Gaylord Entertainment Co. Q2 2009 Earnings Call Transcript

| About: Ryman Hospitality (RHP)

Gaylord Entertainment Co. (GET) Q2 2009 Earnings Call August 4, 2009 10:00 AM ET


Colin Reed – CEO

David Kloeppel – President & COO

Mark Fioravanti – SVP & CFO

Carter Todd – EVP & General Counsel


Chris Woronka - Deutsche Bank

David Katz - Oppenheimer

Jeffrey Donnelly - Wells Fargo

William Marks - JMP Securities

Kevin Milota - JPMorgan

William Crow - Raymond James

Steven Kent - Goldman Sachs


Welcome to the Gaylord Entertainment Company's second quarter 2009 earnings conference call. Hosting the call today from Gaylord Entertainment are Mr. Colin Reed, Chairman and Chief Executive Officer; Mr. David Kloeppel, President; Mr. Mark Fioravanti, Chief Financial Officer; and Mr. Carter Todd, Executive Vice President and General Counsel. (Operator Instructions)

It is now my pleasure to turn the floor over to Mr. Carter Todd; sir you may begin

Carter Todd

Good morning. My name is Carter Todd, and I am the General Counsel for Gaylord Entertainment Co. Thank you for joining us today on our second quarter 2009 earnings call.

You should be aware that this conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including statements among others, regarding Gaylord Entertainment's expected future financial performance.

For this purpose, any statements made during this call that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, words such as believes, anticipates, plans, expects and similar expressions are intended to identify forward-looking statements.

You are hereby cautioned that these statements may be affected by the important factors among others, set forth in Gaylord Entertainment's filings with the Securities and Exchange Commission and in our second quarter 2009 earnings release. And consequently, actual operations and results may differ materially from the results discussed or projected in the forward-looking statements.

Gaylord Entertainment undertakes no obligation to update publicly any forward-looking statements whether as the result of new information, future events or otherwise.

I would also like to remind you that in our call today, we will discuss certain non-GAAP financial measures and a reconciliation of those non-GAAP financial measures to the most directly comparable GAAP financial measures has been provided as an exhibit to our earnings release and is also available on our website under the Investor Relations section.

At this time, I would like to turn the call over to our Chairman and Chief Executive Officer, Colin Reed.

Colin Reed

Thank you Carter, good morning and welcome everyone and thank you for joining us today to discuss Gaylord Entertainment’s second quarter 2009 financial results. As usual I’ll begin our call with a strategic overview of our business and what we’re seeing in our industry, then our President and new Chief Operating Officer David Kloeppel, will provide color on what we are doing from an operational perspective in this environment.

And then our new Chief Financial Officer, Mark Fioravanti will conclude by providing some more detail on our financial results for the quarter and particularly how our profit has performed and then as always we will open up the phones to questions and look forward to that.

Now let me start off by saying that I am pleased with our results this quarter, especially when you consider a market environment that continues to challenge virtually every sector of the economy.

Our group centric business model characterized by the attrition and cancellation fees we collect once again worked well this quarter. These fees coupled with our aggressive management of costs again enabled us to deliver solid same store CCF margins of 28.3% which includes the impact of $400,000 one-time severance costs.

Last quarter we told you that we were beginning to see signs of stabilization in our business and we continue to see evidence of this trend. While cancellations in the second quarter remained elevated relative to historical levels, there were substantial improvement versus the first quarter of 2009.

Now while elevated over historical levels, attrition levels are beginning to show early signs of recovery versus the first quarter and we’ll be watching them closely over the coming months to determine if this is in fact an enduring trend.

Nevertheless attrition and cancellation fees enabled us to partially offset the impact of these elevated levels and we collected $8.2 million in fees in the second quarter. These fees provided a measure of protection to our bottom line, that is an advantage for our group centric model.

Of course we would clearly prefer to have guests staying at our unique properties in order for them to participate in our outside of the room offerings. On average 60% of our revenue is generated outside of the room and in an environment where corporate meeting budgets are being slashed, the resulting increases in attrition and cancellation levels do represent a lost revenue opportunity for our business.

Our business mix has played a critical role in our ability to deliver decent levels of CCF so far this year. It has been suggested to us on several occasions in the past by certain industry analysts that we should off from booking association business that tends to have longer lead time and book more corporate business.

Their hypothesis is that corporate business could be higher rated and we would thus drive higher levels of profitability. Now in good times there’s some validity to this thought but alas, not all times are good.

This year illustrates the peril of being overly committed to group corporate business. So far this year we’ve received approximately 96,000 room nights of cancellation and what’s interesting is over 90% of those room nights are from the corporate sector.

This was evident in the drop in the outside of the room spend in the second quarter that corresponded to a 45% decline in corporate room nights when compared to the second quarter of 2008.

Now fortunately on an annualized basis our group mix is not overly dependent on the corporate sector but is instead represented by a broad mix of association, government and other groups enabling our group business to be somewhat resilient in this environment.

We continue to receive feedback from meeting planners indicating that they remain cautious but many planners are beginning to consider new meetings. Subsequently while pricing continues to be challenging for the short-term booking window, we believe that once occupancy begins to recover rate will recover as well.

