Ryman Hospitality Properties, Inc.
Q3 2007 Earnings Call Transcript

Published: 2 Nov 2007

[Operator:]

Welcome to the Gaylord Entertainment Company's Third 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 934-8185. At this time, all participants have been placed on a listen-only mode, and the floor will be open for your question following the presentation. It's now my pleasure to turn the floor over to Mr. Carter Todd. Sir you may begin.

[Carter R. Todd:]

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 third 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 others, regarding Gaylord Entertainment's expected feature financial performance. For this purpose, any statements made during this call that are not statements of historical facts, maybe 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 herby cautioned that these statements maybe affected by the important factors, among others, set forth in Gaylord Entertainment's filings with the Securities and Exchange Commission, and in our third quarter 2007 earnings release. Thus 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 V. Reed:]

Thanks, Carter. Good morning everyone. I am happy to welcome you to our third quarter 2007 conference call. This morning I will provide you with an overview of our business, and then as usual, Dave Kloeppel, our Chief Financial Officer will review specifics of the financials and provide guidance. Then we will conclude the call by answering your questions. At the beginning of the year, we told you that 2007 was going to be an active and important year for providing the foundation for a break out 2008. With three quarters now under our belt, I am pleased with our performance and enthusiastic about the momentum we have heading into 2008. Before I begin discussing the quarter and taking a look at 2008 and even a longer-term view of our company's prospects, allow me to step back a moment and talk about our business model in the context of what occurred on both Wall Street and Main Street across the country over the last six months or so. Business executives across the nationwide would have... had to have been pretty much asleep not to notice have noticed the credit issues that started to emerge in early summer, starting in the subprime mortgage arena, which quickly spread to the broader credit markets in general. The implications and results are showing up daily across industry sectors. We are seeing that in sharp relief, as this quarter's earnings season has progressed particularly in the banking sector. The questions that are on every CEO's and CFO's mind, are how deep do these issues go? What will be implications to the consumer, be they businesses or individuals? and what will the Fed do to ensure stability in our capital markets? On a daily basis Dave and I here from analysts and investors asking us if we're seeing this issues manifesting themselves somehow in our business. It is likely that these questions will continue for us and many other public companies across sectors as the landscape shifts continue and then ultimately diminish. So let me talk about our model in the context of the current environment. What we have consistently told you, our investors, is that our strategy is very clear and forthright; we employ the very best folks, treat them well, afford them the opportunities to grow individually and allow them to deliver the very best levels of service to our customers who return to our hotels and convention centers year after year. And guess what happened through the three quarters of this year? Our star satisfaction scores, remember we call our employees stars have risen to record levels, and our star retention is at an all-time high. And not surprisingly our customer satisfaction scores are also at all-time highs. So you may say great, your people like you as do your customers, how does this translate into value-creation? As we said so many times in the past, you cannot measure the health of our company solely by looking at our current financial statements. Our primary customer, large conventions, book literally years in advance. So the reservations we book today, couple with last year and the year prior, pretty much have laid the foundation as to how our 2008, 2009 and 2010 will perform. Now hopefully you have read in our release that we again had a very good quarter in a critical metric forward bookings. 2007 is shaping up to be big year for us in this regard, on top of a good 2006 and 2005. The rough translation of all of this is that 2008 will be a strong year for us and Dave will share more information with you on this in a moment. Now, unlike many of the other hospitality companies that operate in this industry, the transient and leisure consumer makes up less then 25% of our business. By far the largest part of that business is the group segment, and remember for each large group we book, we signed a contract whereby the customer commits to deliver X amount of room nights and minimum spends on food and beverage. And of course, our part of the bargain is to commit convention space and room blocks literally years in advance, as well as delivering on a first-class convention experience, when the guest ultimately arrives. As part of the contract, client will agree that if at any time of the convention, they show up with less rooms then they bargained for, we have the ability under that contract to charge them an attrition fee for effectively holding these rooms for them. Similarly, if your delegates translates into less food and beverage spend than the client had guaranteed, then we also have the ability to charge for this shortfall. Practically speaking, this is not a regular occurrence. In fact many conventions turn out with more delegates then they plan, but occasionally customers for multiple reasons, who show up with fewer delegates and attrition fee kicks