room revenue and the rest of it comes from outside of the room revenue. And that is – and we make a lot of money on that outside the room revenues bit like the gaming industry. This is what happened, this bar chart on the right side if you look at it this is actually what happened to our occupancy and to our fee collection as we went through this recession. As you will see, our occupancy was up in the high 70s in ‘07. We didn’t collect a lot of cancellation fees. Our occupancy started to decline as we went into ‘08. This was the association market. I beg your pardon the corporate market there was cancelling and not turning up $14.6 million of cancellation fees than in ‘09. In fact those cancellation fees jumped to $27.7 million. And this is very important because if you go into this next slide, this is where I touched on a second ago.

If you look what we have done here, if you look at the average booking window, if you look at the other REITs, mix of revenue that we estimate that’s and Smith Travel has helped us with this estimated 35% growth, 65% leisure. The average booking window for all hospitality REITs tends to be about seven months and the average booking window for our company tends to be 2.1 years. Now in ‘09, this is the important slides I think one of the important slides I’d ask you to look at we opened Washington here in April of ‘08. So, what we did in order to do an apples for apples we assumed this hotel was in business January, February, March, April. And so the true results of our company restated for ‘09 was our revenue was down 10% and our profitability was off 9%, and as you can see other REITs in this period of time, 22% in revenue and then almost 40% in profitability. Our business just behaves very different to the rest of re-planned.

Go on to the next one, Todd, thank you. This shows that we think we have some good days ahead of us in terms of rate, group room rate. The red line is the trends in ADR. And as you can see trends in ADR has recovered a little bit more so than the group ADR. And so we think obviously over the next one to three years, we believe we can grow with Marriott’s leadership, the group ADR of this business which is good.

Now, let me touch on supply, this is another important slide. As we were going into this massive recession in ‘09, supply was growing fairly aggressively in this country. We saw supply growing 6% from 5% in ‘08 and ‘09. Supply has fallen off a cliff. New supply has fallen off a cliff. There is a little bit in ‘14 which is the convention hotel here in downtown Washington and the Omni in downtown Nashville. The very small levels of supply are in the planning stage here for hotels that compete for these large groups. The Smith Travel estimates on the – in the green color there are the estimates of ADR. So, in our opinion, this is a good situation that we are coming into. I want to show you this slide; this is Smith Travel’s RevPAR premium performance. This is as compared to all those hotels in each market, Smith Travel compares to. In ’08, when the world was in decent shape before, we had about 129% total RevPAR premium and about 110% RevPAR premium and then what happened was as the other competitors were falling off a cliff and our customers were coming and our revenues were materializing our total RevPAR premiums obviously escalated. And as you can see they’ve been in the 150s since then the competition we continue to maintain there or there about premium and we think this is a good thing.

Now, this is a slide that I wanted it if I could ask you to the slide 24 take a little bit of time trying to understand because I think it’s very, very important. So, as of right now actually I think this is as of the end of the year, was it a January 1, yeah. We had in contract form and I think you all know this if you don’t that would be repetitive here or let me say this. For every group that we confect deal with when we talk about like we did earlier this week we booked 125,000 group room nights in January. There is a sign sealed contract.

The group is contracting to come at some point in time in the future. The group is contracting to deliver a minimum level of food and beverage and the group also says that if we cancel, this is the cancellation fee that we owe it. Okay, that’s the way it works. And our lawyers have been rigorous with our businesses to ensure that we have continuity in these contracts and these contracts exist for all of these – the other side of the coin is we are making a pledge to the customer that when you turn up here in two to three years time, this space that’s cost us hundreds of millions of dollars is going to be there for you. We are not going to walk you, we are not going to do that, we are going to deliver this to you.

So, we have about 5.2 million group room nights in contract form on the books right now and at an average rate of about $200. So right now, we have about a $1 billion of forward bookings. Now, the banquet revenue, you can click this, the banquet revenue that these groups typically generate at somewhere in the account for 31% to 36% of 31 to a group revenue and banquet revenues account for 31% and 26%, so 31% is the rooms and the 26% is the banquet revenues.

So, now we have minimums in contract form, but this is the way typically these groups will behave. And in addition to that, we do about 10% transient revenue or that total revenue we do then 33% of other revenue. So, these groups that have contracted these room nights will park their cars will eat outside of the banqueting area, they’ll have breakfasts and dinners, they will spend REIT money in the retail shops, they will use forms and technology etcetera, etcetera that’s another 33%. So, if you think about the way we’ve historically have run this business if we go back in ’12 and you look at the ‘12 numbers and you look at the ‘11 numbers typically we do about a 150% for every dollar we generate in group room nights we do a 150% outside of the room. So, we today theoretically with these contracts have about $2.5 billion of forward bookings that we have signed, sealed, and delivered and this is very, very different to the way typically this REIT-land works. If you go to all of our other competitors, they have very neat here this volume of forward contracted business. So, the summary of this section is that obviously we have tremendous visibility to the future with this group model backed by tremendous contracts. And we believe that there are really quite large barriers to entry. We don’t believe there is going to be too many hotels in this country like this being built prospectively, there will be limited supply. And we absolutely look forward to the group delivery channels that I’ll talk about in a second that Marriott will be – is and will be putting into this hotel – these hotels.

So, now let me talk about some of the value creation that the REIT we believe we will deliver and this is where I’m going to start talking about some of the Marriott capabilities and why they were very different and to the capabilities that we had. They’ve essentially – I’m going to talk about they fall into five areas really this is the marketing scale that preferences by the meeting plan. We did a lot of research trying to understand who the meeting planner would prefer to do business with, their rewards program, their ability to drive new group business and then the whole issue of costs savings I’m going to get into that in a second here.

So, firstly let’s talk about costs. When we announced this deal back I think it was in May over the last year, the direction that we gave you all was that our hotels and attractions we expected to get cost synergies somewhere in the $19 million to $24 million range after fees and somewhere between $16 million and $14 million in corporate. We updated that a couple of times, but here is where we are in our projections for ’13. We expect because of the way the systems are renting up and I’ll talk to the timelines in a minute $30 million to $60 million in the hotels for ’13. The stabilized run rate in ‘14 will be $19 million to $24 million and at corporate that numbers are coming in we’ve been a lot of aggressive at corporate, we are going to be this year somewhere between $19 million and $21 million which is materially higher than what we thought and that’s where we think we are going to end up on a stabilized basis.

The purchasing side of the integration is completed benefits of the enrollments are done. We know which about – old employees are in the Marriott’s benefit system. And all of that corporate savings are basically in place. Some of them will be phased through the next two to three months. And we’re looking at other opportunities if we could go into the next slide, we’ve taken already 300 to 350 people out of the company with just the size of our Board from 11 to 8. We will be putting one Director less laid up in the proxy that we will be filing sometime probably end of March. We have reset executive compensation and I would say to you it wasn’t upwards it was downwards.

We’re looking at leasing out some of the non-essential space that we have in Nashville. What we will be doing we’ve got some folks leaving at the end of next month, end of March. And then the final phasing will happen sometime in summer. This is when the final technology folks are leaving our company. And as this slide says we are – our technology instead of having servers and all the rest of stuff we for corporate and accounting and stuff like that we’re going to a cloud-based technology much, much, much cheaper. And we’re looking at selling some non-strategic real estate holdings in both Nashville and Texas. These are the key milestones throughout the next slide turn please for ‘13 just to give you a sense of why there is a little bit of drag. The CIT transition this is the Marriott worldwide group marketing technology platform. We’ve just completed the Palms we’ll have the rest of these hotels done by the end of March that should really help the way our sales people, the way to Marriott sales people deal with the group sales in this hotel. We talked about inclusion into REIT industries and our corporate – at the end of March, our corporate platform will be upon running, the legacy sales team out, we can’t get a lot about existing sales folks still in the business and as city comes in and as Marriott faces into their people, the legacy sales team will be completed and some folks will be leaving the organization.