Accordingly we continue to hold back certain inventory for 2011 and beyond in an effort to mitigate the impact of the current pricing pressure on future rates. As regards to that profitability we continue to see the results of the aggressive cost management initiatives that we have been employing since late 2008.

These reductions have enabled solid margin performance across our brand throughout the first half of 2009. We will continue to look for opportunities to streamline our operations as we are managing our business as if this recession will stay with us for some time.

It is important to note the one area where we will not compromise is guest satisfaction. Our business is built on fostering loyalty and confidence in our brand among meeting planners and guests. This is what compels them to return to us in good times and bad.

So while we will continue to identify new opportunities through improved efficiency and reduced costs, we will not make the mistake of doing so at the expense of service and guest experience that defines our brand.

David will talk more about guest satisfaction as well as fast bookings but what I want to say is we are pleased with the volume of advanced group bookings that we accomplished in the second quarter. I believe these bookings were a direct result of our commitment to excellence for our brand.

In addition to cost management and other initiatives that is yielding results is the redeployment of our sales and marketing resources. David will get into more detail on this in a moment, but the decision to market more heavily to transient customers, improve online bookings and focus more on 2009 and 2010, has successfully translated into bookings for upcoming periods.

Despite elevated levels of attrition and cancellation our efforts have enabled us to maintain the on the books occupancy with which we entered 2009. We expect to see an even greater benefit going forward.

Now I’d like to take a moment to discuss the performance of our newest property, The Gaylord National in Washington, DC. The National delivered solid CCF performance of $20.6 million in the second quarter, the quarter which is historically the best for the DC market as a whole.

We are encouraged with the progress of the larger National Harbor development and the recent announcement that Disney will be developing a family themed resort hotel is a prime example of the positive momentum behind National Harbor.

Looking forward we believe that there is strong future for Gaylord Hotels and we are very encouraged by how this young brand has responded thus far in these unprecedented economic times. This resilience is a testament to the benefits of our unique model and the hard work and dedication of our wonderful stars.

While we continue to see signs of stabilization we fully expect the hospitality market to remain somewhat unpredictable for the foreseeable future and we will continue to closely monitor attrition and cancellation trends as well as customer behavior regarding advanced bookings.

As you would expect we’re paying close attention to the fourth quarter which is heavily dependent on transient business driven by our holiday programs. Early indicators are in line with prior expectation and as a result we’re maintaining our current guidance for the year.

Now with that I’ll turn things over to David for some color on our operations.

David Kloeppel

Thanks Colin, our unique business model and level of profitability protection it provides us has certainly been a bright spot in an otherwise dreary market environment. While we believe that the differentiated components of our business will help carry us through what will likely be some additional challenges, we remain focused on identifying more ways to proactively improve our business.

From an operational perspective we’re focused on four key areas; guest satisfaction, star satisfaction, remember we call our employees stars, sales drivers, and margin management. I’ll now spend a few minutes providing you with a sense for why these are critical to our business and how we are driving improvements through each.

As we’ve stated before on a number of occasions, guest satisfaction is an essential measure for us. Why? Because building a loyalty and competent in the Gaylord brand is how we ensure that meeting planners and groups come back to our property time and time again.

Customer satisfaction scores are a critical component to our business so we monitor the results carefully and are always looking for ways to improve upon them. We gauge our guest satisfaction by a percentage of “top box scores” which is a very strict interpretation of satisfaction levels and reflects only those guests who are loyal advocates of ours.

This quarter our guest satisfaction scores were consistent with previous quarters and we’re pleased that we were able to maintain these very high guest satisfaction levels in a difficult environment and we continue to identify ways to improve them.

Our customer satisfaction results this quarter and every other quarter for that matter, correlate in many ways to the efforts of our individual stars. Stars as you will recall is the name for our employees and because we believe our stars are an essential advocate of driving customer satisfaction, we continue to invest in the core programs that drive star engagement.

High star engagement drives cost down as well and drives star turnover rates down and increases referrals from our stars for new employees thus driving down training and recruiting costs.

So as you can see investing in our stars is a critical element both for driving customer satisfaction and therefore revenues, and for controlling costs. Next I’m going to talk about sales drivers, another major initiative we undertook with a shift towards short-term bookings to replace those lost to cancellations and attrition, as Colin mentioned because of our visibility into future occupancy periods we made this decision ahead of the sector wide change in the demand climate.

To drive this shift through our sales team on an operational level we adjusted sales manager incentives to include a 2009 revenue booked component in order to focus the entire team on the in the year leads. Our second quarter in the year leads increased 28 percentage points compared to the first quarter which is a direct result of our focus in this area.

Looking closer at occupancy on the books, this focus on short-term lead generation has become a significant factor in driving bookings. Although we do not have quite as much on the books for 2009 as we would like, the sales and marketing shift has helped us prevent from losing any ground.

At this point we have about 52 points of group business on the books for the remainder of the year. And furthermore in the second quarter alone, we booked almost 500,000 room nights in gross advance bookings for all future years which was only down about 9.8% when compared to gross group bookings booked in the second quarter of 2008.