simply, that's what I want to say. One last point regarding attrition. The analyst community which follows the hospitality industry rightfully focuses on the metric of RevPAR and total RevPAR as the leading indicator of the health of the business in this industry. At Gaylord, we do not book attrition fees into room revenues. It is booked into other revenue, and furthermore, it is booked when it is collected not necessarily when the attrition occurs. So there are times when a RevPAR might appear a little weak against to expectations but CCF appears to be strong. While amidst the quarter of 2007, we had several groups who under delivered on the particular committed room block and attrition fees did kick in. One question you may ask is, who are the groups who want to delivered vulnerable to a timing economy, and is there a longer-term issue going on? From all the analysis we have done, it appears that the attrition related clearly to individual circumstances and not any underlying general trend. So our business model is quite different and affords us good protection from the ever-changing sentiment of the consumer. And whichever direction the economy ultimately heads in, the outlook for us looks pretty good. Why? Because our staff satisfaction is really good as is our customer satisfaction, and our forward contracted room nights set stronger and stronger. Going into 2008, things look quite strong and I think that this is reflected in the guidance which Dave will talk about. Now in terms of the specifics for the quarter, I'm encouraged by a solid year-over-year CCF growth, demonstrating our ability to manage costs and to harness the work we're doing to assure that revenue is flowing through to the bottom line. While occupancy levels were slightly down this quarter, off from a very strong base in the third quarter of last year, we're pleased that bookings on a same-store basis were again strong, up 28% over the third quarter of the prior year. Interestingly on a same-store basis, advanced bookings year-to-date are up approximately 23% over the same period last year. Now, let me touch on how we're expanding our brand. First I want to focus on Gaylord National. This quarter, we booked nearly 70,000 room nights at Gaylord National, bringing total room nights booked at this property to approximately$1.1 million. A tremendous success with advanced bookings at the National and throughout the rest of that business underscores the popularity of Gaylord with meeting planners and corporate groups. If any of you're passing through Washington in the next few months, you should take a look at this hotel and the surrounding development. It's extraordinary to see what's happening at National Harbor and our hotel is really taking shape. The National remains on-track to open in early April 2008. Broadly speaking, our efforts to expand Gaylord's footprint are focused on increasing distribution of the brand by casting a wider net offering our product to a greater share of the market that travels from one market to the next each year. This effort will come in the form of both organic development at new properties and through the acquisition of existing hotels that we can convert to the Gaylord brand and experience in a cost effective way, and one that provides strong returns on investment. This is something that we had spoken about in the past and remain committed... and we remain committed to this dual path approach. Continuing on the expansion front; throughout the third quarter we provided updates on the status of our negotiations with the unified port of San Diego of the city of Chula Vista. We continue discussions with stakeholders in this area and we'll update the investment community if appropriate. Regardless of the outcome, we continue to focus on the Western half of the United States potential expansion opportunities. During recent months we have really beefed up our development team at the company in order for us to handle multiple projects on time. The expense of these endeavors is reflected in a corporate expense line and we will enhance these efforts more so in the months ahead. We know that we have a model that works and experience that is truly spectacular and we believe that expansion done in the right way is going to drive shareholder value in significant ways. Regarding enhancement of our current properties, again we made important progress in the third quarter with the opening of three new Opryland and the approval from the city of Grapevine to expand the Texan, with the addition of more than 500 guestrooms, increased meeting space and leisure amenities including a reserve pool. Now before I hand over the call to Dave, let me touch on guidance for '07 from the macro-perspective... guidance for '07 and '08 from a macro-perspective and I would say the following; frankly, not a lot of changed on the outlook we shared with you at our Investor Day in early April of this year, despite a significant change in the credit markets and some weakening in the broader economy. Since then, things have gone pretty much as anticipated, say for adjusting RevPAR and total RevPAR slightly down for '07, for the reasons I have discussed, but increasing advanced bookings for the same year. As for 2008, given our advance bookings and the opening of Washington, we are looking at some really good growth, both in our same store and overall companywide CCF. In summary, the third quarter was another important quarter for Gaylord, keeping as strategic goals on target of making certain that our key measures continue to track well. We remain confident that we will continue to produce even stronger results in the quarters ahead and are very excited about 2008, which will be a very good year for our company. With that I would like to turn the call over the call to David Kloeppel, our Chief Financial Officer. David?