And so you can see by the end of October, I don’t need to work through all this, but by the end of October, we will have this thing completely done. This is being a warranties and I said on the earnings call the other day the – when we had this massive flood in Nashville and that was – top six months, but I got to tell you that this is being so much harder to deal with in terms of the complexity and so that will be done through it and I’m very happy that we – we’ve accomplished what we’ve accomplished now.

When touch on four things quickly, four drivers a potential revenue enhancements, the reward system, the international market that is something that’s starting to open to us and the group side and the technology platforms I’m going to with through this quickly. So, the way to think about – the way we used to work as a company from the transient perspective, we had built over a 3, 4 year period of database – Gaylord database at about 3.7 million people and if we confected deals with people like DreamWorks to help us deliver leisure customers we were at the mercy of the intermediaries to deliver room nights at very high discount levels that we’re web casting, I want to talk about the names of the companies nor they agree just discounts that’s the way it was and so if you go on, this is the way it is. Today we’ve all about fund their systems have been installed we’ve finished Opryland in January, we now opens the $14 million Marriott reward customers and we’re very excited about this and we’re seeing, I think some benefits all across.

This is just going to take sometime to get the consumer really familiar with these assets and how beautiful they are and why they should come to these assets and obviously that ramping has been reflected in our guidance that I talk about in a second. The international market is in my mind a big deal. One of the things I’ve been doing for the governor of our state in Tennessee is sharing an initiative to look at how we can improve tourism in the state of Tennessee and but I just want to give you a statistics the USTA, United States Travel Association couple of days ago put out the statistic that exports to the United States from tourism, which really means people that fly into this country and spend money in this country, then grew last year to a $168 million by 10% last year by 10% or low.

The recent point is all of these markets like China, Brazil being open up to visitors. These are way the program we’ve made it hard since September ’11 to get into this country. All these things have been changed. Up until 1st of October, our company had no way to really access these consumers indigenes market, the way Marriott does and the reward system talks to these customers and all these countries that they do business and we think this is a very exciting opportunity.

Let me talk to about the group side of this, the way we used to do business as of the end of September was we had about 165 folks in sales, we had 22 of these folks in what we call at NSO, National Sales Office is touching customers, they would deliver groups. We did a good job, I mean you can say by our performance we had a lot of customer saying a lot of great things about us, when we touched in our system at daylight system, 32,000 accounts in this country. As of the first of October, our sales force will increase by 18 times, the North American total sales force for Marriot, you can see on the slide total almost 3,000 folks 1,200 of those are above the property and they touch 131,000 corporate accounts in this country. And we – so many of these accounts are accounts that we just we would not have been able to deal with because we just didn’t have the distribution. And so we are very excited about this.

So, I want to just give you one example of what is going on now. In a market like Orlando, we used to fiercely compete with the World Center. Every big piece of business that will come into Orlando there will be a competitive bidding process, that’s the just way it works. We would competitively bid with 3 or 4 of this. Now, we are partnering, so the large city wide who doesn’t particularly want to go to the Orlando convention center, we are now jointly pitching. We’ve got between us over million feet of about a million feet of convention space and between us pushing 4,000 rooms and this is just one illustration of if we just get one piece of business a year, because of this initiative, that’s going to be business which we would have never seen before. So, this is an opportunity for us.

So, let me just give you if I could quick snapshot of what we’re seeing for 2014, first time I think we’ve hit this level of detail with you. Typically, when we, if we’re sitting here today less pretend for a second it’s not 15 of February, it’s the 1st of February and we’re sitting here looking at next year. And what would have – if we would same time last year what would this year look like typically average bookings would look above 414 today. We would typically have about a 1,054,000 on the books. We go 1.1 million on the books, which is not that’s about 4% increase over where we typically add. So, we are very excited about the way ’14 is shooting up because we got all of these new channels available to us. That we’ve never had before and so this is we think exciting for the future of the company.

So, the summary of the conversion value is that I would say is that the cost synergies that are looking pretty good. We believe that we’re going get short-term revenue enhancements from the Marriott reward system. We think the short-term enhancements will be primarily driven just simply because of the lead time through the trends in channel. But we have – we are pretty excited about the group dynamic. And one I think one statistic I shared I think I shared on the earnings call and if – but so one of the ways we look at group room nights is two ways we look at group room nights so the preliminaries and tentatives. Preliminaries are the people that have come to us and want to talk to us. Tentatives, so when they come to us, we’ve had two or three negotiation sessions with them say okay put a contract together and we will retake a serious look at this.

As of the 1st of February our tentatives coming off by the way a very booking month, for January our tentatives were about 525,000, 550,000 room nights for the four hotels. This time last year number was 350,000, 350,000 so we are happy with that dynamic. So, next year with the being the first really ‘14 will be the first full year where we have everything completed is setting up to be a good year. So, let’s just quickly talk about now the financial consequences of all of this. And this is the thing we are all in the room for and as an investor in this company this is the piece that educes. So, on the last this is capitalization as of December, this is sort of the pro forma look debt of about $1.58 billion less cash 100ish million net debt $954 million, CCF $243 million. This is obviously being restated for the conversion costs. And so that would have us on a net debt to EBITDA of about 3.9 times, coverage ratio about 8.6 times.

And as you can see from the debt maturity down here, we’ve got the converts to deal with next year and then the bank debt, the bank debt will some – will have to be fixed by ‘15. And I will talk about our refinancing objectives in a second. The 299 by the way is the drawer on the revolver, we got a ton of capacity. The guidance that we put out this morning, which most of you obviously went straight to that page, we are looking at adjusted EBITDAR of 281 to 297, hotels doing 278 to 288, Opry and Attractions, that’s slightly down by the way on the 12 run rate and the reason for it is as we have gotten into the systems that we have in the company that are there for the Opry, we are allocating about an $1.5 million than we did in ‘12 into the Opry, because they are just there for the Opry. And our corporate costs, I am going to talk about that in a second about $24 million that by the way working on maybe reducing it further to that.

So the other thing that we have done this year, a couple of the analysts have asked us why we haven’t done this before. The income from the national bonds these bonds are current pay. There is basically 8% and 10%, two bonds 8% and 10% income. And essentially these are like tax rebates for this hotel, when we built this hotel. So, we brought this in above the EBITDA line. So, everybody gets a clarity and understands and sees that this is really good income to our business. So, AFFO, we’ve got because of that when I showed you that critical part of some of the things we have got to do this year. There will be some of the reconversion costs that were in all of the estimates, but they will leak into this year. AFFO pre-conversion cost of $212 million to $225 million, and then after conversion cost $199 million to $213 million that gives us an AFFO per share $4.03 to $4.27 before conversion costs.