The sales team did a terrific job in the quarter. For 2010 while lead volumes are down about 33% compared to a year ago, our new gross bookings are up about 24% driven by a very significant increase in our conversion rate, an 83% increase in conversion as a result of our focus on securing that 2009 and 2010 business.

Overall 2010 bookings are moving in the right direction and with five months to go in 2009 we have about 41 points of occupancy on the books for 2010. Now all of you are going to ask how does this compare to the same time in 2008 for 2009. It’s a rather complicated question to answer, so bear with me here.

In 2008 around this same time, we had adjusted future inventory based on recent historical attrition experience. Recall that in July of 2008 we had not yet experienced a significant increase in attrition and cancellations. At that time we had 48 points of occupancy on the books but ultimately a large percentage of these room nights ended up [attriting] as the economy worsened.

Fast forward 12 months to July of 2009, we have experienced substantially higher attrition levels recently and our sales block for 2010 reflects this behavior. So what this means is that we’ve reduced 2010 expected group attendance to reflect the poor economic conditions.

Therefore we are able to sell today into those available patterns rather than waiting for the attrition to occur as occurred in 2009. If we were to revise our assumptions to reflect historical attrition levels instead of our more aggressive assumptions 2010 group room nights on the books would reflect roughly 45 percentage points of occupancy and would lag historical averages by around three percentage points.

And remember in early 2009 we did experience unprecedented levels of cancellations for 2009 due to the economic conditions and to adverse comments made by the Obama Administration. Net, net we’re comfortable with our business pace and inventory levels for 2010 and we continue to see positive trends building into 2010 demand patterns.

So I’d like to now touch on what we’ve been doing to maintain our margins and profitability, in terms of attrition and cancellation fees we are vigilantly working to anticipate attrition and are continuing to initiate dialogues with customers over those penalties.

Collecting these fees without risking the relationships we’ve built with our customers is a key focus for us and as a part of these efforts we are actively involved in tracking attrition in advance of meeting dates to ensure we are mitigating the financial impact from lost room nights or [inaudible] events.

And also as we’ve told you in the past, last year we embarked on a detailed review of our entire organization and developed a cost reduction plan tied to various levels of demand. Thus far our efforts have yielded $45 million in cost savings and directly impacted our bottom line margin performance.

As evidenced our CCF margins for our hotels for the second quarter of 2009 was 29.8% compared to 29.9% in the second quarter of 2008. And our efforts are ongoing as we continue to reassess our entire organization for additional savings.

And now I’m going to turn the call over to Mark for a look at the financials.

Mark Fioravanti

Thank you David, as we’ve done in the past I will discuss our financial performance during the quarter and then take you through some highlights from the result of each of our properties. I’ll then provide some additional color in terms of what we’re seeing for the rest of 2009.

On a consolidated basis Gaylord Entertainment performed in line with our expectations delivering revenue for the quarter of $218.3 million and a solid CCF performance of $55.8 million.

Its worth noting that CCF for the quarter includes $2.4 million of severance costs related to our cost cutting initiatives and a $3.6 million gain in connection with a tax increment financing arrangement related to the Ryman Auditorium. As Colin has discussed the economic challenges experienced across the industry in the first quarter of this year continued into the second quarter as evidenced by the RevPAR declines in the upscale lodging segment of 20.8% as reported by Smith Travel Research.

Gaylord Hotels including the National outperformed the upscale segment experiencing a RevPAR decline of 13.1% and a total RevPAR decline of 14.3% in the second quarter of 2009. At our same store hotels RevPAR declined 19.8%, 100 basis points better than the upscale segment and same store total RevPAR declined 19.6%.

Our same store hotels generated consolidated cash flow in the quarter of $39.1 million including severance costs of $400,000. Our CCF performance was driven by our continued success in the collection of attrition and cancellation fees coupled with the aggressive management of our costs.

These efforts resulted in a 28.3% same store CCF margin, a solid margin in a tough economy and a performance that only declined 420 basis points when compared to the second quarter of 2008.

We saw same store cancellations improve in the second quarter totaling only 28,820 room nights compared to 66,749 in the first quarter of 2009. Same store attrition in the second quarter was 14%, which showed signs of improvement from 16.7% in the first quarter.

During the quarter we collected $8.2 million in attrition and cancellation fees across the brand and to put this in perspective the attrition and cancellation fees we collected in the second quarter represent about half of what we collected all last year and more than two times what we collected in the second quarter of 2008.

As David already mentioned our second quarter 2009 gross advance group bookings for all future years were only down 9.8% when compared to the second quarter of 2008. However our net advance group bookings were down 59.9% when compared to the same period last year.

But this represents an improvement over the first quarter of 2009 when net advance group bookings were down 73.4% year over year. The year over year decline in net bookings is a result of elevated cancellation and attrition levels as well as our efforts to more aggressively cut the future room blocks in order to sell into the likely available inventory well in advance.

Now let me walk you quickly through the performance of our individual properties starting with Opryland. Gaylord Opryland generated revenue of $55.3 million in the second quarter of 2009 compared to $73.5 million a year ago. A 13.9 point decline in occupancy was largely driven by group cancellations and attrition in the corporate segment. CCF decreased 41.2% to $13.6 million and was impacted by one-time severance costs of $100,000.