[David C. Kloeppel:]

Thanks Colin. Let me first give you a quick snapshot of the financial performance across our hotel network. Then beginning with the Gaylord Opryland, I will highlight the operating performance of each of our business and properties and review the key drivers from the quarter. I will then give an update on guidance for '07 and provide a full year guidance. As Colin mentioned, our third quarter performance was highlighted by solid increases in ADR and profitability. However, due to a few groups not realizing their totally agreed upon room nights, revenue came in slightly below our expectations. Yet our unique business model allows us to withstand these minor inflexions in group occupancy, and still realize our expected profitability, as can be seen by the 13% increase in consolidated cash flow this quarter. I also think it's important that I point out that we do not believe that this past quarter's business volume is an indication of a slowdown in group business. Let me explain further. Many of our leading indicators, including advanced bookings and outsider spending levels are at or near record levels. Our review of this past quarter's performance found that a limited number of large groups did not perform to either their or our expectations, and the reasons for this underperformance have more to do with issues unique to each group, then with factors influenced by the current economic environment. While we do have some lingering concerns about our discretionary spending of our transient business in the fourth quarter, we expect group business activity to return to normal levels in our long-term same store growth to meet the guidance we provided this past spring. Now, let me move onto each property; at Opryland, Opryland's revenue decreased 1.5% to $64.1 million in the third quarter of '07, compared to the prior year. Decrease in revenue in the third quarter was largely a result of declines in group occupancy and a fall of in transient business over the two holiday weekends which occurred in the quarter. As a result RevPAR decreased 2.1% to $112.18. However strength in outsider room spending driven by the popularity of our leisure and entertainment offerings at the property drove total RevPAR to an increase of 0.8% to $256.52. Lower occupancy led to a 2.6% decrease in CCF to $15 million resulting in a margin of 23.4%. That's roughly equivalent to the margin we produced in the prior year quarter. Please note that the operating statistics for the third quarter of '07 reflects 15,131 room nights out of available inventory, compared to only 8,941 rooms out of service in the year-ago quarter. And as we've discussed in previous quarters, we anticipate our total of that 48,000 room nights to be out of service in 2007 to complete our room renovation program in Opryland. Now moving on to the Palms; the Palms posted a 2.3% revenue decline to $36.6 million in the third quarter of 2007, compared to $37.5 million in the same quarter last year. The property experienced flat occupancy in the quarter, which was enhanced by 0.8% increase in ADR. Orland convention demand is of course not at its peak during the height and heat of the summer and performance this quarter was in line with previous third quarter trends. Compared to $111.86 in Q3 of '06 this quarter's RevPAR increase slightly $112.82 and total RevPAR decreased by 2.3% to $283.19. CCF increased to $7.9 million compared to the prior-year quarter and CCF margin expanded 170 basis points to 21.5%. The Texan had quite an impressive third quarter where the attrition experience at the Opryland and Palms were not as evident. Revenues increased 16% to $43.5 million in the third quarter of '07, RevPAR by increased 5.4% to $119.52, driven by 5.2% increase in ADR. Total RevPAR grew 16% driven by generally strong outside the room spending and specifically solid performance of the Glass Cactus nightclub. CCF shot up 56% in the quarter to $10.7 million resulting in a 20.46% CCF margin. And now, the progress of the Gaylord National; in the third quarter we booked an additional 68,505 room nights, with the cumulative number of net definite room nights for the property at just under $1.1 million. We spent approximately $142.2 million on the property during the third quarter, with a total cost to-date for the property of about $630.3 million. And as Colin said, the National is on track to open on time in April of 2008. Now turning to our operating attraction segment; the operating attraction segment produced revenues of $20.3 million in the quarter and that represents of 5.2% decrease compared to the prior year. This was expected as our Corporate Magic business had an extremely strong quarter in 2006, which we did not expect to repeat in the third quarter of 2007. Thus the segment's consolidated cash flow decreased $300,000 compared to the prior-year quarter. Talking about guidance for the rest of 2007, increases in ADR, total RevPAR, CCF for the quarter demonstrate the opportunities for profitability in growth of our Gaylord brand, leading us to reaffirm our 2007 advanced bookings and CCF guidance. As we discussed however, the performance of several large convention groups and our continued concerns regarding transient activity in the fourth quarter will negatively effect our 2007 RevPAR and total RevPAR performance. Our new full year hotel segment guidance is 4% to 6% growth in RevPAR and 5% to 7% growth in total RevPAR. That said our ability to protect cash flow in the event of that expected drops in group performance through attrition penalties and through our ability to grow outside the room spending means we will leave CCF guidance unchanged. Hotel segment CCF guidance remains at $182 million to $190 million for '07. In addition we still expect to book between 1.35 million to 1.45 million room nights on a same-store basis in '07. Our expectations for the operating attraction segment within in the range of 11 to 12 million in CCF and our corporate and our corporate other CCF guidance remains also unchanged at an expensive to $40 million to $43 million. And turning our attention to 2008, as Colin said, we remain quite excited about the prospects for 2008 where we expect to see a strong growth in revenues and profitability and the completion of Opryland's room and food and beverage renovations. We've build a lot momentum in Gaylord hotels over the past few years in maximizing our opportunities to grow the room base of our brand is a significant initiative for '08. We've supplemented our development team and are increasing our efforts to drive unit growth and in 2008 we expect to break ground late in the year on our two approved expansions and we are intent on accelerating the growth of the brand. As for specific guidance, we expect CCF and Gaylord hotels excluding the National, to be in eth range of $200 million to $210 million. We expect the National to produce CCF of between $50 million to $60 million and we expect $13 million to $14 million to be produced room the operating attraction segment. Corporate and other CCF, we expect a loss of about $46 million to $49 million and same store events bookings for the year should be in the range of $1.3 million to $1.4 million. Hotel segment's same store RevPAR is projected to increase 5.5% to 7.5% with total RevPAR increasing between 5% to 7%. And as a reminder, these growth rates are in line with the guidance we've provided this past April during our Analyst Meeting in Washington DC. There we guided a three-average RevPAR and total RevPAR growth rate of between 5% and 7% and an average TCF growth rate of between 9% and 12% in our '08 guidance reaffirms our positive outlook for the next few years. And with that, I will turn the call back over to Colin.

