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Gaylord Entertainment (GET)

Q2 2007 Earnings Call

August 02, 2007, 10:00 AM ET

Executives

Colin V. Reed - Chairman, President and CEO

David C. Kloeppel - CFO and EVP

Carter R. Todd - Sr. VP, General Counsel, Secretary

Analysts

Napoleon Overton - Morgan, Keegan & Company, Inc.

David Katz - CIBC World Markets

William Marks - JMP Securities

Jeffrey J. Donnelly - Wachovia Securities

Presentation

Operator

Welcome to the Gaylord Entertainment Company's Second Quarter 2007 Earnings Conference Call. Hosting the call today from Gaylord Entertainment are Mr. Colin Reed, Chairman and Chief Executive Officer, and Mr. David Kloeppel, Chief Financial Officer. They are also joined by Mr. Mark Fioravanti, Senior Vice President and Treasurer, and Mr. Carter Todd, Senior Vice President and General Counsel.

This call will be available for digital replay. The number is 973-341-3080, and the PIN number is 901-5857. At this time, all participants have been placed on a listen-only mode, and the floor will be opened for your questions following the presentation.

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

Carter R. Todd - Senior Vice President, Secretary and General Counsel

Thank you. Good morning. My name is Carter Todd, and I am the General Counsel and Senior Vice President for Gaylord Entertainment Company. Thank you for joining us today on our second quarter 2007 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 other regarding Gaylord Entertainment 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 2007 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 Chief Executive Officer and Chairman, Colin Reed.

Colin V. Reed - Chairman, President and Chief Executive Officer

Thanks, Carter, and good morning, everyone. I am happy to welcome you to our second quarter 2007 conference call. This morning I will provide you with an overview of our business and then Dave Kloeppel, our Chief Financial Officer will review specifics of the financials and provide guidance. We will then conclude the call by answering any questions that you may have.

At the beginning of the year, we predicted that 2007 was going to be an extremely active and productive year, providing a strong platform for our breakout 2008. Well, with the first six months of the year closed, I can say it certainly has been busy. But more importantly we being productive, executing on our key growth objectives and unlocking additional value from what has become a significant brand in the hospitality business.

Now, on to some of the highlights from quarter, which was quite impressive. First I am encouraged by our ability to continue to attract high value, high margin customers, which is a direct result of our very strong relationships with meeting planners.

Revenue in our hotel segment increased over the last quarter by more than 7% due to our ability to command rates commensurate with our unique offerings. This is demonstrated by growth in ADR across our properties, which increased by almost 6% year-over-year. Importantly, flow through this quarter was strong as we increased our focus on controlling costs, resulting in CCF growth in our hotel segment of nearly 17%. This quarter overall same store production was 413,000 room nights, with same store bookings at the national totaling just over 100,000 definite room nights.

It’s also quite clear that customers aren’t only booking at one hotel, but rather taking advantage of our multiple locations, highlighting the attractiveness of our "all under one roof" proposition for convention customers and meeting planner.

Now as you've heard me say quarter-after-quarter, advance bookings represent a critical leading indicator of future performance. And Gaylord's accomplishment on this front… accomplishments on this front are very encouraging.

As we said before we target approximately 1.4 million room nights per year across our existing operating properties, which allows us to deliver 80 percentage occupancy points on a consistent basis. Advanced same store bookings growth of 8.6% this quarter places us well to achieve and exceed that objective. Occupancy levels for the quarter across the entire network surpass the 80% mark for the first time in our brand's history. As I've said several years ago, our goal is to get an 80% system-wide annualized occupancy. The 80% mark is key, and this last quarter’s results illustrate this is not just a pipedream and we are truly well on our way to achieving this objective.

Because more and more of these gets a premium groups, high paying quality customers, we must keep our service as fresh and keep our facilities fun and exciting to support the higher ADR levels and substantial outside of the room spending we are now experiencing across our system. Some of you who are new to our story may ask why is 80% occupancy points so important to you guys. The answer is simply this. As our occupancy grows, so does our CCF margin and by our calculations 80% occupancy should yield a consistent 30% CCF margin providing of course our rate structure stays intact. As Dave will describe in his section, this was the case in the second quarter.

As we have outlined to you in the past, expansion of our existing properties beginning with Gaylord Opryland and the addition of higher quality outside the room offerings and other attractions is key to our ability to accommodate this increased demand. That said, we have made meaningful progress in our efforts to make these out of the room offerings a more significant component of the Gaylord experience. As a result, total RevPAR for the hotel segment jumped nearly 10% this quarter to over $310.