The resulting second quarter margin for Opryland was 24.5%. Now looking at the Palms in Florida, in the second quarter occupancy was down 10.9 points in the quarter as a result of group cancellations and attrition. Group ADR was up slightly with an increase of 2% but transient ADR declined 14.6% due to the highly competitive Orlando market.

Despite an $8.6 million decrease in revenue aggressive cost management to property resulted in a solid CCF margin of 30.4%. The property delivered CCF that was in line with expectations at $11.9 million compared to $16 million in the prior year quarter. CCF results at the Palms include $100,000 of severance costs.

As for the Texan, revenue was $41.5 million in the second quarter, a decrease of 13.4% from $48 million in the prior year quarter. Despite a 10 point decrease in occupancy aggressive cost management resulted in a strong CCF margin of 31.4%. The property delivered CCF of $13 million compared to $15.9 million in the prior year quarter. CCF for the Texan was also impacted by severance costs of $200,000.

And finally turning to the National, as Colin mentioned the National delivered a solid second quarter. The property posted gains in all its primary metrics when compared to the second quarter of 2008. Occupancy for the quarter was 67.9%, an increase of 3.4 points and ADR was $213.84, up $1.74 when compared to the second quarter of 2008. RevPAR increased 6.1% to $145.25 and total RevPAR increased $0.87 to $343.99 over the second quarter of 2008.

The National generated CCF of $20.6 million including $200,000 of one-time severance costs resulting in a solid 33% CCF margin. We’re pleased with the National’s progress thus far in 2009 but recognize that it will continue to face the headwinds of the current economic environment.

Now moving to the Opry and attraction segment, Opry and attractions performed in line with our expectations producing $7 million of consolidated cash flow, aided in part by a $3.6 million payment received in connection with the tax increment financing arrangement related to the Ryman.

In terms of our balance sheet as of June 30 the company had long-term debt outstanding of $1.24 billion. Our liquidity position continues to be solid and we have no loan maturities until 2012 and we continue to take steps to opportunistically delever our balance sheet.

During the quarter we used available cash in our revolver to purchase some additional 8% and 6.75% senior notes at very attractive yields. During the quarter we purchased $28.3 million in face value and recorded a pre-tax gain of $8.2 million in the quarter.

We continue to ration capital and put any actions related to future development or expansions on hold. We have no significant capital commitments other than maintenance and the wrap up of [punch list] items at the National.

These punch list items were previously accrued for and do not represent additional capital spending at the National. Our focus going forward is to maximize free cash flow and we believe that the best thing to do with that cash is to continue to reduce indebtedness.

As we look towards the rest of 2009 we expect the current market conditions to persist throughout the year and while we’ve seen some stabilization in our business we continue to closely monitor attrition and cancellation levels to determine if the trend we experienced in the second quarter will continue.

However our performance this quarter also proves that our model coupled with aggressive cost management can produce solid margins and CCF results even in a very difficult environment. As we move through the second half of 2009 we’ll continue to focus on generating in the year for the year revenue through smaller meetings and transient guests, the aggressive collection of attrition and cancellation fees, a continued streamlining of our cost structure, and the prudent management of our balance sheet.

As Colin has already stated we’ll continue to closely monitor the leading indicators of our transient oriented fourth quarter. Based on what we’re currently seeing we’re comfortable with our current projections and are reaffirming our guidance for the full year.

With that I’ll turn it over to Colin.

Colin Reed

Okay guys, good job, we’ll now open up the call for questions please.

Question-and-Answer Session


(Operator Instructions) Your first question comes from the line of Chris Woronka - Deutsche Bank

Chris Woronka - Deutsche Bank

I was wondering if maybe you could touch on a few of the factors that contributed to the performance at National this quarter. I thought it was pretty impressive both on the RevPAR and margin front and maybe if you can share what’s going on there and also how did cancellation or attrition fees impact National this quarter.

Colin Reed

David do you want to take the improvement in the operations there and Mark if you want to deal with the attrition costs, maybe you have that too David.

David Kloeppel

We were pleased with the way the National performed this quarter. The efforts that the team has put in place there are bearing fruit to drive appropriate levels of profitability out of that business. The second quarter in the DC market is the strongest quarter of the year and we had a good book of business on the books for the quarter.

So and we also had a comparison to last year’s second quarter which was a little bit of a messy second quarter given that we were opening, there wasn’t quite as tight a control over the expense levels and anytime you open a property you’re going to have, spend a little bit more on staffing and a little bit more on food and beverage waste than you would have expected to when you’re running at full speed.

So I think the National now is running at full speed. Phil Coffey who is our general manager there and his team have done a tremendous job really focusing on setting appropriate labor standards and managing the business as efficiently and as effectively as possible.

I will, I do want to make sure that we do reiterate that this was an expected performance and as you can see we didn’t change our guidance for the National and so we’ve gotten now two good quarters behind us at the National really the two strongest of the year, and so I want to caution you and the rest of the investors that you shouldn’t expect that we’re going to take the first two quarters and double them and that’s going to be what the year’s performance is going to be.

