Ryman Hospitality Properties, Inc.
Q2 2008 Earnings Call Transcript

Published: 5 Aug 2008

[Operator:]

Welcome to the Gaylord Entertainment Company’s Second Quarter 2008 Earnings Call. Hosting the call today from Gaylord Entertainment are Mr. Colin Reed, Chairman and Chief Executive Officer; 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 800-642-1687 and the pin number is 56536373. At this time all participants have been placed in a listen-only mode and the floor will be open 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 Todd:]

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 2008 earnings call. You should be aware that this conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including statements among others regarding Gaylord Entertainment’s expected future financial performance. For this purpose any statements made during this call that are not statements of historical fact maybe deemed to be forward-looking statements. Without limiting the foregoing words such as believes, anticipates, plans, and expects and similar expressions are intended to identify forward-looking statements. You are hereby 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 second quarter 2008 earnings release. Consequently actual operations and results may differ materially from the results discussed or projected in the forward-looking statements. Gaylord Entertainment undertakes no obligation to update publicly any forward-looking statements, whether as the result of new information, future events or otherwise. I would also like to remind you that in our call today, we will discuss certain non-GAAP financial measures and a reconciliation of those non-GAAP financial measures to the most directly comparable GAAP financial measures has been provided as an exhibit to our earnings release and is also available on our website under the Investor Relations section. At this time, I would like to turn the call over to our Chairman and Chief Executive Officer, Colin Reed.

[Colin Reed:]