However, even with all of the investment in our properties, none of that success in delivering the unparalleled customer service and attention that has become a hallmark of the Gaylord brand, will be possible without the tremendous efforts and energies of our stars. And as you know, we call our employee stars and they represent Gaylord’s most important resource. You hear me talk about our stars every quarter and I do so to remind you and our management that these wonderful people provide the vehicle by which Gaylord's performance is ultimately driven.

To ensure that Gaylord offers the industry… offers the industry leading guest experience, we pay careful attention to guest satisfaction scores. I am pleased that this quarter's results again demonstrate that our efforts are working as we continue to see increased customer satisfaction through our system.

In terms of our new development, at the Gaylord National we surpassed 1 million room night booked, quite a milestone to achieve with 10 months to go before its opening. This achievement is meaningful as it reflects our customers' confidence in, and excitement for this property and for our business generally. We remain on schedule to open Gaylord National next April, which could not come soon enough for the meeting planners and convention customers.

As far as our West Coast expansion goes, as you may know we have been in negotiations with City of Chula Vista, the Port Authority of Greater San Diego and union representatives in the San Diego area for more than a year, with the ultimate objective of building a world-class facility on the San Diego bay front in the City of Chula Vista. And while we're eager to expand and grow Gaylord brand, we are mindful of the importance of taking on projects that will provide some returns over the long-term. It’s fair to say that negotiations with the City and the Port were progressing in a collaborative and professional spirit. But alas, we ran into a major roadblock with the San Diego unions.

Now contrary to the rhetoric that you may have read or heard regarding the stalemate, the issue is unions are insistent that we only build the project with union labor. Given the fact that 80% of the contractors in the market are non-union, this would have severely limited the bidding process thus increasing costs. We informed each of the parties that if we are unable to reach a fair compromise on these issues with organized labor, the economic feasibility of the project will be compromised and we would have to withdraw. The unions were not prepared to compromise in any way and that’s when we informed both the City and the Port in early July of our decision not to go forward.

Now over the last month our company has been overwhelmed by the outreach of the community voicing support and offering support to get our deal done with or without the union. Recently the national leadership of the AFLCIO reached out to us to urge us to make a counter proposal to the local unions, which we did earlier this week, in part stimulated by the support we’ve received from the community. As you may have read, the union yesterday rejected our proposal out of hand adding a few colorful misleading comments about our company.

So the question for us is, what do we do next, if anything? The citizens’ small or large business, local government and the port authority have earned our company’s respect. And over the next couple of weeks we will study many of the suggestions made to us and make our position on this development very clear with you and our investors and the stakeholders in San Diego.

In the meantime we remain confident that expanded distribution will be a key element for Gaylord’s success and continue to evaluate many opportunities in a number of markets to acquire or build new properties. Our early success in Washington DC area gives us great confidence that our model can and will work in additional markets.

Now I’d like to touch on quickly a couple of strategies we have in place to strengthen future growth.

First we continue to focus on our core brand in the hotel business. During the quarter we closed on both Bass Pro and ResortQuest sales which were critical steps in our efforts to divest non-core assets. We raised more than $366 million collectively from these sales and this capital will be invested in the development and expansion of our Convention Hotels. And of course, settle our tax bill on the Viacom forward sale the previous management of our Company entered into years ago. As a quick sidebar, I cannot tell you how happy Dave Kloeppel and I are that this contract has finally expired and that we will relieved at last of explaining to investors and analysts this hugely confusing arrangement. Also I’m sure those of who that are long term followers of our equity, are relieved that you wont have to listen to our painful descriptions of this contract.

Now let’s shift to the fun stuff. In terms of our efforts to grow distribution of the Gaylord brand, we believe that the current group demand we are generating will support additional hotel properties and expansion of our existing properties. Given our success with large groups we’re confident that we can capitalize on our great relationships with the meeting planners to garner greater market share whether in small group… in the small groups segments by acquisition in strategic locations or developing more properties similar to our existing program and also by expanding those assets that today we own and operate.

Now, let’s talk about the expansions in more detail.

[Technical difficulty]

Operator

Ladies and gentlemen, please hold the line as the conference will resume momentarily. Once again, we do ask you for your patience and please hold on the line until the conference resumes. Thank you.

[Music]

Operator

Gentlemen, you may resume your conference.

Colin V. Reed - Chairman, President and Chief Executive Officer

Thank you. For those folks of you, that are still on the phone now, we apologize. We had a technical crash in our boardroom of our systems there, and so we've move to another operation in another office.