As we get into Q3 and Q4 we get into a much more transient oriented period of the year especially when you get into Q4 and this will be the first year with the National having its Christmas program which will be similar to what we have at the other hotels. And those programs typically take some time to develop into good strong demand generators.

So net, net great performance from the National, happy with the direction its headed. I think the team is doing a great job and that’s about it. In terms of your question on how attrition and cancellation affected the property, I’ll have to get back to you on that specifically. I don’t have that with me handy. I don’t recall that it was an enormously large impact but I’ll get back to you.

Colin Reed

Let me just add one last thing, we’re certainly not as a management team taking a lack of honor on these results for the National. What is clearly squarely in our mind is that after being [sentence] that we received from Prince George’s County, we have $900 million invested in this hotel and this hotel has a ways to go in order for us to get the appropriate rates of return that we so desire.

And so over the next two, three, four years we’ll be working aggressively to move this hotel into the levels of revenue and profitability that we anticipated when we invested money in this hotel two, three, four years ago in a little bit of a different economic environment. So we’re cautiously optimistic and we’re reasonably pleased with the results for this quarter but we’ve still got a ways to go.

Chris Woronka - Deutsche Bank

As we think about the Mesa project, I certainly understand your comments about not wanting to commit any significant capital near-term but I guess we also know that now or shortly is probably the best time to start building given obviously a multi year build out and so I guess the question is as we talk to capital partners is there any, have you detected any increased willingness to potentially move forward with this relative to where it might have been in April or May.

Colin Reed

Let me touch on that, I want to comment that from a couple of perspectives, one of the things we’ve tended to do and you wouldn’t know this because you’re on the other side of the wall, but we have a very good relationship with the banking syndicate that are in our package. We meet with them frequently, we talk to them about our business, we talk to them about the vibrancy of our business and we have very good relationships with our banks.

We’ve also spent a bunch of time externally talking to people that have interests in investing in this sector. The big question for us as a company is what is going to happen to the already up and operating hotels that have been financed with CMBA stuff over the last two, three, four years that all going to need to be refinanced here in the next two, three, four years and whether there is an opportunity to gain control of supply in a way that is different to the way we’d have done it historically which is to build.

And that’s something that is on our mind. Its something that we discuss with our Board and it is stuff that we spend a lot of effort on externally talking to people that have some appetite to bottom feed in this environment. I remember all too well what went on after the S&L crisis in 1992, 1993 and I keep talking to my colleagues here about the opportunities that were created in that period of time and what we are doing as a management team is focus on those types of opportunities.

And I think that’s probably all I should say on that subject.


Your next question comes from the line of David Katz - Oppenheimer

David Katz - Oppenheimer

I wanted to obviously we’re positively inclined on what we’ve seen out of the National so far and I think some of it is a natural ramp up, some of it I think you’ve made some management changes there that are gaining some traction also, and I wonder how much of an opportunity you think there might be with some of the other properties to maybe learn from some of the successes that you’ve had recently at the National. And we look at this against the backdrop of David assuming the COO role and if we could just talk through what a realistic expectation is for some of the others particularly Opryland that kind of had a tough one.

Colin Reed

Boy there’s a lot of questions in that statement that you just made, a lot of different questions. First and foremost Opryland you’ve got to remember 12 months ago Opryland made $18 million of profitability. Opryland is being disproportionately hit by this wave of corporate cancellations that is received in the first half of this year.

Opryland still this year has operated approximately 60 points of occupancy yet has generated 25 points of margin. We’re sitting on top of that. We still see a lot of business that wants to book into Opryland. My view is that Opryland will recover into the 70’s and our goal for Opryland over the long-term when this economy stabilizes is to have it operating at 80 points of occupancy.

I believe with everything that we have done in Opryland this year, if we can get this hotel back in short order to 75 to 80 points of occupancy it will produce a lot more profitability than it did 12 months ago just because of what we’ve been doing.

David Kloeppel

Absolutely and your question is a good one but I would maybe rephrase it to say not so much what can we learn from the National that could benefit from the other properties, but really what can we learn from each of the properties to carry through to the other properties.

Because each of the properties is physically different so there are some unique characteristics about how we can service the guests when we’re in each property but as we go department by department and compare the four properties to one another one of the best [inaudible] demonstrated practice in each area.

And so one thing we’re doing now is we’re having regular monthly meetings to review those types of best practice opportunities to be able to drive, to learn from the Palms is best at department X, let’s understand why they’re the best, why their process is different and understand if we can move that process into the other hotels to really drive overall better profitability and better satisfaction from our guests.

So it’s a much bigger issue than just the National had a great quarter so what should we learn from the National.

Colin Reed

And I would say as well it just takes time when you open these big hotels. Opening these hotels that are 1,500 to 2,000 rooms with 400,000 feet of meeting space, its not like opening a 300 room hotel. We employ 1,500 to 2,000 people; we went through exactly the same issue with the Texan when we opened the Texan in 2004, the results for the first 12 months where we overstocked in the place because we wanted to ensure that we delivered high levels of satisfaction.