Now, let me just make a couple of points on the top here. There are two or three things that we tend to have to deal with every year that are extraordinary to this year, and we’ve got a couple of things extraordinary to this year that are all embedded into this. First is the union contract in this hotel comes out. And we expect that to be approximate $4 million of costs in this hotel. And we have factored all that in. And then every two years we renegotiate our property taxes as our business improves. Local communities come after us for more property taxes and we’ve got some property tax hikes in ‘13 over and above ‘12. And then there is a sales tax expense because of the REIT structure, where we have to pay sales tax on the essentially the lease for the real estate – these assets the sales tax on the leases of those. And then the other thing is that we’ve got these government headwinds here until this crisis is down the Street to figure out what they are doing. And so we have taken little bit of a cautious look at the government business for ‘13, but all of that’s embedded into this level of guidance.

So, I just want to this is now the way the balance sheet will look for ‘13. If we are at the midpoint of our guidance we will have one of the lowest leverage levels, if not the lowest leverage level in REIT land and obviously, one of the highest – well, the highest coverage level and this again is midpoint of guidance.

Let me talk about refinancing, let me do take a drink first. Thank you. I have lived in America for 26 years now, I moved with holiday, 26 years, now moved to Memphis and I spent 10 years as with Harrison, Chief Financial Officer there. I have never seen the financing markets the way they are right now. And even though we have no need to refi the company.

I discussed yesterday, Mark and I discussed yesterday with our board, we will be crazy not to do this. And so we are going to look at access in the high yield market here over the course of the next month. As you all know, we have just gotten a three notch grade from S&P from B to BB. We think that the rates that would be available to us will be somewhere in the high 4s to 5 to access this market as this will be 8-year, 10-year money. We think we’ll be crazy not to do that. And then at the same time, we are going to be engaging with our banks and we are going to redo our bank deal, bank debt. And we believe there is no possibility of improving our bank deal which is still crazily low 200 basis points over LIBOR with no floor. So, we are going to do that and the objective is to give ourselves enormous flexibility, so that we can deal with the opportunities that will come before us.

Let’s talk about capital deployment and the dividend for a second. Notwithstanding all of those, good things I said about ourselves the quality of the assets, quality of the how these assets perform in bad times, the visibility we have, these forward bookings which quite candidly, I think we look more like a shopping mall than we do an embassy suites that is reliant on the leisure consumer for delivering business three, four weeks from now. We are a completely different business, but notwithstanding all of that, we have one of the lowest multiples in our sector.

And the other thing that I would point out is that we also have the highest profitability per room also in our sector. And what we believe is as this economy improves and the industry recovers and this dynamic of no real new supply, the profitability of these businesses will only go in one, will only go in one way. So, that is the backdrop to our capital deployment strategy. And again, I don’t need to be repetitive on the quality of these assets. So, we – I have talked to my board about this extensively here over the last six months and so our capital for the foreseeable future is going to be deployed on share repurchases and dividends to our shareholders. And I was saying this – I say this on Monday, Tuesday on the earnings call. And I said I was talking to Charles in the last night at dinner, my view of this is I tend to think about things probably at times to simplistically, but to me, if this hotel was sit and pick a city, pick any city of one, and is sitting next to pick any brand you want, whether it’s Hilton or Hyatt, pick any brand, pick any brand. This hotel is sitting next to another hotel.

And most of these hotels have traded here in big hotels that are in trade, not big, big hotels, because there is very few of the big, big hotels, but if you pickup 500, 700, 800 room hotel, most of these hotels have traded here over the last few months, last year or so have traded in this 12 to 14 multiple. You have the opportunity in investing in this hotel with all the attributes that I have tried to articulate here this morning with all this store business, all these bookings, the way these hotels perform through bad times, you have the opportunity of investing in this hotel at approximately 11.5 multiple or one of these ABC brands of 12.5, 13, 13.5 multiple. Logic tells me you invest in this hotel. And that’s why we are not as a company going to get seduced by the notion of doubling the size of the amount of hotels we have although I don’t think that would fundamentally change the distribution of profitability, because this is not hotels like this for sale. We are not going to go out and get seduced and do this stuff we are going to continue to use that capital to buy in equity, because we believe this business is worth more than it is currently being reflected at.

One of the things that we will do is we will also on this bottom here is maintain prudent leverage. I’m a huge believer that and again it comes back from my days at Brand X before Brand X was over leveraged. We were an investment great company when I was CFO back at Harrah’s in the late 90s. And I think the opportunity you have, when you have a strong balance sheet when volatility occurs, when bad times turn up, without the flexibility you have, the opportunity you have to create value is enormous. I’m a lot older than most of you guys in this room and I remember the S&L crisis back in the early 90s and you could companies like (Felco) were created out of that crisis because people were able to go and buy hotels at $0.50 on the $1. And I just passionately believe that we got a rate maintained prudent leverage here I don’t want to get to the next crisis point highly leveraged, I just think it’s a bad thing.

So we’re going to run the business peaking at about 4.5 times, but that gives us a time of flexibility as we predict cash flows for this year and next year. So, the dividend that we talked about this morning is a – the Board approved $0.50 for the first quarter. And indicated that it’s our attention to pay $2 for the year that’s based upon the dividend policy that we put in place, if our plans as we have projected materialize that number could change upwards. But right now this is where we are, we think this will give us the best dividend in REIT land currently the best dividend in REIT land. And I would say to you because of the consistency of our earnings and the business that we have on the books it’s a better quality dividend of what you typically see in most of REIT land.

Also we will be executing this $100 million share repurchase. And I have one of the guys had dinner last night (greet me) and so said well why only $100 million, and I said who said it’s only $100 million. So, we’ve announced $100 million and we are going to refi the company and we’re going to see where things take us here in the next three to six months. We are going to be very disciplined about this approach.

So, that’s the thesis the – I’m not going to read this, but we – I think we are a company, we don’t run this business like a kingdom, right? I mean we do what we do because we want to make money. We’re all investors in this business that’s how we think about it. And we have literally reinvented this business twice now in a 10 year period of time. And I was talking to our largest shareholder last night who said we were talking about what we’ve gone through here over the last 12 months. And what we’ve done is very different I don’t think this is been done before in hotel REIT land. And it’s taken a lot of effort and but I’m pleased that we are where we are.

And so we emerge here I think as one this is the company, a very high quality company. And over the course of the next few months we’re going to be spending a lot of time on the road in front of the REIT investment community our bankers calling the mafia, a REIT mafia. But we’re going to do a lot of that. We are the new kids on the block what we’re going to be doing is we’re going to be doing a lot of listening and a lot of communicating and trying to communicate our story. And try and let our investors know that this really is a company that’s got some very special qualities. So, in closing I would like to obviously thank you all for being with us today. I would like to thank you all for being investors. And I hope as you communicate with us you leave with the notion that we are good listeners. We like to understand how you feel about things.

And I’d like to thank you all maybe we can just take one minute break and I can drink some water and then we’ll open it up for questions. I hope that wasn’t too long, but we wanted to give you a full view of this business so, that’s where we are. So, I’ve got Mark who is going to come and help me field questions and Patrick and Mark how are we doing the folks on the phone they are going to.

Unidentified Company Speaker

They don’t have an ability to bring questions from the outside, but we’re not going to take questions today from the room, but we can follow-up with those people by phone.

Colin Reed - Chief Executive Officer

Okay, excellent, excellent. Okay.

Question-and-Answer Session

Unidentified Analyst

How are you doing? Quick question just on the revenue guidance, how are you factoring in the Marriott upside into the ‘13 numbers for the guidance you gave today?