So let me pick up where I was. I was talking about our expansion and what we are going to be doing at Gaylord Oprylands specifically. At Gaylord Opryland we're planning a new 400-ish room standalone hotel contiguous to the existing hotelm as well as an additional 400,000 sq. ft. of meeting space. The Gaylord Opryland expansion will serve as a model for other possible expansions and enhancements across the network. Now because of the enormous economic benefits that this expansion will create for the State of Tennessee in the City of Nashville, State and Metro governments have agreed to support our sizable investment with certain tax incentives to the tune of about $80 million, and we are in the final stages of solidifying the agreement with the Metro government and hope to have all governmental and our board approval completed by the end of August.

In regards to the Texas project, as previously mentioned, we are considering expansion of this asset and are in advance discussions with both the city of Grapevine and the corps of engineers whose support we need to grow this property further. We hope to bring these agreements to conclusion over the next several months, and they will be… those two will be very exciting expansions.

Finally we are continuing to supplement the existing properties to attract transient guests and we'll have more to say on this as our plans come together. Now focusing on the transient guests is critical for us to fill the one and two day gaps that we get between these large groups meetings.

I want to conclude by answering a question that I'm asked a lot, which is, why is Gaylord different from the other companies in the hotel industry? I know we get a little monotonous talking about this, but I want to do it once again. As we've said on numerous occasions, our business model is very different from the majority of players with whom we compete against.

First, as you likely will know by now, the vast majority of Gaylord's customers book large blocks of rooms, literally years in advanced lending unparalleled visibility and stability by signing contracts, enabling us to plan and develop growth strategies for the long-term. We do this without having to worry about the volatility, typical to the hotels catering to the overnight guests. In addition, our unyielding dedication to customer service and our "all under one roof" model has produced an extremely loyal customer base that not only stays at one property, but rotates through our networks. These characteristics also give us confidence that our strategy to expand our reach to other markets will succeed.

Now look, what I'm going to do is turn the phone over to David Kloeppel to talk about our financial results for the quarter and then we'll deal with questions.

And again, I apologize for that technical difficulty, it's unfortunate.

David C. Kloeppel - Chief Financial Officer and Executive Vice President

Thanks, Colin. Let me go quickly on the key operating drivers of the business and on the quarter's performance, and then we'll talk a bit about financial outlook.

As Colin noted in his comments, our hotel business continues to perform well, and generally as we expected when we entered the year. We knew this quarter would be one of the strongest of the year, and we delivered on those expectations with a 13.8% increase in CCF, and increaser in hospitality revenue of over 7% and occupancy above 80%, as well as strong total RevPAR and ADR growth.

Group business in our properties and our advance bookings in this sector, the group sector continues to be quite strong. We believe our continued good performance stems from our best-in-business customer service and our unique differentiated out of the room offerings and our fantastic relationship with meeting planners who, as Colin said, are finding it difficult to offer clients an equivalent alternative. Based on our advanced bookings, and rotational statistics, we're confident that we can sustain this success into the future.

Now let me review each of the specific… financials at each of the properties. And I'll start with Gaylord Opryland.

Opryland had a strong quarter. Revenue increased 6.7% to $71.4 million in the second quarter of '07 compared to the prior year. The growth in revenue in the second quarter was driven by higher occupancy levels which reached 84.7%, a 580 basis point increase over last year's second quarter. It also experienced increased ADR which came in 6.6% above last year. As a result, RevPAR showed 14.5% growth over the prior year quarter.

CCF increased 17.3% to $21.3 million, also due to the higher occupancy levels as well as higher margin business from a better mix of corporate and association customers visiting the property. Additionally, CCF margins benefited from higher occupancy levels and a focus on cost control increasing 270 basis points to 29.8%. The improved group mix which drove higher consumption outside the room contributed to total RevPAR growth of 12% to $285.95. These results indicate that occupancy levels of above 80% on a stabilized basis lead to very strong CCF, very strong CCF production and CCF margin improvements.

You should note that in the second quarter of this year, the operating statistics at Opryland reflect 12,574 rooms out of service under available inventory compared to only 180 out of service a year ago. As we have previously discussed, to complete our room renovation program at Opryland, we anticipate approximately 48,000 room nights out of service in all of 2007.

The result of the Palms were in line with our expectations. The hotel posted a 2.3% revenue increase to $46.1 million in the second quarter of '07. That compares to $45.1 million in the same quarter last year. This difference was due primarily to an increase in ADR of 2.6% to $108.08 compared to $175.53 last year. CCF remained generally flat at $14.2 million compared to the prior year and CCF margin was about 30.8%. The margin was due primarily to a 5.8 percentage point decrease in occupancy which was offset by the increase in ADR that I already referenced. I think it's worth reminding everyone that in our business occasional ebbs and flows in occupancy from quarter to quarter can and should be expected and no property will always have many year quarterly growth. The Palms for instance, should experience a stronger second half of the year compared to the second half of '06 than it experienced in the first half.