It took us a year and a half to two years to get that hotel to where we wanted it to get to and I think National is the same way and as David said, we were just dealt a few body blows early in this hotel’s life with things that we don’t need to talk about yet again. But we are pleased with the improvement in this hotel but as I said when Chris asked the question we’ve still got a ways to go for this hotel to get the sorts of returns that we all anticipated when we built this thing two, three years ago.

David Katz - Oppenheimer

So am I able to take away from this that there, as the overall the entirety of Gaylord grows that there is still some maturation to go on across the whole portfolio, not just obviously for National but just in general because I think this has been kind of a recurring question, what can we do to push up the profitability at each of the hotels as we proceed, so it sounds like this is a portfolio wide issue.

David Kloeppel

As I mentioned in my comments, the four things that I’m really focused on and trying to rally the rest of the organization around are get that star satisfaction, sales so therefore revenue drivers, and then margin management and that last one is what you’re hitting at and we are absolutely focused on continually improving the way we service our customers and the way we can do that in a cost effective manner.


Your next question comes from the line of Jeffrey Donnelly - Wells Fargo

Jeffrey Donnelly - Wells Fargo

Does your 2009 CCF guidance include or exclude the severance and the TIF gain.

David Kloeppel

It actually included originally the TIF gain but excluded the severance.

Jeffrey Donnelly - Wells Fargo

And I apologize if you said this on the call, do you share the Smith Travel index data for your hotels either alone or in the aggregate versus their competitive set.

Colin Reed


Jeffrey Donnelly - Wells Fargo

What are they?

David Kloeppel

We don’t have it in the release but we’re happy to share it. Opryland, what do you want year to date, three months or last 12 months.

Jeffrey Donnelly - Wells Fargo

I guess I’m looking for some context and maybe what it is maybe say year to date versus the last 12 months and just give us a sense of how you fair versus competition.

David Kloeppel

Year to date for Opryland on total RevPAR we’re at a 210 index running 12 months, its 247, remembering that Opryland substantially outperformed during the holiday season, its competitive set. National runs at about 2x the competitive set on total revenue, 2.5x actually, and that’s a little bit better than the last 12 months.

Palms total RevPAR runs at about 3x its competitive set and that’s consistent with the last 12 months. Its actually up about 10 points year to date versus last 12 months. And Texan runs at about 3x its competitive set and it is about 3.2x for the last 12 months.

Jeffrey Donnelly - Wells Fargo

And I’d love to get a little bit more color on the advanced bookings, I think in the past you used to give a pipeline of advanced bookings that was for all future periods and now you obviously give sort of a net change for future periods in this quarter, can you give us what the bookings are for all future periods and perhaps how those lay out for 2009, 2010 and 2011.

David Kloeppel

We tend not to want to give out the annual number on bookings pace because, when I say annual I mean the by booking period so giving you 2009, giving you 2010, giving you 2011, giving you 2012, because the numbers bounce around a lot and it would cause somebody whose looking at it from the outside loads and loads of questions about what’s happening.

So what we’re trying to give you is a sense of what I think most people, what people are most focused on right now which is 2009 and then generally what direction are we heading for 2010. So I don’t want to give it to you by booking period in its entirety because if it give it to you orally then I’m going to set a standard that we have to give it to you in the future and then I think we open ourselves up to an entire hour call on what happened to bookings in 2013 versus 2012.

Colin Reed

And the reality to this question is that we shift focus within three to six months blocks. We look at future pace and redirect our sales force to deal with a particular period in a particular year and we, I just don’t want to get into competitively sharing too much of this data.

Jeffrey Donnelly - Wells Fargo

I guess I’m trying to figure is making some broad comments, but I guess I have to believe that the cancellation and attrition activity you mentioned you saw in Q2 I think the difference between the 498,000 nights you booked versus the 171 net that you put on the books, I guess I’m assuming that that 330,000 differential was probably most likely cancellations and attritions say for six to 18 months out, did something change in the minds of the event planner or are they trying to make some sort of change in the plans before they trigger fees, but conversely I would think the new signings were most likely beyond that period of time so I’m trying to figure out if you see sort of a choppy next few months or next few quarters but you’re actually setting yourself up for a better 2011 and 2012. Despite what your desire is to be booking more near-term I’m just wondering if your actual activity is a little more further out.

Colin Reed

We are booking short-term and we’re booking disproportionately more short-term than we’ve historically booked as it relates to all bookings. But we are booking a lot of business, a lot of that 490,000 room nights were for future years, a lot of it.

Jeffrey Donnelly - Wells Fargo

And maybe just asking my first question just a different way again, but are you able to give us some context as I said the difference between the 498,000 nights you booked versus the 171 net, that 330,000 future nights that I guess were attributed to cancellations and attrition, can you give us some context on what base of all future bookings does that represent and how much of those cancellations are [inaudible] attrition.

David Kloeppel

There are, and this is where the bookings information gets confusing so I’ll give it my best shot. So the difference between gross which is the 498 and net which is the 171 is attrition in the period, cancellation in the period, and block adjustments I’ll call it, inventory adjustments which is inventory adjustments for any future period based on changing trends.

So the pieces that you really can’t observe from our release you can see the difference in attrition and we talked about that of the attrition this period versus last period versus last year, same time last year. The cancellation number I think we gave you that number as well; it’s the sales inventory adjustments that drive a significant portion of the difference between gross and net.