Colin Reed

Very simply, this is their plan. We engage with them in October, November, they brought a plan to us, you know what its like, we said what about this and what about that and it’s a dynamic process so, the plan that we have before you is their plan and they are public company like us and so they want to make sure they don’t get too far ahead of this piece and it’s their plan and but it’s been after a lot of dynamics, a lot of discussions.

Unidentified Analyst

Hi, good morning. There have been some news articles this morning in the Denver papers about Marriott possibly going ahead and developing in Aurora. Is that I would like to hear your thoughts on that is that also something that you would consider going in investing with them. And secondly any further thoughts about the likelihood of gaining, renew this facility and would be an investor in that in fact you are comfortable with it?

Colin Reed

Yeah, okay. Two questions, okay good. So first let me talk about Aurora. Look this is for many reason, the Aurora deal is a very, very good opportunity. In my mind, the Denver hotel product doesn’t marry to the quality of that city and the quality of the geographic positioning of that city, Denver is a tremendous place has one of the best airports in the world, but has only a couple of hotels over 1000 rooms, one of the which is an old hotel that’s try to be renovated, one is a convention center hotel, it’s also very expensive to get from the airport to Downtown Denver for the convention customer. So, we think that market is a great market. We also had negotiated what we believe to be a very fine package of incentives in that market, but being now a real-estate investment trust, we have to be disciplined in the way capital is deployed and so, we cannot be in the construction business. But in our discussions with Marriott, Marriott have also come to the conclusion like us, but this is a great market to be in. So, between us we have been talking to multiple developers to find a way but this hotel to be built off their balance sheet of our balance sheet, well I suspect of their balance sheet. They haven’t said to us whether the an industry or not so, you have to go and ask Annie that question, but that’s what we’ve been doing and we’ve been talking to 2 or 3 companies and so as a part of that process, we had been talking to their development organization, the city of Aurora and that’s why you read the news articles.

So, that’s the backdrop. From my perspective, if a developer comes in develops that place and we would look at investing in this hotel once the asset is up in running. But and may be a little bit of seed capital along the way, but we are not going to put material capital out for a 3 to 4 year period of time at this stage. We are just not going to do that and but potentially it is a hotel there in Aurora could be a little bit of a game changer for that community from attracting convention so that’s where we are on that. You want to talk about gaming, I mean, if two standing there like you want to get in on this conversation or you want me to do it.

Mark Fioravanti

All of you like to handle. From a gaming perspective in Maryland as everyone knows there is a potential license for a national harbor that location, when you came in the national harbor was on a the left on the interstate so it’s close with 0.75 mile I think from where we’re standing today. The state is going through the process now to award their license, if the license is ultimately been awarded to that location. The casino there would open I think in mid-’16 will be the timeline. And there are some limitations around that side in development in terms of the number of hotels and meeting space that can built. And so we view it has a tremendous leisure demand generated for this hotel. Obviously it would generate a significant amount of leisure traffic international harbor and ultimately significant number of those guests would chose to stay with us. From an investment standpoint actually if we would not be an investor in that. That part I hear under here tax – RIET tax rules for this term qualify lodging facility and have gaming, either in or connection with the facility. So we would have been ability to make them investment here.

Colin Reed

But let me add to what Mark said I think Patrick, Mark is the head planning of Brand X, I was Brand Development and Chief Financial Officer for Brand X. We feel through the 90s lord knows how many casinos across the nation. This is one of the best casino sites born on left in the country everything as you look out at this atrium across the water. Everything that way our Virginia district no casinos will happen in my life time. And so this is a big market and we – I mean the only negative of course is the tax rate of Maryland and that will affect the quality – not quality the size on the scale of the bill.

But that will be a lot of costs and a lot of customers coming into this market, when this casinos gets built and that’s what we like the idea of. As some of these you know was maybe all of you know we do have a deal with the developer here Mr. Peterson who has been our partner for 10 years as we negotiated back 2004 for this particular hotel. And we get a share of the lease payments that MGM will make to the – it’s in the landlord we get a share of that. That will be somewhere in the $2.5 million, $3 million, $4 million a year type number. And what we’ve got to figure out is what we do about that between now on the time the facility gets approved by the Gaming Control Board because of just the tax rules and regulations that Mark just articulated. We’re going to trying figured how we can monetize that here. So, we are very bullish on this gaming opportunity here.

Unidentified Analyst

Thanks. Financial question on this slide on page 44, just to point to a slide where you talked about where show your EBITDA versus peers at 11.8, I think you are basing that on the capitalization on slide 39 where you are – you do not when you updated for the price because the price on 39 and 38 something and today it’s obviously much higher. So, they are at 38, 46. So, I think the EBITDA based on the current price, correct. And then second question is why don’t you give yourselves credit in the EBITDA for the Maryland bonds it looks like there is no mention of that?

Mark Fioravanti

Correct me, if I am wrong it is reflected in the updated price and we do get it is in the adjusted EBITDA the bond.

Unidentified Analyst

(Question Inaudible)

Colin Reed

I don’t think so I think…

Mark Fioravanti

No we are not, you’re right.

Colin Reed

I think you’re right.

Unidentified Analyst

(Question Inaudible)

Colin Reed

Yes, yes. We said…

Mark Fioravanti

Hidden asset.

Colin Reed

It is a hidden asset and that’s what we are trying to do is come out of the clutch with this ever, it is very valuable asset excuse me. Yeah.

Unidentified Analyst

Four questions here, two of which are mine and two I am going to be a proxy for someone who is not here. So, the first two questions a) what is the proximity of the dividend of $2 to taxable income? And second question is when we met with you in Dallas, Colin you have talked about how you head your team out there coloring for acquisitions?

Colin Reed

Yeah.

Unidentified Analyst

Working everything out there and it seems like the tune has really changed, so that acquisitions are now off the table, is it a result that there wasn’t anything out there, you didn’t like the pricing or you just decided the cash for buybacks is better?

Colin Reed

Right. You can handle the taxable income question. Let me handle the land, first. So, nothing has changed from what I said in Dallas. We have – we are putting together a very comprehensive database of hotels that are over 500, 600 rooms and outlets. We are in the process of understanding who owns them, who has the first lien on them. The piece of dirt they sit under is their land contiguous to them, the labor cost in that market, and correlating that market to the way the meeting plan is, think about that market not just currently think about it, but if I could weigh the magic one where were they really like to go. And so we are putting together a massive hit list. The issue is the price in which we hit it out we can’t just wake up one day and say we are now trading at a 13.5 multiple buying a hotel of 12 makes sense. We can’t just wake up and do that. We are planning for the battle. And it’s not inconsistent to what we are currently saying. We have to have this knowledge and we are doing that work and we’ll continue to do that work, but look if something really, don’t get nervous about this, but if something really fell in our laps, if something really go to hotel, had foreclosure problems, that was an absolute steel. Of course, we’d have to look at that, but right now this is the best deal in the world for us, yeah.

Unidentified Analyst

Two other questions real quick.

Unidentified Company Speaker

In terms of the taxable income, the $0.50 dividend annualized, I mean, it’s consistent with the range of the taxable income that you would calculate within the range of the guidance.

Unidentified Analyst

So, as you get growth in ‘14 you would anticipate that basically if you are forced to raise the dividend from current levels?

Unidentified Company Speaker

Yes.