[Colin V. Reed:]

Okay David. Thank you. Rather than repeat what we have already said, let's Richard if we can open the call up for questions and hear what our shareholders have to say. Question And Answer

[Operator:]

[David Katz:]

Hi good morning.

[Colin V. Reed:]

Good morning David.

[David Katz:]

A couple of questions; especially that the Texan that you mentioned, you know in expansion there. Do we have timing and budget and is that, I assume that it's kind of done deal, but do we have a timing and a budget for that expansion yet?

[David C. Kloeppel:]

David, the general guidance we have given on the budget is around $300 million. We are still in design and so timing of breaking ground etcetera is not final. We anticipate breaking ground... our hopes are we can break down by the end of 2008. But we do have one final approval we go through before that's final and that's with the Corp Engineers.

[Colin V. Reed:]

Although I would say that they have given us little approval of how we want to do this expansion both on the with the convention expansion which would go into some core land and also the pool area too, but we expect to have these approvals in the next well David 3, 5 months from the core end, and we are in the process now of doing conceptual designs of this building, which then we will put out to bid and then we will give you, very hard numbers. But, what we've done is we've looked at the current cost of construction that we're incurring in a market like Washington. We've adjusted it for the Texas area and then what we have done is we've added in contingencies. And that really sort of gets us to this $300 million. Number but we're hopeful that we can manage that number down a bit.

[David Katz:]

If you get in the ground, in the end of '08, and I realize that's still an assumption when... so when does that come online?

[Colin V. Reed:]

We want to have a down... no, we won't to have it down, we will have it done by the time that the Super Bowl is just being awarded to the cowboys in Texas for their new stadium, which is in I believe January of 2011. So we want to have this expansion completed by the end of the third quarter of 2010

[David Katz:]

3Q, 10 got it. And then Dave if you can give me some little bit of help, what would be a good CapEx number to think about using for year '08? The range.

[David C. Kloeppel:]

Yes, I mean I think the general direction will be take about half of what it was for '07, which should put you in the 250 to 270 range for next year, and that may shift a little bit depending upon when we began construction on our Opryland's expansion or Texan expansion.

[David Katz:]

Right and then last one; here I know we've talked before about sort of this smaller box strategy or growth strategy, or growing out your brand. Any updates there? I mean when... help us gauge your expectation when we might actually see something?

[David C. Kloeppel:]

David I think, it will be unlikely that we will be making any positive announcements on hotel acquisitions in the next two to three months. And the reason for it is we've had... we've been negotiating on a couple of deals that frankly haven't penned out the way we would have liked. And so we're off to the next ones now and so I think it will be another couple of months before you hear something on that.

[David Katz:]

Sounds good. Thanks very much.

[David C. Kloeppel:]

Thank you.

[Operator:]

Thank you. Your next question comes from Will Marks of JMP securities.

[William C. Marks:]

Thanks, hello David, hello Colin. Couple of questions. One on the spending for the National, you mentioned $630 million I guess to-date. Can you just confirm with that final amount you need to spend is?

[David C. Kloeppel:]

We're still targeting the $870 million as total.

[William C. Marks:]

Okay

[David C. Kloeppel:]

And that's our current expectation in current budget.

[William C. Marks:]

And can you just give me some idea by quarter what that would be? I imagine I would go through first half or even third quarter of next year?

[David C. Kloeppel:]

Yes.

[Colin V. Reed:]

more likely through the half David... Will sorry. Yes, I will expect that of the $240 million that's remaining to be spent, we probably are going to see a $100 million of that in the fourth quarter of this year. Probably $80 million to $100 million in the first quarter of next year and the remainder to kind of spill over into 2Q and 3Q.

[David C. Kloeppel:]

Yes, there'll be retentions but they won't be sizable.

[William C. Marks:]

Okay. Great. And my other questions is on, you mentioned some transient weakness in the fourth quarter. Can you comment on if it was a business or leisure or how you're projecting that? What are you seeing right now in the markets?

[Colin V. Reed:]