And in today’s environment and this is what I was trying to explain in my comments, in today’s environment we’re making a much more aggressive or maybe better said conservative assumption around how many people are going to show up relative to what the meeting planner is saying might show up. So in other words the gross number is, the meeting planner says I want 1,000 room nights and we sign a contract for 1,000 room nights. That’s the gross number be we may based on our knowledge of what’s happening in the marketplace and based on what we expect to happen in the future, we may adjust that 1,000 down to 800 because we don’t expect as many people to show up as the meeting planner is anticipating.

So that would mean that we have instead of 1,000 gross we have 800 net. Do you understand that so far.

Jeffrey Donnelly - Wells Fargo

That makes sense, maybe to rephrase my question I guess maybe of that 330, how much of that is block adjustments and I guess sort of within that how many of those block adjustments are made your choosing versus the event planner actually calls and says 18 months out this is going to be a smaller group or I need to cancel.

Colin Reed

Most of it is us.

David Kloeppel

Most of it is us. We’re constantly reevaluating our inventory and we have plus or minus 2.5 million room nights of inventory on the books any time, in net inventory. And so we’re always reevaluating that 2.5 million room nights of inventory to say, okay how much of that do we think is actually going to show up.

So in this type of an environment where we’ve seen significantly increasing attrition levels and we expect that the economy will continue to face a headwind for a persistent period of time we’re adjusting a large portion of that $2.5 million worth of inventory on the books and the difference between gross and net reflects that. And so we’ve adjusted that for 2010.

We’ve been much more conservative around how many people we expect to show up relative to what we had same time last year.


Your next question comes from the line of William Marks - JMP Securities

William Marks - JMP Securities

Question on Mesa, is there a, if you were to move ahead with it in the near-term, what would you said that the ideal structure is right now, capital structure.

Colin Reed

Well in this environment with what we’ve been living with here I think in Mesa, we would have to, we would do this in some form of joint venture arrangement. This is not something that I think we would contemplate, not I think, I know we would not contemplate doing it 100% on our balance sheet with what we’ve lived through here for the last 12 to 24 months.

So that’s the way we are contemplating Mesa and frankly we’ve pushed out the time lines on Mesa without sort of contractual obligations and continue to review all of that stuff.

William Marks - JMP Securities

I assume that you’ve also pushed out the expansions on a few projects as well.

Colin Reed

Absolutely we’re 100% in control of those.

William Marks - JMP Securities

And then on your response I believe to Jeff’s question on the RevPAR, you gave total RevPAR numbers, I understand those are relevant, I would think RevPAR is as well. Can you, you don’t have to run through all the numbers but are you significantly outperforming the competition just based on a straight RevPAR.

David Kloeppel

It depends on the property. Opryland no, National on straight RevPAR we’re in line, Palms we are outperforming, and Texan we are outperforming.

William Marks - JMP Securities

And in the current environment I know you’re working a lot on margin, how on the food side of things versus the room I know the margins themselves are a lot different than the other, where have you been able to find cost savings in both areas.

David Kloeppel

Yes, we’ve gone through all the departments in the hotels and we, this is the exercise we did back in early this year and we were able to identify opportunities for cost savings pretty much across the board but as I said earlier to David’s question, one initiative that we have underway is to continue that continual process improvement and continue to that benchmarking and best demonstrated practice across the hotels.

Colin Reed

And our procurement processes have improved a lot this last 12 months and have yielded real savings and we’ll continue to refine that.

William Marks - JMP Securities

And then are there any capital raising plans, I realize you’re not going to discuss them too openly but do you feel like there’s a need to raise capital at this point by selling any interest and assets, by raising equity and just if you could discuss that briefly.

Colin Reed

There are two answers to the question, do we need to raise capital and sell assets and I think Mark dealt with that when he talked about our bank lines, we’re well and truly within all of our covenants. We expect to generate healthy free cash flow this year and next year. There’s no necessity to do anything. No necessity to panic.

However the second piece of the equation is so what are going to be the opportunities, what are going to be the opportunities that a company like us can take advantage of and those are things that we are basically focused on every single day. And so I’m going to stop there because all I’m going to do is sort of speculate on how we take advantage of all of the opportunities that we believe will be forthcoming here over the next one to two years and I think that’s a little bit inappropriate at this stage.


Your next question comes from the line of Kevin Milota - JPMorgan

Kevin Milota - JPMorgan

Quick question on the advance bookings I was wondering if you could provide some context in terms of the rates that you’re currently booking at and maybe in terms of year over year percent change just given your emphasis on securing bookings for second half 2009 and 2010.

Mark Fioravanti

As we look at what we’re putting on the books for 2010, they’re at rates that are consistent with the room rates that we had on the books for this year at the same period last year so rates we’re seeing some consistency in our rates for 2010 that are consistent with what, with 2009.

In terms of what we were booking in the second quarter of this year we’ve seen some decline in rates versus last year. If you look across our brand our rates are, that we booked in the second quarter are about 4% lower for second quarter than prior year.