The lumpiness and long term booking window that we experienced with our customers makes planning quarterly comparisons difficult. Therefore it's not what we focus on. Instead we focus on driving the highest possible yield for our properties for a given year. And on that note if you dig into the Palms results for the quarter you'll see a very healthy business with increased pricing in the rooms and in our food and beverage areas.

Returning to my review of the Palms financial performance, compared to the $147.10 in the second quarter of '06 this quarters RevPAR decreased to $141.23. However total RevPAR growth of 2.3% to $360.58 was the result of our efforts to attract higher quality customers who spend more on outside the room offerings and attractions. In the quarter, we achieved double digit price increases in our F&B areas driving significant margins on yield of property.

Now moving to the Texan, which posted very strong results. For the second quarter revenue increased to $48.4 million or a 12.9% increase compared to the prior year. This increase was primarily driven by a 340 basis points increase in occupancy to 73.4% as well as a strong 7.7% increase in ADR. CCF increased 41.9% to $15.3 million compared to $10.8 million in the prior year and that resulted in a 640 basis point increase in the CCF margin. Strong CCF performance was the result of higher RevPAR and exceptional banquet flow through. RevPAR in the second quarter increased by 13% to $131.29. The Texan had an impressive quarter in terms of total RevPAR which increased 12.9% to $353.24. This was driven by increased banquet [inaudible] covers and a fully operational Glass Cactus that was received very well by our guests at the summertime and contributed quite nicely to our outside the rooms spending on the Texan.

In terms of our operating attraction segment, revenue of $20.9 million in the second quarter represent a 5.6% increase compared to the prior year.

And now let me just quickly transition to guidance before I turn the call back over to Colin for Q and A.

Our hotel brand remains robust with advance bookings driving occupancy levels that will continue to enable us to post strong CCF and RevPAR numbers. These advance bookings are trending at a record pace year to date, and as such we have increased our 2007 full year guidance by 50,000 room nights from 1.3 million to 1.4 million room nights to 1.35 million to 1.45 million room nights. However while our group business remains quite strong, the recent issues that we have all seen experienced in the capital markets related to the sub-prime and leverage lending practices have created perhaps the current economic environment that we believe creates some risk for our seasonal holiday transient business. The potential reduction in local traffic at our properties around the holiday season and consequently the potential negative impact to outside the room spending, has caused us to revise our 2007 RevPAR guidance from a growth of 7% to 9% down to a growth of 6% to 8%. That said, our CCF and RevPAR guidance for the full year of 2007 remains unchanged and we are very excited about the prospects for 2008 and beyond.

Return the call back over to Colin for any concluding remarks and questions.

Colin V. Reed - Chairman, President and Chief Executive Officer

Okay David, thank you. Elsa, we are happy to open up the lines now for any questions if we have anyone left on after the little hiatus there in the middle.

Question and Answer.

Operator

Thank you. The floor is now open for questions.

[Operator Instructions]

Our first question is coming from Nap Overton of Morgan Keegan. Please go ahead.

Napoleon Overton - Morgan, Keegan & Company, Inc.

Good morning. With the developments on Chula Vista this quarter, it raised the question considerably of… so what are they doing with other sites and what other… where are they with other potential development projects. And while I know you, I know you don’t want to disclose details, could you give us some color on your efforts there?

Colin V. Reed - Chairman, President and Chief Executive Officer

Yes, Nap, good morning, Colin. We try not to go into too much detail about where, but I would say to you that we're currently looking at, I would say aggressively, five to six different developments that we have been looking at now for oh, three, four, five months, and we continue to get more and more folks coming to us that add to the bucket. We've got a lot of very interesting things that we're working on, though we really don’t want to talk about prematurely because we don’t want to tip off the competitive, the competitive dogs. And that's where we are. But we've got a lot of stuff cooking. The issues for our company is not going to be how many development deals we have, it's how we effectively finance it for the best returns for our shareholders. That's the challenge that we, that we've been working on.

Napoleon Overton - Morgan, Keegan & Company, Inc.

Okay. And then just one other thing, or, maybe two other things here. Was there anything in particular in the attraction CCF or increase this quarter or was that just on a quarterly anomaly?

Colin V. Reed - Chairman, President and Chief Executive Officer

No it's not a quarterly anomaly. What's happened is, with one of our attractions, The Wildhorse, we actually have a… we brought new management into The Wildhorse that really understands this business and has done a remarkable job in turning around this asset. And we expect this business to continue to grow. All parts of our attractions businesses this quarter, performed very well. And we don’t see that trajectory… we don’t see, we don’t see the quarters results as an anomaly, we see the business continuing to grow. So don’t look at it as an anomaly.