It's interesting. What we said, if you recall, at the end of... when we did our second of... the end of the second quarter when we did this same event in late July early August, we said that we were being a little cautious about the fourth quarter and the reason for it was that at that time, we were seeing this emerging fall out in the credit markets and we were sitting there saying to ourselves, well how would this affect our business in this fourth quarter. We are now a three months further on, and what we are seeing is pretty strong booking on our Christmas programs, we are not seeing major consumer fall out here. So what we have done is we have basically kept the same view of the fourth quarter that we had three months ago but I am hopeful that the consumers going to be here. A lot of this stuff is stuff that happens week out. I mean it just does. I know advanced bookings for Opryland are pretty strong. I know that our advanced booking for the shows that we these big Christmas shows where we book in thousand people at a time, are very strong, advanced bookings on ice expedition. We had the Grinch ice expedition here in town. They are all very strong and so I am hopeful that our bookings pace this fourth quarter is going to be consistent with last year. I know that there have been some times when I have been trying to people who have called me to try and book rooms at Opryland over the Christmas period, and I know that there is... there are periods of time when we can't get people in. So this is not based... our concerns that we expressed at the end of the second quarter weren't based on facts, they were based more on intuition of how the consumer is feeling right now. You read stuff like we did yesterday about consumer sentiment which is at a two-year low. The question we have is will that show up in a short book transient business, and the fact of the matter is this stage, we are not seeing that but who knows. So we are just being cautious here and that's the absolute truth.

[David C. Kloeppel:]

Yes, just remember, we are accustomed an enormous amount of visibility into the next few months because on our group business unless we have company changing events that effect one of our clients that are announced in the moment and can be foreseen we have a really good sense of what that occupancies kind of look like. In the fourth quarter as we go into the Transient business, a lot of that outsider rooms spend which we have visibility to on the group side, we don't have that visibility on the transient side and there is a fair amount out of block out and spontaneous purchase elements of that fourth quarter outsider revenue and that's why we've been fairly cautious. We just don't know what is going to happen as mortgages get repriced and the economy continues to trickle --

[Colin V. Reed:]

Right. Just to be reiterative one more time, but what we do know is how many baskets we book this time compared last year, and how many room nights we have booked and things look pretty good, they look pretty good.

[William C. Marks:]

Okay, that's very helpful. Thank you.

[Operator:]

Thank you. Your next question comes from Nap Overton of Morgan Keegan.

[Napoleon H. Overton:]

Good morning.

[Colin V. Reed:]

Good morning, Nap.

[Napoleon H. Overton:]

Could you comment on what you believe the impact on your ability to make and complete acquisitions with financing terms that you consider reasonable and favorable is from the credit market turbulence that you began your discussion with in your prepared remark?

[Colin V. Reed:]

I wish I had a crystal ball, because I don't even know how to begin to describe the present environment, which seems to sort of change almost daily. You compare where we are today, to where we were you know a month ago, it is just very choppy and very floppy. But here is the issue that, we believe that any deal we do will have a very good return on investment. And we know there are folks that like to want to partner. Banks are telling us that they are prepared to extend that credit, if we have good deals and I think we are pretty confident that we will be out of finance any acquisition we want to do. The good news is if we don't do another acquisition, if we don't do an acquisition or another deal with the expansions that we have in the completion of Texan, our credit ratios fall dramatically here over the next two to three years and we have extremely high growth levels in that consolidating cash flow. So whatever happens here, our company's growth is going to be very strong and we can do on our balance sheet. And I believe that if we have compelling deals, we will be able to access the credit to be able to do those deals. I mean do you have any perspectives on that?

[David C. Kloeppel:]

Yes I would agree with you. I think, number one, the credit markets seems to be improving week by week and from the dark days of late July, it's like a new dawn, in terms of where credit.... where credit availability stands for all companies and particularly for companies like ours. But we have a group of banks who know our business well. They like our assets, they like our strategy and they have been very willing to lend us capital. In times as bad as October of 2001. So if they are prepared to lend us money back then, there is any behind prepared to let us money now.

[Napoleon H. Overton:]

And has your outlook, kind of long-term financial strategy, essential to monetize some of your current assets changed in light of what has occurred transpired in the markets?

[David C. Kloeppel:]

No. I am our view on that Nap has really always been, we don't see any need to kind of change the structure of the company until there is some very significant use of capital that we need to fund.

[Colin V. Reed:]

And I mean the other part of that, Dave excuse me, interrupting you is that we have said consistently over the 3 to 4 years that we don't believe in moving these assets all by balance sheet until they are mature. And we don't believe these assets are mature by stretch of imagination. We are going to expand them, we are going to grow them and so, when we one, have the need of the capital and two, we believe these assets are mature, that will I think trigger a different structure to our balance sheet.

[Napoleon H. Overton:]

Okay and just a couple of practical questions. The rooms renovation at Opryland that is being on going now, does that get completed in 2007? That's the first question and then secondly, do you expect any meaningful disruptions from the expansions at either of the Texan or the Opryland expansion?