Unidentified Analyst

Okay. The other two questions I must ask if you could clarify the share count for valuation purposes versus FFO calculations of the 52 change versus the 58. And the other question was you talked about adjusted funds from operation, that’s really an FFO number right, I mean that doesn’t have deduct for CapEx that we would typically…

Unidentified Company Speaker

The adjusted – the AFFO does have CapEx $35 million to $38 million.

Unidentified Analyst

$35 million to $38 million?

Unidentified Company Speaker

Yes.

Unidentified Analyst

Great. And the other one was just the 52 million of shares?

Unidentified Company Speaker

And there was the 52.7 is basic shares. And then there is - we actually have an updated exhibit in the supplement that will walk you through the various price points, what the economic dilution would be, and the GAAP dilution. We’ve updated that from the website and it’s in…

Colin Reed

It’s in the book.

Unidentified Company Speaker

You pick your price at the end of the year and you can determine what the dilution.

Unidentified Analyst

Yeah.

Unidentified Analyst

(Inaudible) hotels remain as Gaylord entities or they are just going to become the Marriott National or just the Marriott Hotel?

Unidentified Company Speaker

You are talking about the existing four big ones.

Unidentified Analyst

Correct.

Unidentified Company Speaker

No, these are all Gaylord’s as contracted in for maturity.

Unidentified Analyst

That will always be known as....

Unidentified Company Speaker

In for maturity.

Unidentified Analyst

Okay. Second question, should we expect any outages of significance from the refurbishment in Texas?

Unidentified Company Speaker

Any outages?

Colin Reed

No, no.

Unidentified Analyst

In terms of room managers or…

Colin Reed

In terms of 2013?

Unidentified Company Speaker

You mean the refurb…

Unidentified Analyst

Yeah.

Colin Reed

Yeah, that won’t start until very late in the year.

Unidentified Analyst

Okay. But when it happens is that something that should be viewed as material outside of the capital spending?

Unidentified Company Speaker

No, we take 50 to 100 rooms off at a time. And one of the reasons we have actually changed the timeline for this based upon the Marriott plan growth. So, no and that will be a little bit okay. I mean when we got a 100 out, there is always going to be a period of time where we would have been 100% right.

Unidentified Analyst

Sure.

Unidentified Company Speaker

But it’s not going to be material.

Colin Reed

And just to clarify a point I think that one of the questions that was embedded in there. That room renovation will be paid for out of the FF&E reserve, it’s not incremental capital to the reserve.

Unidentified Analyst

It’s included in what you guys are deducting in your guidance.

Colin Reed

Correct.

Unidentified Company Speaker

That’s correct.

Unidentified Analyst

And then when you speak about on page 24, the contracted revenue of $1.87 billion, can you bucket that for us to the extent how much of that is for 2014, 2015, 2016?

Unidentified Company Speaker

We could, but we haven’t.

Unidentified Analyst

Sorry, I mean.

Unidentified Company Speaker

I would try.

Colin Reed

Well, we have given you room nights for ‘14 so you can work out the math yeah.

Unidentified Analyst

Well, how much, I guess can you talk may be historically if you are standing at a given point in time. How much of forward booking on the dollar weighted basis as opposed to a room base is for the next year FY ‘01, FY ‘02, FY ‘03?

Colin Reed

I think about in terms of room night.

Unidentified Analyst

And that’s why we think about it in…

Unidentified Company Speaker

And that’s the only guidance we have ever given it’s on room night basis.

Unidentified Analyst

I can follow with you guys.

Colin Reed

Yeah, okay.

Unidentified Analyst

And then your RevPAR guidance, can you maybe get more granular in terms of the breakdown between occupancy, ADR growth and other outside of the room growth the other PAR growth?

Unidentified Company Speaker

We could do that.

Unidentified Analyst

Okay.

Unidentified Company Speaker

Yeah, our guidance for ‘13 is more – is little bit more heavily weighted towards occupancy then it is rate because we are anticipating based on the plan that we’ve worked together with Marriott to develop that we will see lift in transient as well as some lift in group, more short-term group and then transient they can impact much more quickly then they can the group side of the business. I mean, 2013 is more of a cost synergy story because they can really only immediately impact about 20% of our business, the transient side, the 80% of our business is group bill start really impacting that in ‘14 and beyond.

Colin Reed

But we got 300,000 in the year for the year to built which is north of, so we are not going to answer the next question, you can ask which is going to be, ask your next question.

Unidentified Analyst

What should that question?

Unidentified Company Speaker

It’s going to be about room rate, right.

Unidentified Analyst

Sure. So, just one final question, you noted that Marriott has been sort of the driver and obviously gets back and forth in terms of setting the revenue guidance, I’m just curious if you can discuss a little bit more you said this year is more of a cost savings, sorry next year is more of a group. Is there material upside in terms of sort of 2014 because obviously you’re running their system, but you are starting to see that in terms of we can see tremendous occupancy up-ticks in 2014 simply from having more group that you wouldn’t have access to because now you have 140,000 groups that you can happen to versus 30,000?

Colin Reed

Yeah. And really that was the way you’ve just summarized it is the way we show that slide. We’ve got $1.1 million room nights in contract form just over on the books compared to an average of $1.54 million so with 50,000 room nights ahead of the game, but that doesn’t tell the story, right because of just what you said in ’14, we will have a completely different leisure delivery system, different group delivery, just a volume of people working on delivery in groups and then we will have all of the cost harvested and we’ve made some sort of generic comment on the model in the slide that basically said we think this is a good news of what exciting outlook. But it is an encouraging outlook for us and we just like the way ’14 is shaping up and I think that’s basically we – it’s not good for us to sort of get everyone loud that up about 14 and you guys all get ahead of the keys, all the analyst sale side get setting unrealistic expectation. So, I just think we need to be – we just seem to be cautious about that part of the process, but ‘14 is looking pretty good.

Unidentified Analyst

And just finally given the sort of lag between booking and when they actually come for groups. It is – I guess that sort of double that because we would be even though you are in the Marriott system now, we don’t really can see impact in the meaningful way and for may be 15, 16 or…

Colin Reed

What we really – the thing is really not, we are not immersed in the Marriott system right now. The whole city program which is there group strategy program that has the links every single customer in that database together that won’t be completed until the end of March, I mean we only have one of that three or four hotels in that process. So, I am on the line you are coming, it should get better from here.

Unidentified Analyst

Great, thank you.

Colin Reed

Thank you.

Mark Fioravanti

Yeah. And just to go to your point, remember there is still lot to be booked for ‘14, ‘15 and beyond. So, yes, we do have bookings that we put on we didn’t put them on that bad rates, obviously we continue to do exactly what we have done in the past. But there is still plenty of opportunity for them to effect and impact those years.

Unidentified Analyst

Are there groups out there I mean given the fact that there are some groups (inaudible) for a year or two is out are there groups out there (inaudible) fill that thing now that you are…

Colin Reed

Yeah, yeah, so the meeting we had with the Marriott leadership, sales leadership about a week and a half ago and one of their folks said we’re looking at top 500 accounts and we think at least 250 of those are going be bookings within this next 12 months period of time. Not for 20, but for within this next 12 months period of time. And they – that’s just the way it works when you’ve got as many corporate accounts, you just, you’re going to find those customers.

Unidentified Analyst

Is it possible that being close 130,000 you go to 30,000 may show that, you could be a two year lag which was always a positive I’m actually compress but in positive way because we able to get the people that increased occupancy and get some more people that close within six months and nine months?