Napoleon Overton - Morgan, Keegan & Company, Inc.

Okay. And then finally your consolidated cash flow margin has improved steadily over the past several years. Where do you expect that to stabilize?

Colin V. Reed - Chairman, President and Chief Executive Officer

The issue… I'm not going to get into the prediction, into the soothsayer role here, because there are so many dynamic things going on in our business. We've upgraded food… we're upgrading food and beverage operations. We're putting a night club into Gaylord Opryland. We're looking at expansions in these hotels. We're continuing to massage the quality of the customer. And all of these are going to have substantial impact we believe, positive impacts on the CCF of our business. So, what I've said to our management and what I've said to our investor group, our first goal is what we call internally our 80-30 goal. 80% occupancy and 30% cash flow margins. Do we have the ability to raise it further?

Absolutely. It's all the function of the quality of the customer and all of these attractive things we put into these facilities to captivate the customer and get more of a share of wallet. So, I think you'll continue to see our CCF margins go north.

Napoleon Overton - Morgan, Keegan & Company, Inc.

Thank you.

Colin V. Reed - Chairman, President and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question is coming from David Katz of CIBC Worlds Markets. Please go ahead.

David Katz - CIBC World Markets

Hi, good morning. I've obviously been on and off a little bit this morning but, can you give us a little bit of an update on the sort of smaller box strategy that we talked about back at investor day?

Colin V. Reed - Chairman, Chief Executive Officer

Yes David. Good morning. It's Colin.

David Katz - CIBC World Markets

Good morning.

Colin V. Reed - Chairman, Chief Executive Officer

And we too have been going on and off unfortunately. We're looking at a number of locations as I sort of mentioned to Nap a few seconds ago. We're working through the model. We've concluded all the meeting, planning, research and we're as excited about it today as we were when we met in Washington, a couple of months ago. And we will be updating and talking to our board about it next week at our scheduled board meeting and laying on a long range plan to our board. And publicly we'll have more to say on this over the next two to three months.

David Katz - CIBC World Markets

Okay. Thanks very much.

Colin V. Reed - Chairman, President and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question is coming from Will Marks of JMP Securities. Please go ahead.

William Marks - JMP Securities

Thank you. Good morning, Colin and David. Two questions here. On Texas, you mentioned expansion. Like, you mean rooms, and approximately how many are you looking at the same type of expansion, as at the National when you decide to grow that?

Colin V. Reed - Chairman, President and Chief Executive Officer

Yes, Will, good morning. The issue we have at the Texan is a little different to the issue we have with National in the sense that the surrounding real estate is owned predominately by the corps of engineers and the… as that has sublet quite a bit of that land to the city of Grapevine, and we have been in lots of discussions with these folks about expanding. The City has been encouraging us to expand because what is going on in Grapevine is more hotels are getting built contiguous to our hotel. The amount of demand that we are generating into that market is causing other hotels businesses to build. So what we have been looking at through some very detailed analysis is potentially putting up with just 250,000 to 300,000 net speed of meeting space an outwards of 500 hotel rooms in that market. We believe the demand, warrants it [ph]. We believe the returns are going to be very good. We also want to potentially build in that market, an expanded pool complex to really accommodate the leisure demand that we are building in that market.

That hotel has been a big surprise as… you've studied our company now for five to six years and that hotel has been a very big surprise as our brand has taken traction. It’s performing substantially ahead of where we thought it was going to perform and it would seem that the customer demand for this location and facility continues to build. So we want to take advantage of that.

William Marks - JMP Securities

Okay. Great. And another note you mentioned that… or in your press release you referred all the destinations that you may ResortQuest and BassPro $366 million that you have raised. Should we assume in our ’08 numbers any kind of tax on that?

Colin V. Reed - Chairman, Chief Executive Officer, and President

Yes, Dave you want to talk about that.

David Kloeppel - Chief Financial Officer David

Yes. Will, good morning. When you put together the… really the three transactions that occurred in the quarter. The settlement with Viacom transaction, the ResortQuest sale and the BassPro sale, the total tax build from those three transactions should be in the neighborhood of $90 million.

William Marks - JMP Securities

Thanks. The Viacom is not taking place yet, right?

David Kloeppel - Chief Financial Officer David

Viacom have matured in May and the tax payment review later this year.

William Marks - JMP Securities

Okay. So there has been… okay, so you haven’t take those… took the cash yet.

Colin V. Reed - Chairman, Chief Executive Officer, and President

Correct.

William Marks - JMP Securities

Okay. So the total… okay, so $90 million that’s fine. Okay, some other questions here quickly on… in terms of that the acquisition strategy question that you just answered. Would these be mostly joint ventures or can we generalized with that statement?