[Colin V. Reed:]

Two very good questions. The first question I think we, the 48,000 - 50,000 room nights that we will have out of this year, we will just about complete that renovation. And that that will be wonderful for us, because we don't really talk about that in those Opryland numbers this year, where we are going to produce about same level of cash flow that we did last year, but with substantial rest rooms available. But that is one of the reasons we are very optimistic about net of the first... next year at Opryland because we don't have those rooms out of order and we've got a bunch of conventions that are coming in, growth in room night demand in that business. So we expect to see very good improvements in Opryland next year. The second part of the question is that in terms of... we have had I don't know how many meetings over the last two to three months looking at the way in which we are planning these expansions to absolutely mitigate any form of disruption. We are hopeful that the disruption in both Texas and Opryland, that if it occurs, it will be in 2009 and half of 2010, that that will minimal and the way this thing is being planned, is to make sure that we really do keep the existing asset pretty much intact through that process and mitigate for the consumer. We're spending a lot of time figuring that through that. That's a very, very good question and something that is consuming us to make sure we don't do that. Because it's not in our best interest. Not obviously from a financial perspective, but also from the customers' perspective we do not want to take-off loyal groups that have trusted us with a conventions. And so, this is a big issue for us that we're working through.

[Napoleon H. Overton:]

Okay. And then last thing, would you be willing to quantify what those attrition fees were in the quarter?

[Colin V. Reed:]

Dave do you want to give that a stab and let me, why don't you just give Nap I really hasn't answered this question, but I'm sure few of the analyst will [ph] give the guys some idea of couple of the examples of what happened with a couple of the group, because they are very distinctly different and not economically driven and then what the fee issues were.

[David C. Kloeppel:]

That's a good suggestion. Let me just address some of the attrition for the quarter. As we went back to announce our attrition and kind of looked at what was driving at and we looked at a number of groups that were that the had attrition associated with them and the magnitude of the attrition, there was a slight uptick in the number of groups that had attrition. That up take was larger at Opryland and Palms, than it was anywhere else and so we dug into those to properties pretty deep, we tried to understand what was driving those. When you start to really kind of... just pull backup on stuff, attrition is part of our business each and every quarter. We don't usually talk about it because it usually if attrition is up in one hotel, it's down in another. They kind of wash each other out or if one group is up another group is down and they kind of wash each other out. In this quarter we had a couple of unusual kind of company-specific events that all I can describe a couple of those that really led us to believe that this clearly have not a systematic slowdown and overall group activity. It is what we deal us regularly with groups where some company change has occurred and that's causing the meeting to change. In some cases those events are a new CEO comes to the company, the new CEO all says, we are not going to have any meetings whatever was planned for next six months, I got a get my ship in order. Or if it's a big sales meeting, there's a new Head of sales the marketing and those kinds of things, they may change the way they group looks the meeting. In this particular quarter, we had a few more and the ones that occurred were of larger magnitude. One example of what happened is, one of our larger groups the meeting planner, who books the meeting for that group quit a couple of months before the meeting. The Head of the company decided he was going to try to run the meeting on his own and market the meeting to his attendees and to his customers and just wasn't as good as the meeting planner was obviously and so pick up, was soft as a result. In another case, a division of a company was sold. That division obviously were thinking of having a meetings, the new buyer didn't want to have the meeting. In another case there was a healthcare group and the government changed their reimbursement program for government employees, attending this association and this is the first year that attendees from the government were getting reimbursed for their stay at this particular healthcare association group, and so the attendant suffered as a result. So those are some of the examples of kind of what happens in a group business that may effect the performance of that group in a particular quarter. In the third quarter this year, we collected about a $1.6 million in attrition revenues and that's about little over half million more than we collected at the same quarter of 2006. And obviously as Colin mentioned in his scripts, we don't always collect the attrition in the same quarter that it occurs. Hence we collected within two quarters of the time that the attrition occurred. So we would expect to continue to collect some attrition in Q4 and perhaps some does spill over into Q1 of next year as well.

[Colin V. Reed:]

And obviously getting in to too much detail, the reason for that Nap is because, if it is a one-off meeting, invariably that meeting planner will come back to us and try and negotiate that, that particular attrition fee. If it is a regular customer, they may come back and try and negotiate that attrition into their next day block of business by book with us. So that's just the nature of this business and the good news though is that we do have this insurance policy which is a contract and whatever individual circumstance prevails we are pretty anesthetized and that was the reason why after that catastrophic event on 9/11, 3 months 3, 4 months after 9/11 we have positively RevPAR growth, because these folks they come and if they don't we have a contract.

[Napoleon H. Overton:]

Thanks for a very thorough discussion.

[Operator:]

Thank you. Your next question comes from Jeff Donnelly of Wachovia.

[Jeffrey J. Donnelly:]

Hey guys I was saying to if I dare follow up on a discussion, can you disclose for us maybe on a quarterly basis what attrition fees have been for the last few quarters and maybe what do you expect going forward?

[David C. Kloeppel:]

Attrition fees kind of bounced around between $850,000 and $1.2 million. That's fairly consistent over the past several quarters. Sometimes it gets higher and sometime it gets lower and in this period was about a $1.6 million as I said. We probably won't project that that's not part of one of the revenue items that we tend to project in a meaningful way. So we tend to give you RevPAR and total RevPAR and profitability and we think that's a good way to look at the business.