Kevin Milota - JPMorgan

And then just in terms of the distressed environment, you might not want to comment too much here, but have you thought about reengaging the business strategy to move back to potentially [clearing] a 500 to 1,000 room property and slapping the Gaylord brand on it.

Colin Reed

You’re right that’s probably something that we probably don’t want to answer. I don’t mean to be cute about it but it’s a real good question, something that consumes us.


Your next question comes from the line of William Crow - Raymond James

William Crow - Raymond James

Let me just make sure I’ve got one of the previous answers correct which is the 41% advance booking rate in 2010 that is at ADR that is comparable to where you were this point last year, is that fair.

Mark Fioravanti


William Crow - Raymond James

Okay, I want to ask you about the expansion opportunities, let’s talk about transient demand what you’ve seen in July because I think that’s as close to fourth quarter as we’re going to be able to get.

Colin Reed

I’m not sure we should give out the specific numbers but July has been relatively good right across the board and talk about transient for July in broad terms, David.

David Kloeppel

We continue to see a lot of transient demand. Now the transient demand is more price sensitive than it was last year certainly but we have been able to in terms of our transient revenues be able to drive reasonably good performance. The Texan has had a program called Summer Fest that has been very popular and has been able to drive a large number of transient room nights albeit at a slightly lower rate than we saw perhaps last year.

If you look at all the hotels and just look at the second quarter rather than looking at July transient revenues were down about 6%, that’s certainly a whole lot better than the overall RevPAR decline so the transient business we’re able to stimulate kind of cruise lines, we’re able to stimulate the business if we get it to the right kind of package and pricing offer made available to them.

So we feel relatively good about what’s happening from the transient perspective. We feel relatively good about fourth quarter, all of our early channel checks indicate that the business should be consistent with our prior expectations so that was one of the reasons we felt comfortable continuing to affirm our guidance.

Colin Reed

You’ve touched on a subject that is something that we’ve applied a lot of time to here as a company over the last few months. Its clear from what Opryland does every Christmas that people, the transient consumer loves the assets that we own and so I believe there is a big opportunity for us on the transient side and I know David and Mark feel the same way and we’re going to continue to invest money into improving our transient delivery capabilities as an organization.


Your final question comes from the line of Steven Kent - Goldman Sachs

Steven Kent - Goldman Sachs

Could you just talk about what your competitors are doing in response to what’s going on, just more broadly. Some of them has said that they have become more aggressive both on corporate and on some of the association business and I just wanted to hear what you’re reaction has been and if you’ve seen any changes.

Colin Reed

Well, look, here’s the way I would answer the question, I was yesterday lunch time in a meeting with about 150 customers, and talked to a bunch of them. Its clear that our competition is getting focused on this sector that we’ve been very aggressively focused on for the last five years.

But I honestly believe and you may say that we’re out to lunch when I make this observation, I really believe that the meeting planner and the customer really truly understands that we are committed to this business. We’re not one of these organizations that sort of flip flop in and out based upon the economic conditions of the country.

We’re committed to it and our customers know that and our customers love us for that and that is why I think we were able to book in the worst recessionary environment this country has seen the Great Depression we were able to book almost half a million new room nights for future periods in the second quarter.

So, look, we only have four big hotels in this sector. We only have just over 1% of the market share of the large group business, these groups that are over 600 room nights on peak. I really don’t mind what, I don’t know how David, well I know how David feels about this, I don’t care what these other biggies do in terms of their efforts to go after these customers.

I know we can gain the share of business that we need to run these, run 60 points of group occupancy in these hotels. I know we can do it because I know that we have high levels of respect from the meeting planning community in this country.

David Kloeppel

I would say the challenge for us or the opportunity for us is to really focus our sales and marketing efforts around customers who are buying based on value and not based on price and this meeting that Colin was referencing he was just at, there certainly are a number of customers, some of whom were at that meeting, who very much are commodity based buyers.

They know what their program is, all they want is a certain number of rooms and a certain amount of space and they want it the cheapest price they possibly can. There is another portion of the meeting universe that’s a significant portion that’s very much focused on the value and the value delivered to the meeting planner and to the attendees.

And the things that we make available to the meeting planners and to the attendees that generate great amounts of value for them around our and part of physical space and the ability to network and part of it around the way our stars service them and part around how we program the building for them while they’re on sight really creates a great deal of value for those meeting planners and the opportunity for us from a sales and marketing perspective is to focus our sales efforts on those customers who are buying value and focus less on those customers who are buying commodity and I think as Mark indicated the bookings for the quarter were solid set of bookings.

They’re at a modest decline ADR year over year and I think if you ask our competitors for those same statistics you would probably find a lower volume of bookings and probably find a much lower ADR because they’re focusing on different things than we are.

Colin Reed

I think that’s it. If any of the, I’d like to again thank everyone for joining us this morning. If there are any other follow-up questions, please call Mark Fioravanti, he’s our new Chief Financial Officer that we have enormous faith in. And Mark will field out the questions, whatever you may have and thank you very much indeed for joining us.

This period of time has been challenging but I tell you I think we’re a better company today than we were 12 to 24 months ago. We’ve questioned a lot of the paradigms in our young brand and I think 12 to 24 months from now we will be an even better company. Thank you for joining us.

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