Unidentified Company Representative

No, you can’t generalize on it. It really depends where it is and who currently owns it. And you can’t generalized, it will be project, I think it will be project specific for the short term until we have this boarder capital bucket that we talked about at our Investor Day.

William Marks - JMP Securities

Okay. And then on the National you gave the total spending to-date or we still on budget, approximately you heard something million and can you… may be give us an idea of how that will be spend through next year.

Unidentified Company Representative

Yeah. We haven’t had any additional buzz to the number that we last reference with you are correct and almost we said 870. In terms of the cash flow, Dave we spend about 500 on it so far.

David Kloeppel - Chief Financial Officer David

Yes, 500 so far was spend about another between 2 and 250 this year and the remainder will occur in the first and second quarter next year.

William Marks - JMP Securities

Okay.

David Kloeppel - Chief Financial Officer David

That hotel will continues to excite us because of the demand for room nights and we haven’t even opened up the transient bucket yet. We haven’t open up the local corporate bucket yet for bookings. And we have million on the books and we have a lot of tentatives and lot of prospects and we are very excited about that hotel.

William Marks - JMP Securities

Okay. Thank you. And one final question, may be more qualitative. On the Palms I know you were trying to… make sure we didn’t have too much concern there after roughly five quarters. I know that in the first half of the year that CCF is fairly flat there. I am curious if any… if there is any issue there with competition and I know there is additional competition with the hotel coming in at some point and possibly others. So may be you can just address the landscape there.

Colin V. Reed - Chairman, Chief Executive Officer, and President

We talked about the advanced bookings in the Palms because again as David hedge back to you, I was actually quite explicit about the lumpiness of that business. The port bookings of the Palms are very exciting. I mean what’s going on there is pretty good even with a competitive landscape, potential competitive landscape change that is so different from the other markets that we are in. David will give some color on that space.

David Kloeppel - Chief Financial Officer David

Well year-to-date we booked at the Palms about 180,000 room nights and that compares to 115,000 room nights that at the same time last year. And is the highest number of room nights we booked in the first half of the year since we began tracking bookings for the Palms back in 2002.

Colin V. Reed - Chairman, Chief Executive Officer, and President

And we paid a good rate too.

David Kloeppel - Chief Financial Officer David

Yes. And its very strong rate. We talked about our, we talk you about… we talk about with you before our yield management system and how we mange rate integrity. And so all those 180,000 room nights have to hit those yield targets that we expect for whatever date of booking.

So the competitive environment in Orlando continues to change the world synergistic… just open [ph] there or just about the open and expansion that is… a very large [inaudible] space and then there is Canyon [ph] Creek, there is Canyon Creek and then Single Creek [ph] up in last year. But really none of that had an impact on us. The Single Creek property opened middle of last year and we have had really know that’s on… our advance bookings and know back in our results that appear to be related to Single Creek.

As far as the advance booking is go for ’08, ’09, ’10 we are sitting here today and we are continuing to build on what we believe our record bookings for ’08, ’09, and ’10 for the Palm. So all that new supply has been talked about has so far not affected our workforce because we didn’t lost any employees to those properties or land open. It hasn’t affected our ability to drive group business.

And as I mention in the quarter we had… we made decision along the way to be more aggressive on price first in the room then outside the room at the Palms. We are driving nearly 20% price increase on the outside of the rooms then to the Palms. And that’s by attracting better groups into the house. As I… as we talked about time to time again our business is quite lumpy and giving… looking at kind of quarter-by-quarter by comparison that is always pretty difficult with our hotels. So Palms is looking like it’s going have a better second half and had first half in terms of comparison and we really don’t have any concerns over where the Palms headed, we think it’s going quite charm going forward.

William Marks - JMP Securities

Great. That’s perfect. Thank you very much.

Unidentified Company Representative

Thanks Will.

Operator

Thank you. Our next question is a follow-up coming from David Katz of CIBC World Markets. Please go ahead.

David Katz - CIBC World Markets

Hi. And again sorry we have already gotten to this, it’s not enough. But with the financing environment where it is. One of the issues it’s been on the board for a long, it’s the notion bringing in JV partners for either existing properties or new ones. Has any of this… any events for last couple of weeks changed your thinking on that. And we… I will speak for myself; we have always sort of looked at the prospect of drawing some capital out of the mature properties as a positive dynamic or a positive catalyst for the story. So whatever updates you can give us on that would be helpful.