[Jeffrey J. Donnelly:]

Okay and then and Colin, I am sorry if I missed this in your comments but I guess I had expected your RevPAR guidance for '08 to be higher, that you've done it... you got more room nights and services in Opryland than you had in 07 and if you backed out National from your CCF guidance. The implication seems to be that much of the upside that you are seeing in your CCF in '08 must either be only from Opryland or you are maybe being fairly cautious overall and I guess I am correct in that assumption or is that what --

[Colin V. Reed:]

That we are being fairly cautious.

[Jeffrey J. Donnelly:]

That or it's you are not seeing as much upside of the other two assets, besides from Opryland, because I could have expected the Opryland to provide it to an added list, if you will, to overall numbers?

[Colin V. Reed:]

Jeff, as we look at the three hotels, I mean in Opryland the RevPAR gets a little bit messy because we are adding 50000 room nights back into denominator of the available rooms. So if you look at revenue increase is going to be higher than RevPAR increase, for Opryland for instance. That being said, if you kind of look at our 5.5% to 7.5% RevPAR increased for the next year, you know we expect Opryland to be at the top end of that and perhaps above it. We expect Texan probably to be toward the top end of it and Palms to be towards the bottom end of it.

[Jeffrey J. Donnelly:]

Two last questions Dave, have you guys completely paid off income tax and is there anything remaining to be paid,

[David C. Kloeppel:]

We've paid 75% of it and the remainder will be paid by the end of this year.

[Jeffrey J. Donnelly:]

And just what is the total CapEx spend in the quarter, I guess was there any capitalized interest in the quarter as well?

[David C. Kloeppel:]

In this quarter, third quarter?

[Jeffrey J. Donnelly:]

Yes

[David C. Kloeppel:]

Total CapEx was a $161 million. And I have to flip to another page to get you CapI. Give me a minute

[Jeffrey J. Donnelly:]

What was the, if you can answer while you are flipping, was the $161 million include the money for expenditure on National?

[David C. Kloeppel:]

Yes. And $140 million of that was National. And so CapI was 27 million if I have this, I don't have year-to-date here.

[Colin V. Reed:]

David if you are not sure, you don't the [Multiple Speakers]. I think we can get back to you Jeff separately.

[Jeffrey J. Donnelly:]

Yes, we can follow-up later. Thank you

[David C. Kloeppel:]

I'll get you, the quarter, on follow up.

[Jeffrey J. Donnelly:]

Thanks

[David C. Kloeppel:]

Sure

[Operator:]

Thank you your next question comes from Chris Woronka of Deutsche Bank.

[Chris Woronka:]

Hey good morning guys.

[Colin V. Reed:]

Morning Chris.

[Chris Woronka:]

Just one follow up one more time on the third quarter group issue. Is it fair to say that those were lower quality groups because that would to me seem looks to explain why total RevPAR was substantially higher than RevPAR? And then second part of the question is, what was the variance between kind of what you budged for those guys and then how much you recovered in the cancellations fees. I mean did you get 80% of what you thought you're going to get or something like that? Any detail would be great. Thanks.

[Colin V. Reed:]

In the, on the first question I hope the group meeting planners are not listening into this call, with my response but what we tend to find Chris is that the third quarter is the lowest price period of the year for group business. It is not what we call A,B,C room nights and we base our room nights... we based the quality of these room nights on the sort of the aggregated demand that we see. So we know middle of January, February, March, all very, very strong periods of time. And so what you tend to find are the more cost conscious groups going into this third quarter. We're putting more groups in, because of the amount of the demand we're growing. But you tend... your assumption is basically correct. In terms of the second part of the questions, Dave you want to do with that.

[David C. Kloeppel:]

Yes, let me just, rather than saying what we budget versus what we collect, let me just try to walk you through a brief example of kind of how the attrition works and what we what the collection was versus what we would normally expect to make. If you look at Q3 of '06, we reduced guidance by a point for the full year right. So one could extrapolate that we might have missed third quarter by 2 or 3 points... percentage points of growth on a revenue line to have for your effective one point. So just taking that as an example, that means you are kind of the revenue mix from our perspective Q3 of '06 was about $5 million like a 3% or 4% on $140 million. We tend to make about a 35% margin on that which gets you to around $2 million of profitability and we collected about $1.6 million of attrition fees in the quarter. That makes sense Chris?

[Chris Woronka:]

Yes that's very helpful. I guess just a kind of side question on that, is it in terms of how you reimbursed it in those contracts is it more, do you get a more of the room revenue... do you closer to 100% of the room revenue that you thought are closer to 100% of the outer rooms that. I mean my sense you probably loose a little bit more of the outer room spend is that right?

[David C. Kloeppel:]

Your thought has been we probably loose a little bit on the outer room spend?

[Chris Woronka:]

Yes, I mean overall if you have a group and let's say you expected to make this much in the room and this much out of the room, and then are there any guarantees. Is the minimum guarantee that you have to pay you closer to what you thought on the room or is there closer to what you had planned on the outer room?