Colin Reed

Look forgive this stupid analogy, but it’s like fishing, right. If you’re in river and you got 30,000 salmons swimming across and you are in a river in you got 140,000 swimming across it’s a high probability you’re going to catch your salmon. It just – that’s just the way life works and providing you don’t have screwed up techniques. And that’s their organization they do it well. And so we are optimistic that we’re going see a lot more business. The issue is can be convert it, put it into our hotels the lights we like.

Unidentified Analyst

Thank you.

Colin Reed

Thanks. It was a question that the folks over the left it’s like we are having this conversion over here and completely ignoring it.

Unidentified Analyst

(Question Inaudible)

Colin Reed

Current what…

Unidentified Analyst

The current transient business…

Colin Reed

Yes

Unidentified Analyst

Could you talk about what percentage of that comes from high discount aggregators and how that compares to the fees that you will be getting Marriott for loyalty and for booking and then where does that delta show up, does that show up in hotel operating expenses or in revenue per room and I have the second questions.

Colin Reed

Patrick is going to take that.

Patrick Chaffin

If you look back over the past three years, we’ve booked 50,000 to 60,000 room nights transient through OTA channels. And some portion of those would be through higher discount channels. The opportunity there for us is that we are looking at because the Marriott’s scale. They have better contracted rates with those OTA’s. And so we would move from let’s say 25% commission down to 15% commission. So, that has the opportunity if you do the math on that that’s immediately $1.5 million just in say commission fees to those OTA’s. But the real opportunity for us is to move away from the OTAs and moves to the retail channels Marriott.com and some of the more premium retail channels. And that’s our focus that’s what Marriott is working to do is to not just get cheaper rates but to move us off of dependency there because we didn’t have the type of distribution that they had historically.

Unidentified Analyst

And is commission contra revenue or is it hotel revenue?

Patrick Chaffin

Yeah, it’s net against the rate. So, it would be an increase in the amount of rate that we actually receive, it’s not a cost per se.

Unidentified Analyst

Excellent and then my second question is those the Marriott 2 and 20 incentive system and so incentives might have been to drive more or less group hotel revenue to you hotels versus their other managed assets?

Colin Reed

Look I think the way the minimum works 255 of essentially EBITDA less the capital replacement reserve what Marriott makes it is if they really generate a lot more profitability that business then the plan has it generating. So, we think where we structured this contract incense them to drive business into our business.

Unidentified Analyst

Question for Mark, just to clarify Mark your adjusted AFFO guidance $3.78 to $4.04 that’s off of basic.

Unidentified Company Speaker

Right.

Unidentified Analyst

So, on a fully diluted basis including the converts, it would be a little bit lower?

Colin Reed

Yes.

Unidentified Company Speaker

Yes. And it all comes down to where is the price and so how much is the dilution and that’s why we have provided the schedule in the back.

Unidentified Company Speaker

And how we deal with the convert?

Unidentified Company Speaker

Correct.

Colin Reed

That’s right.

Unidentified Analyst

Got it. Other question I have is just in terms of supply growth, Orlando saw a lot of supply growth in the last few years, how does that impact your property in Orlando? And if you can also just give us some sense of big Omni opened in Dallas, I think in late 2008 what’s been the impact on the Dallas, Texan because of that? Thank you.

Colin Reed

Yeah. Our hotel in Dallas the only hotel opened in…

Unidentified Analyst

October 2011?

Colin Reed

2011 right? 2011. We have the very best year that hotel has ever had in ‘11. ‘12 has been a good year in Dallas. It’s very different, I mean an 800-room hotel with not a lot of convention space except and then a 1000-room hotel with a huge convention center is totally different business. So..

Unidentified Company Speaker

The Orlando supply had more dedicated meeting space. It was more – net supply was more competitive against the mix that we talked about in the presentation versus the Omni which was downtown which was built to serve as existing meeting space.

Colin Reed

Yeah, but we had 20% plus growth in profitability last year in Orlando.

Unidentified Company Speaker

And if you look at Orlando, the entire market suffered right. It became everybody dropped rate to try and offset an influx of 3000 rooms of group supply at the worst possible time. If you look at how we performed from a penetration on RevPAR STR tracks, we actually grow our market share during that period. So, yes, we had to lower rate to compete, but at the same time we weren’t doing it to the same level, others were and actually grow our market share and drove additional occupancy.

Colin Reed

The other thing was in ‘11 it wasn’t the room refurbishment that was causing the disruption. We had a massive capital plan underway there. We were building a new sport style. We were building a complete pool complex in that place. And I mean that really has kicked that hotel. I mean it’s looking really good and customers love the place and we saw very big leap in profitability last year.

Unidentified Analyst

Great, thank you.

Colin Reed

We are not going to answer any questions from the Gabelli organization. Come on in there.

Unidentified Company Speaker

Like 44, thank you.

Colin Reed

44.

Unidentified Analyst

The one that brought up, so 45 days old as a REIT, so it’s perhaps too early, but at 12 multiple, the discount is maybe 3 or 4 turns there to comps with the competitive set. The profitability for room is the highest in the industry. What is the market missing in the early days, is it the focus on concentration in the group business? The balance sheet is not over-levered. So, what is it that you would like to highlight to bridge that gap if you will and then I have a follow up?

Colin Reed

Well, I think there is two things. We are in the middle of I think the shareholder transition here, people who really are longer term shareholders into the space. And I also think that this been a sort of hangover from the fact that we were in the building business. And I think there is also hangover about I hear this from time to time where you’ve only got four of them, it’s concentration. And I think that they are the primary features that we hear. Now, its maybe that the management is lousy, but we never hear that, but those are the things that we obviously are going to try and set to rest, but it’s the quality things that we are going to keep talking about, because the book of business how we perform quality of the assets are the things that I think people should really focus on here, investors should really focus on. And then frankly, I mean we have been seeing that, I mean, over the course of the last six months. We have obviously seen a fairly substantial rise in that price here. Most of the sell side that right on us have a different view about the future of this company. So, I think we are going to get there. We are going to fix this thing and look decent thing, right if we have flat wrong we are just going to spend a lot of time buying a lot of stuff back.

Unidentified Analyst

Thank you. A quick follow-up so, as you guys focus on the lodging business now more so as a REIT, what is the amount of resources attention that the Opry and Attractions business will get and what is the potential future of that, where does it sit in your portfolio?

Colin Reed

Right so, okay so, let me answer this way, I’m going to answer it, very, very straight forward with it. One of the questions still going to shows about this launch and someone in the table last night, one of the questions my board ask me yesterday so, have you enjoyed running a REIT and I said, I mean a little bit of withdrawal symptom because I enjoyed the people side of the business, I’ve enjoyed the operating side of our business, I think actually gives us as a REIT a competitive advantage because we actually understand how these things work. This is not just a real-estate transaction. We actually understand the DNA of these buildings and what qualities these buildings need in order to be successful. But I honestly missing the people side of the business and my follow-up to that board was, but I would tell you this that the residual operating side of the business we operate is going to be feel a lot from me over the course of the next six months to a year.

The opportunity with that business, I believe is tremendous. I know some of you folks couldn’t give you a letter about country music, but if you sold the Grammys on Sunday night, it was like the Nashville Grammys when you see bands like the Black Keys that international base, Kings of Leon all of these big emerging bands. Nashville is a very, very hot city right now and this TV show that we help to officer Nashville is creating a lot of interest in the city of Nashville. It’s syndicated last week in England, last week the first show of Nashville hit in England and then it’s going to happen through other countries of Europe and New Zealand, Canada, and so Nashville is a very, very growing city and the Opry is a very, very key ingredient to that, Ryman, I mean, we all know most to these attractions in the city of Nashville. The issue for us is how we leverage those businesses. So, that business is going to feel a lot from me. Please Thomas.