Colin V. Reed - Chairman, Chief Executive Officer, and President

Currently financing environment and…

David Kloeppel - Chief Financial Officer David

Sure. Yes, David, our view what’s occurred in the financing environment over the past several weeks and days is that, it has some impact on our access to capital, but it’s somewhat limited. Most of… from everything we’re hearing, most of what affecting us the financing environment is much more how we leveraged transaction and paper than we have… than we would be trying to pursue, and as we think kind of long-term capital availability for ourselves, based on what we have on the books right now in terms of our pipeline with the expansions Colin referenced, and with [inaudible] assuming that it goes forward, we have one other hotel to build. We can do all that stuff on our own balance sheet with pretty reasonable levels through 2010-2011.

The question for us is as we continue to pursue big opportunities and ways to go to business, whether those business acquisitions or hotels in new markets or new large development in other markets outside the ones we talked about, then the question is how do you plan to finance those activities. And we still continue to think there is a pretty robust market for JV capital out there. We are not going to be a buyer of an asset or a JV partner willing to put 80% or 85% of the value on a property. So the trouble that has affected these mezzanine markets shouldn't have much of an effect on us.

Colin V. Reed - Chairman, President and Chief Executive Officer

And the other thing David, you used the word in your question that I think is the key to all of this, you said taking capital off the table on these "mature assets." Well, we're looking at expanding every single asset we own because of the demand for business we generate. And if we'd have gone and sold the Texan a year ago or two years ago, we'd have left 100s of millions of dollars of capital appreciation on the table. And what we've been consistently saying here is, when we have the need to reinvest this capital into very compelling deals, and we believe these projects nearing maturation, then that’s the appropriate time to do it. But the risk I suppose is if the multiples in the hotel industry shrink or contract back to the 10/11 level, my considered opinion is I don’t think you're going to see that, because there's not a lot of new supply being built at the high end. There is a lot of limited offerings being built in this country, but that’s not with whom we compete. And that businesses continue to get stronger and stronger and stronger. And I don’t see the multiple of that business shrinking. And a we've said to you guys, the investment community, in the investment community, we believe our hypothesis over the next 12 to 24 months is going to convince the investment community that our business is very different to the typical four star hotel business, because of the predictability. And our multiple should be more in line with the office industry that it should be the transient hotel business. And so, this is a bowl we juggle. And we will obviously rotate our capital when there is very compelling reasons to do that, when their properties are maturing, and we have great deals to invest.

Unidentified Analyst

Thanks very much.

Colin V. Reed - Chairman, President and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question is coming from Jeff Donnelly of Wachovia Securities. Please go ahead.

Jeffrey J. Donnelly - Wachovia Securities

Dave, I actually just wanted to clarify the comment you made about the impact of sub-prime on consumers and those transient demand. Are you focusing, I guess what I'll call the day-trippers who come to walk around sort of the ice sculptures and things that you guys do around the holiday time, or at you actually looking at the decline in room demand and the out of room spend at the property.

David C. Kloeppel - Chief Financial Officer and Executive Vice President

We're concerned more with the out of room spend than with people coming to the hotel. And that’s why the RevPAR guidance was not adjusted, only the total RevPAR.

Jeffrey J. Donnelly - Wachovia Securities

But the issue we're concerned with is the traveler who comes to Orlando from Atlanta who is going to be here for three days, are they going to spend $300 outside the room everyday, or are they going to spend $250 outside the room everyday? So it's that piece to us is the day-tripper or the [inaudible] social parties that occur during the holiday season that we gather a lot of, we end up generating a lot of revenue from in the holiday period are they going to be as festive and as big and extravagant as they have been in the years past.

Jeffrey J. Donnelly - Wachovia Securities

I know we're in a different time of the year, but leisure travel just generally speaking in the country is pretty strong in the summer months. Are you guys seeing any signs of this now, because a lot of your peers have reduced their RevPAR guidance it hasn’t really been on that particular justification.

Colin V. Reed - Chairman, President and Chief Executive Officer

Yes, this is Colin. Let me be little… let me very clear about this. This is the time of the year when we sit down with our operators and produce that long range pla for this year, year after, year after. And when we've gone through this process, and we've had a little bit of a dialog about what potentially could happen, as to our operators towards the latter part of this year around the leisure segment. We're not seeing it in our business today. There is this debate and there are hypothesis that our people have put forward to say we just have to be cognizant of this. So, we don't see any change in the room night side of that business. We see a room night demand getting stronger and stronger. And, so this modification in total RevPAR, my personal view is I'm not altogether sure that we're going to be impacting sub-prime markets in our Christmas period. But we're being cautious here. That’s the issue, and that’s what we've done, and the ad business is very strong right now.