[David C. Kloeppel:]

Yes, we generally we generally are better protected on the room side than the outer room side. Does that answers your questions.

[Chris Woronka:]

Yes okay thanks.

[David C. Kloeppel:]

And to Jeff Donnelly's question, if you're still listening CapI for the quarter was about $7 million.

[Operator:]

Thank you next question comes form Williams Truelove of UBS.

[William B. Truelove:]

Hey guys. Yes one question about the number of rooms versus expected. What is the typical percentage in the contract of discount from the expected before you would get the makeup fee, and what has been the trend in that percentage because of meeting planners were getting more nervous. Wouldn't they be asking for a lower or bigger and bigger discounts to be expected amount for this, or haven't to pay the fee. So what is the trend in that figure?

[David C. Kloeppel:]

We tend to start from the... if the meeting planners says that they are going to bring a thousand people, we tend to sign a contract for 900. And that doesn't...that number doesn't change a whole lot based on where the economy is going or any that kind of our standard policy.

[William B. Truelove:]

Thanks.

[Operator:]

Thank you, your next question comes from Amit Kapoor of Gabelli & Company.

[Amit Kapoor:]

Hey Colin Dave. Can you comment on the Chula Vista situation and what is the posture of I guess the union or the other payers there?

[Colin V. Reed:]

Good Morning to you. You know what we are trying to do here, we are trying to be not... we are the trying hard not to negotiate deal with any negotiators we are having with the trade unions. We are trying hard not to negotiate this publicly because all we do is sort of flame, inflame the fire, if we say that are little bit pitchy [ph] about the union movement and we trying to be dignified about this. I would say to you that things certainly aren't not worse than the public discussions that occurred about three months ago. There had been several back-channel discussions. At the end of the day this project, I'm an optimist on this project. It's a wonderful project for Southern California and the broad community is 100% behind this and we have to deal with a small faction which are the organized electrical and some of the other small unions in Southern Cal and we will continue to try and progress this and at the end of the day if we're unable to do at we have to making economic decision about can we do this in a way that will generate real return... real high return for our shareholders and do it where we're not going to be faced with five years of disruption. But I'm an optimistic we will find a way through here. But I think it will be inappropriate for us to give you specifics of the discussions that we are having.

[Amit Kapoor:]

Okay, thank you.

[Colin V. Reed:]

Thank you.

[Operator:]

[Operator Instructions].

[Colin V. Reed:]

Rich I tell you what, it's now almost top of the hour. If there is one more question, we'll take it and if there isn't I'd like to thank everybody for joining us this morning.

[Operator:]

We have one final question and its from Gary Lehnhoff of Ironworks Capital.

[Gary Lehnhoff:]

Good morning, thanks. So you just review for me the Opryland $400 million expansion. Colin did you say that you expect that to occur in the second half of '09 in 2010?

[Colin V. Reed:]

Practically the way we will work is this, we have basically all the approvals from metro government and state government that we have acquired at the stage. Carter I think I am right in that. So what we are doing now is the detail design of how this thing... where we are going to layout the new convention area parking, new hotel. We've internally candidly Gary we probably looked at 10 different iterations, we are nailing it down to a couple that we really do like. We are working on the disruption elements here, how the each of these effect the current existing operation. I am hopeful that we will break ground sometime towards the latter half of next year and frankly the reason it's going to take us that long is it, it's just going to take that much time to do all the detail design. We are not going to design this thing and be building it at the same time, that's a recipe for disaster. We want to design it, we want to bid it we want to get the lowest possible prices on this so we want to be in the ground towards the end of... right at towards of 08. Then I suspect it would take us a good year and three quarters to build this we are hopeful that by the end of sometime towards the end of '10 early '11 for Opryland we will have this facility up and running.

[Gary Lehnhoff:]

Okay and then just refresh my memory that is how many rooms in the expansion you are looking at now?

[Colin V. Reed:]

Its going to be about 400 net, as we think about connecting the new hotel to the existing hotel. They have to take a half a dozen rooms out, it will be about 400 room expansion net and approximately 400,000 additional fees of meetings space which is about a million feet of meeting a million feet of meeting space, and to put that in perspective that's about at the same size as the Boston Convention Center.

[Gary Lehnhoff:]

Okay. For David, so your CapEx number for 08' of $250 million to $270 million did not really include any meaningful amount for Opryland at this point?

[David C. Kloeppel:]

It's not a meaningful now that's correct.

[Colin V. Reed:]

It will have a few million in there in the overall the design work. But the real will be rocking and rolling in '09.

[Gary Lehnhoff:]

Okay, great. Thanks so much guys.

[Colin V. Reed:]

Thank you. Well that's, Rich thank you. Thanks for everyone for joining us this morning and if you have any further questions, please feel free to contact either David or myself or Mark Fioravanti. On that note, thank you.

[Operator:]