Unidentified Analyst

Forgive me if this is a stupid question, but on slide 22, the – I have 7% in the Smith Travel research is projecting 7% RevPAR growth for this year and your guidance is below that but how should we think about the slide for how we think about RevPAR growth through 2016 both before the Marriott deal and post the deal?

Colin Reed

Well, for stock when Smith Travel looks at RevPAR growth for a sector, they look at the sector and our business is very different to “the sector” because when we are going to a year a 50% of our business, 50 points of our occupancy are already done and invested on the books, 10% of that estimated group room night sold for ‘13 where room nights that we booked in the state of the recession.

Unidentified Analyst

Sure.

Colin Reed

So, this reflects the group business we have on the books and a modest or the – and in the year for the year at a modest rate growth and but what we are saying to you which I think gets to your question is you could interpret that there is an opportunity here it pricing in the country stays decent, there is an opportunity here on the pricing side.

Unidentified Analyst

And the other thing I would add is remember 60% of our revenue is outside the room and is time – it’s priced in more real-time environment. So, if we do see additional lift not just on the ADR side, but the economy improves. We have demonstrated especially in ‘10 and ‘11 that we can drive additional revenue outside the room, which is where the majority of it comes from as those opportunities are created and really take advantage of that.

Unidentified Company Speaker

That’s not a stupid question.

Unidentified Analyst

(Question Inaudible) and then I have got a follow-up question.

Unidentified Company Speaker

It’s 10% of the groups generate about 80% of the revenue, and it’s the big groups. These big groups, these big (indiscernible) old groups that come in like for instance, tomorrow night I got to be in Nashville at a dinner at hotel in Nashville. And eyes going to roll, it’s the Wild Turkey Federation, there is about 5,000 people that come in that are in the conservation business for Turkey. They do the conservation for these things and they shoot them. And but this convention is $3, $4 million dollar convention, I feel everything. So, that’s one group. So, I am saying it to you about 10% of the groups generate that 80% of the group revenue. These are the whales, the (indiscernible) these are the high revolvers call them what you will.

Unidentified Analyst

Got it. And there seems to be a trend in the big cities for some hotels down to charge explicitly for meeting space, is that something you have done in the past or you would ever consider?

Colin Reed

Don’t charge for meeting space.

Unidentified Analyst

To actually separately charge explicitly for meeting space rental ?

Colin Reed

Well, perceptively that’s going to be Marriott’s decision to make, but this meeting space out here is very expense. I mean we have spent probably when you add it up $250 million, $300 million built, when you see this convention space, it’s phenomenal. And we like to get paid for it. And if you want all under one roof experience, we want to pay $200 a night and you want these magnificent convention facilities you got to pay for it.

Patrick Chaffin

Yeah. I would tell you we are charging for it in a way. Okay, because you sign up for food and beverage minimum, which is what you are going to use that space for, and then you want put exhibit hall or use the exhibit hall space instead of booths, we are going to collect revenue off of helping you setup the IT. So, if the electrical put down the carpet, put up, setup all of that. So, in various ways, we may not charge for the square footage, but we charge the way that you use it depends on the group.

Colin Reed

Yeah, it depends on the total value of the group.

Patrick Chaffin

And yeah, to Colin’s point it’s a sliding scale based on how much you are going to bring in house that will impact how we price it?

Unidentified Analyst

You gave some reason on the 3% to 6% RevPAR growth why that maybe lower than the 6%, you’ve booked some rooms during the recession, but then Patrick you said the total RevPAR is more real time or outside the room and that’s even lower 2% to 5%. So, does that mean that has some upside because that sort of contradicts?

Patrick Chaffin

To Colin’s point if there is additional ADR upside that can also be felt on the total RevPAR side as well. So, I am just what I am saying is, yes, there is opportunity. Remember to Colin’s point earlier, how did we end up with the guidance where it’s – well it was Marriott’s plan. We are in a stage of – we used to these run these hotels and now we are working carefully and judiciously to make sure that Marriott runs them appropriately and that is being reflected in our guidance to make sure that we want to make sure they deliver on what they see they can do before we bake in too much additional upside.

Colin Reed

Well, here is the other realty of this that we have these minimums in order to contract the rooms and dedicate the space, dedicate the meeting space, we have these minimums, but what tends to happen, this is just the way it happens particularly around the corporate groups. The mood of the enterprise, the mood of the nation affects the spending behavior. We see when you have a month shock-in Greece and you will see, you come and say I am not sure about what’s going on, let’s no longer do this bottle of win, let’s do this bottle of wine, let’s cutback in not this stake we do check, that’s what goes on. It just goes on that way. And so when we are out doing our plan, we have this block of business that we know is contracted for. And then we have a historical theoretical understanding of how if these groups being with us how they spend money and we have factored that into the plan. But there is an emotional spend to this and we are living in high job times right now and then we are watching on TV every blast of today and that is extrapolated into the way we are thinking about our total RevPAR guidance.

Unidentified Analyst

Just one quick follow-up on the guidance you made some brief comment on the corporate now they are $20 million to $24 million maybe there is some room to take out for the costs, is 2014 when you do end up guiding us to that at some point is that pretty much all the synergies are on the revenue side or are there some more costs?

Colin Reed

We are going to continue to look at the costs side of this business every week. Mark and I talk about, how can we, look how can we save more money on the staff and that’s what we do. I mean we want to make sure – we heard literally laden clear from the, forgive me the mafia when we went in August and September and we spoke to a whole bunch of investor that we had never seen before. We heard the message how you spend your money, how you deal with your corporate overhead is a big deal for us. How you leverage your balance sheet is a big deal for us. Given it’s a big deal for us, so we are focused on the things we have heard peak time and we will continue to be. Yes.

Unidentified Analyst

Has Marriott changed the way group – corporate group meetings are priced there are some fees taking over management?

Colin Reed

I don’t think so, I don’t think so and here is the reason why, here is the reason why. We are competing with them. I mean we didn’t have quite as many and it was in all every group we compete with them on. But we competed with them and so I don’t think there is a philosophical change here, we are not seeing that.

Mark Fioravanti

I think the opportunity with Marriott that was and we showed on one the slides an example was it’s co-marketing with the World Center. There is an opportunity now because our assets are being managed often times with what were competitive assets Marriott has the ability to yield manage the inventory to gather to maximize value. So, I think that’s the opportunity on the yielding.

Unidentified Analyst

Right, what time is the tour?

Mark Fioravanti

We want to try to leave here at 11 o’clock.

Unidentified Analyst

Okay.

Mark Fioravanti

So, we need to give people a chance to maybe take the question right.

Colin Reed

Do you have a couple of more questions?

Unidentified Analyst

Yeah, another follow-up, you mentioned that 10% of the groups are driving 80% of the group revenue has Marriott reached out to those whales so to speak just because the management changed are those groups still in contact about the same sales people or what’s the relationship with those large groups thing?

Colin Reed

You take it and I will add to it. This is a very interested question especially it’s an interesting question is and express what is going on here.

Patrick Chaffin

And I will try to whatever you want.