Jeffrey J. Donnelly - Wachovia Securities

And I apologize, this one is for David, I was off and on earlier on the call, if I might have missed comments you made on Chula Vista. But could you share with us maybe what the reaction was of I guess the national leaders, to the extent that you spent any time with them? Do you think you're gett5i g their support and understanding at the time?

Colin V. Reed - Chairman, President and Chief Executive Officer

I think so, because it was the national leadership that we talked to and negotiated with when we did our Washington project, and we built our Washington project the way we anticipated building the project in Chula Vista. And so when they called and said let's try and accommodate… let's see if there's a middle ground here, we were obviously receptive to exploring this, which we did. But one of things I think that we have not done here, we've done this on purpose is we've not… we haven't sat down and castigated the local union leadership. But it seems that the national leadership allows the local Southern California guys to make the calls. And so the local Californian guys, they're very clear, it’s all or nothing. They will not support the project if they don’t get a 100% of the contracts, which is bizarre, but that’s their position. And the question for us is, are we prepared to go forward and effectively do this without organized labor and the new information to us today which is different to where we were 30, 40 days ago is the community is up in arms saying we'll do what we can to get all the permitting done. And you don’t have to worry about organized labor. We want this project in San Diego. And what we're in the process of doing right now is assessing the practicality of that. what it means to a company, both in time and money. Because we love this market, we think San Diego is a wonderful hotel market, and we love this location . and so, we're going to work this through over the next couple of weeks. And I suspect in two to three weeks from now, we'll make some very clear public statements about what we are, what we're intending to do in this marketplace. But the outreach from the community, frankly I've never seen anything like it. It's been overwhelming. And we have to assess what that really means practically to our company.

Jeffrey J. Donnelly - Wachovia Securities

And politically speaking, this has been a slight, I think Chula Vista has wanted developed in different capacities over the last 30 years. And do you think that… I don’t expect you to really reveal your strategy… but do you think this is one where maybe the solution doesn’t necessarily come Gaylord or from the unions, but actually from the political leadership. Because I think the weapon, if you will, of the unions that was the [inaudible] environmental litigation against you guys, that can be cleared up. Can this be settled effectively with a bigger subsidy?

Colin V. Reed - Chairman, President and Chief Executive Officer

I don’t think, no. that’s not the issue for us. The union has been making these bizarre statements that this is our endgame. That’s not our endgame. We have never raised that issue. And you have my word on that. And so does the community have my word on that. we have never raised the issue to my knowledge with local government. The issue is, does this community have the fortitude and the will power to get all of the promoting [ph] process done recognizing that a special interest group is going to be fighting them all the way. And that’s we are trying to assess right now but you're right you have done your work as usual Jeff. This is an occasion that has had its fits and starts for 30 years and I suppose over the last couple of months we're getting to see why that has been the case. And because it is not developer friendly and that, we'll see what transpires here and again to all our share holders we will only move forward on this location if we believe that a) we can get it done harmoniously and 2) we generate very good returns for our share holders.

Unidentified Analyst

Two last questions, one of which if you did abandon that project today could you guys guesstimate for us what sort of earnings charge you will take and then going forward do you think all of this is, this disruption if any go to impact your ability to win dead from [inaudible] city?

Unidentified Company Representative

No quite the reverse. No I don't think it, I don't think it does. We have had multiple developers come to us over the course of the last month and a half saying, come work with us on this site in this city. We would love to do business with you guys. I don't think it affects our ability to win bids because look the reality is we are not a company that is anti union. I mean we, 50% of the proceeds that we have contracted for there or thereabouts in Washington it's to union contractors. We will have a union work force in Washington, we have signed a union agreement for work force in San Diego. It is just the greed of a special interest group here we want you to contract a lot of the contracts with local non-unionized groups in this market so I think our record's pretty clear and I don't think, I think if anything it will improve our ability to win big enough markets.

Okay I think one more question unless Jeff has one more question

Unidentified Analyst

No I was going to say do you happen to have an estimate of what the… maybe?

Unidentified Company Representative

Oh yeah, yeah, yeah. The numbers are going to be out, Jeff less than $3 million if we abandon it, it's not, we haven't spent that kind of money here.

Analyst

Thanks

Unidentified Company Representative

Thank you.

Operator

Thank you. There appear to be no further questions at this time I will turn the floor back over here for any further and final remarks.

Unidentified Company Representative

Well thank you once again thank you for joining us. I think it's a pretty good quarter. Company's got the wind behind it's back and the next one, two years going to be very exciting and again apologies for the technical glitch through the middle of this. We'll make sure that doesn't happen again. Thanks everyone for joining us.

Operator

Thank you. This does conclude today's call conference. You may disconnect your lines at this time and have a wonderful day.

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Source: Gaylord Entertainment Q2 2007 Earnings Call Transcript
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