Unidentified Analyst

I will take online.

Patrick Chaffin

Out sales team is obviously going through a big transition where they had a dedicated sales office national sales office that would push leads out to them. We are now moving into a different model where the property sales team is responsible for pulling leads down from the various sales offices within Marriot. So, developing relationships, helping folks understand where they need data for various demand patterns etcetera. As they are doing that though we have also said we need to make sure that the property sales teams is not just pulling leads, but continuing to generate leads. So, we have spent a lot of time going through and understanding who owned the really quality relationships and that we would retain sales folks in key positions so that if we did have to think about some of our sales team we will retain those who owns the relationship with the whales as you put it right as we describe it. So, we have – we are going to benefit from the additional exposure at the Marriott sales level, we also have the property sales teams who continued to manage those relationships with those key customers because we found that Marriott was not fully deployed against some of the customers that we go after that’s a great thing to find out that we are not completely overlapped with one another. So, we would retain those folks to make sure we don’t loose those relationships.

Colin Reed

And this is why it is the reason for that that as part of Patrick’s statement. We felt compelled as a company to be focused on the big, big whale groups in this country and we had a very focused strategy to go after that because we control so much of the big space in these big hotels. Marriott has one hotel in this arena and so their focus on the big whales was not quite the way our focus was and they have embraced that and they realized the benefits of that. And that’s part of us importing to them or exporting to them or exporting to them knowledge that they didn’t quite have at the time.

Unidentified Company Speaker

If you talk to the Marriott sales team, what they will tell you is we have never had four assets like what we now have to sell into. These are unique. I mean the World Center is close, but they have never had assets like this to sell into. So, their deployment was not as fine-tuned as ours for some of these groups simply because they just didn’t have the assets to sell into.

Colin Reed

Alright. One more question, maybe two more questions and then we will wrap it up.

Unidentified Analyst

Just real quickly, first of all, I know transient is a small component of your business, but Marriott has now been operating these hotels, it’s been on Marriott website for four or five months, but certainly long enough to start to see some impact from transient, can you give us any color on what you are seeing on transient whether it be in terms of volumes or rates relative to what you would have seen last year when you aren’t part of the Marriott system?

Colin Reed

Yeah.

Unidentified Company Speaker

Yeah. Again, we are still early in, but we are encouraged by what we are seeing. I think January was a good indication that things are coming in as we expected and maybe even a little bit better on the transient side. So, we are encouraged, but again thus far in ‘03 we have a month. We had some good information that come through in November, December, January continues to ramp. So, we continue to watch it.

Colin Reed

The other thing is that comment you made about that you have been on the website for five months, the answer is we had a space on the website on October 1, but the front desk systems went all in until the middle of January and the front desk systems were enabling points to be redeemed and points to be awarded. So, it’s really been a couple of months that we have been there or thereabouts. We are now fully on it.

Unidentified Company Speaker

But if you think about like the Marriott rewards customer, if you have the opportunity to stay here or at other Marriott properties around this location, what would you choose? Right, would you choose a residence then or something else like better would you choose to Gaylord? So there is opportunity.

Unidentified Analyst

Okay. And another question I had was you talked about a little bit of a shareholder transition period trying to go into more long-term shareholders, lot of what you talked about today has been more understanding your business operations which obviously is something that those of us that have been following in for a while understand and then a lot of what you are going to over the next 12 months to create value. What about longer term creating value when you think about the REIT dedicated investors that are looking for three, five, seven, 10-year time horizons. How are you going to create value beyond the next 12 months with some of the corporate finance initiatives you have discussed and some of the divestitures etcetera of the non-core assets?

Colin Reed

The answer to this is we kept the multiple fix to make sure that we can do deals that are accretive to this company. And I think with our knowledge and experience and what makes the hotel tick, what makes a hotel work we think we have an advantage to do that. its getting across the capital competitively positioned and then I think we can create growth for – we can create a lot of growth for the long-term REIT investor, I think we can do that.

Unidentified Analyst

So, you mentioned earlier that acquisitions are going to be small relative to the size of your assets today and it wouldn’t move the needle that much, so.

Colin Reed

No, no, you have misunderstood me. What I said is we have four assets that generate let’s say $290 million with CCF, right. In order to one asset that we if we want to board an asset at 500 room hotel or a 700 room hotel that’s probably going to generate $20 million to $30 million of EBITDA we’re going to buy a few of those in order to diversify the cash flows of this business, if that’s an issue that’s what I was trying to say.

Unidentified Analyst

Okay, fair enough. Thank you.

Colin Reed

One more question from the middle ground.

Unidentified Analyst

I guess just to alleviate concerns about Marriott cannibalization of sort of a group that used to always go to Gaylord for 10 years and now they have exposure to Marriott sales people, Marriott potentially pulls them away. To what extent is that something we should be concerned about and very related, is there a dedicated Gaylord sales staff or is there just the thousands of sort of Marriott sales people they have in inventory and somebody calls up, they pitch from within the inventory?

Colin Reed

No, no. We have a dedicated Gaylord which we pay for in our hotels sales organization in every single hotel, okay. We are watching every single customer. We don’t’ believe that’s going to happen. Now, the other part of it is this….

Unidentified Analyst

Is that contracted or is that something that will always be here meaning there will always be people in the….

Colin Reed

Well, we know the customers that are contracted here, but I mean we will be watching the group volumes that are being, we’re watching this week by week how many are booking, where are they booking, which customers there booking. This is tough that Patrick and two folks working with Patrick are absolutely all over. But look here is the bottom line. We have an essential with Marriott we have an essential –essentially a profitability guarantee here. And unlike 90% of their other management agreements or 95% if they don’t perform we have a mechanism to make sure they do perform. So, we have tools to make sure our customers are coming back. But look the other thing is existing customers in this hotel today will rotate out of this hotel and go to Las Vegas, go to Chicago, go to New York. We obviously – they rotate out of our system what we would like to see is they rotate into the Marriott system and then come back, they don’t rotate out of our system. So, this is the dynamic that we will be managing over time. But I don’t believe for a moment that we are going to see games played and our customers taken away simply because of the central performance guarantees are in place at this hotel.

Unidentified Analyst

Thank you.

Colin Reed

Jump into these assets.

Patrick Chaffin

To your question we will – the dedicated property teams go away at any point. Now because they are the other ones who are countable for delivering the bookings into this hotel every single year they own that. And so they continue working relationships they have and they are building new relationships within the Marriott sales organization to pull those leads to those properties because they are the ones who are accountable for that. Thank you.

Colin Reed - Chief Executive Officer

Alright. So, guys and girls thank you very much indeed for coming down here day after Valentines Day and on a Friday. And thanks for taking an interest in this company. And you know where we are if you have other questions, follow-up questions we look forward to engaging with you. And hopefully over the next few months as we slip around all the conferences and conventions that will be going to we will be seeing you. Thanks a lot for coming.

Mark Fioravanti - Chief Financial Officer

So those of you in this room who are interested we do have the opportunity to run back the house of this asset with our General Manager and also our Head of Hotel Operation. And so we can take two groups and do a little bit smaller tours we’ll meet up out here in front of this meeting room in a few minutes if you need to take a quick biological break and then post tour, we will have a little lunch here if you have time, you want to have a bike before you get on your way to wherever you are going next, we’d love to have you. So, thank you. Okay. If you would like to leave your stuff in this room, you don’t carry, you are welcomed to. It will be here.

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