Thanks, Todd and good morning everyone. I am happy to welcome all of you to our second quarter 2008 conference call. As I do every quarter, I will begin by offering some color on our business and the Hospitality Industry before David Kloeppel, our Chief Financial Officer elaborates on the financial results of the quarter and the company's outlook for the rest of the year. We will then turn over to Q&A and hopefully answer all of your questions and the conclusions. We have been very busy these last few months and our efforts have translated into meaningful progress for our company. Before Dave and I talk about all of that though, I am going to try and preempt some of your questions by giving you my impression of the current market situation and how it is affecting our business. I have been in the hospitality business for many years now. During that time I have watched the industry turn upside down multiple times. That being said, the current pressures on the market are different today than anything I have ever seen before and this year has certainly been worse than last. Because of this, looking at year-over-year comps will have very little meaning. Instead, I believe that it is important to analyze a company by its ability to adapt and adjust quickly, its ability to continue to build on a strategy no matter the market conditions and its ability to grow profitability even in a poor business environment. If you analyze Gaylord and our financial results this quarter in the context to these categories, you will find a business that is doing pretty well. More importantly, you will find a model that is unlike any other in the industry and set of assets both tangible and intangible, we are very well positioned for long-term growth. That said, we certainly not immune to the current issues facing the hospitality industry and the broader economy. This is clear by our RevPAR results for the quarter. However, as I pointed out to you many, many times before because of the nature of our business, you cannot measure the profitability and health of us, by looking at this metric. This quarter's results are a fine example of this. So much of our business is entered into with large groups. We commit through contracts to deliver a specific number of room nights and in most cases large chunks of food and beverage revenue. In normal times, we tend to see minimum attrition and for the sake of those of who are you new to our story, attrition is the name we gave to the difference between the room block that is contracted for, compared to the number of customers who actually arrive. Over the last several months, we have witnessed a modest spike in attrition in some groups and this would not be good, if we did not have contracts. When groups turnout with less folks and they bargain for, several things happen. One, our hotel's RevPAR is negatively affected by this, and also the folks, who did not arrive, obviously are not consumers of our wonderful products. So, our total RevPAR also is negatively affected by the loss of this gross revenue. However, there is a partial total RevPAR positive, which is the attrition payment we have received from the groups, who underperform and to confirm what I have told you many times before, we book attrition payments, when we actually receive them. It is for this reason, as second quarter looks the way it does, with modest growth in RevPAR and total RevPAR, the decent growth in our same-store consolidated cash flow. Dave will go into this, in a little bit more detail in a minute. So, the logical question from here would be what does this mean for the rest of the year? As we were described to you at our Investor Day, the risks in our business are in the form of increased attrition and decreased transient business. Since we have no assurance of continued solid transient business, and we expect to see continued attrition levels, we have pulled back our RevPAR and total RevPAR guidance for the year, but essentially held as CCF guidance because of the way our model works. Now over the last couple of years when times were good, certain analysts have inferred our strategy gives us a disadvantage, when so much of that business is pre-booked literally years in advance in contract form with pre-agree to room rates. Their hypothesis is that when we go into a given year with 50 to 60 points of occupancy already pre-booked and pre-priced, was somewhat disadvantage because we cannot re-price those rooms by taking advantage of spikes in demand. Now personally speaking, I like the less volatile nature of our strategy, and I am hopeful it will become more understood and appreciated as the country navigates this current economic mess. Again, our model is working the way it is suppose to, and at the end of the day, our bookings remain strong, and meetings and convention groups continue to fill our hotels regularly. As a matter of fact, we have more room nights booked for future years at this time, than we did at the same time last year. Additionally, while same-store room night production was down slightly relative to last year at this time was still well on pace to reach our guidance for the year of 1.3 million to 1.4 million room nights on the same-store basis. Also to put this first half booking performance into a greater perspective, this first half's room night production was about 20,000 room night shy of being a second best first half on record. Importantly, what also gives me confidence, as we look ahead to the rest of the year and into 2009, is that we have record number of tentative and prospect room nights that we are working with at the end of the second quarter. Before we move on, let me give you just one more fact pertaining to attrition. As I said, attrition is not compared to what we are custom to seeing. At this time last year, attrition rates were about 8%. However, it is still in a reasonable range this quarter at 10% and the cancellation rates also remain relatively low. Let me comment on the trends in business, because of some of the new programs we have implemented during this last year, we have seen an uptick in transient business, which I am sure is quite different from what you are likely hearing from other hotel companies. You should keep in mind, however that this segment represents only a small portion of that business and though it was a solid performer this quarter, it is not something that is overly critical to our overall strategy. Now what else helps us achieve strong profitability measures in this market, while others in the industry are scrambling to fill enormous hotels with leisure guests, with short-term booking cycles, catering to group business that books years in advance, provides us with an incredible window into the near-term future occupancy of our hotels. This visibility is critical to our efforts to run efficient operations. We are able to accurately project the appropriate results and staffing levels we need to operate our hotels, without ever compromising the superior service we promise to our guest. Over the last several years, we have constantly referenced the introduction of systems, that help us manage cost and this is paying off. This contributed to the CCF margin growth, you saw this quarter and we are quite pleased with the success of our efforts here. Now this brings me to my next point. Many people in this industry think hotel brands are all about physical buildings and the amenities that are added. The problem with this approach is that most physical things in this industry get copied sooner or later, and in fact brands that operate like this are constantly reacting to what their competitors are doing. This is not bad in good times, but at last it is pretty bad in bad times. Brands, who do well irrespective of the environment, tend to possess several attributes. In most cases, they tend to be the employer of choice, in other words, they employ the best people as well as have a strong internal culture that is focused to the customer. While we at Gaylord can talk about, how we can put together the right contracts, and how we can track and sign our resources according to demand, none of this works unless you can build a culture, that strives to achieve perfection with every event and every guest interaction. This is the culture that we built at Gaylord and it is special. If you attach evaluation to our company that is based solely on the value of our bricks and mortar assets and I believe you are selling it short. You know why do I tell you this, in times like these, brands who strategy are based on product, which is then copied by competitors have no defense, when their competitors start slashing prices. It is my belief customers tend to be more loyal to businesses, who sustainably deliver more value to them. We said this on many occasions in the past. Value is not price. When our convention customers stay with us for 3 or 4 more days, every single interaction that our people have with our customers, determine the outcome of the visit and our unique culture makes it highly likely our customers leave happy and anxious to return. That is why we are constantly able to attract high quality, high margin groups, and we are constantly turning down room nights across our network. However, of course, our exceptional facilities do play a role in this. I know many of who you joined us at the Gaylord National in June for our Annual Analyst event. Working the host, I could not help that feel a great feel of pride knowing the Gaylord National have so quickly become the leading convention hotel in the East Coast. The 1.5 million room nights already on the books certainly backs that up. Before I turn over to Dave, let me just speak briefly about how we are looking at growth. In this respect, let me quickly touch one two points. The first being capital. Hopefully by now, you will have read our release of last week, when we announced a new bank facility, which is essentially extended maturity out 2012 for modest increase in pricing. This speaks volumes for the relationships we have with our banks and is a stark contrast from other announcements made recently by companies, who are struggling to secure capital in these very difficult times. The second, we continue to work on our expansion plans, but being very careful in overly committing serious capital until we see evidence that things are moving back towards more normalized business environment. Of course, any capital intensive projects will need to meet or exceed the high hurdle rates; we have put in place in order for these deals to move forward. In closing, it continues to be the responsibility of this management team to get us through this messy market environment, and we believe that we have the right model and the right pieces in place to do just that. So, that is it Dave. I believe we are ready for you to take us through the financial results for the quarter.

[David Kloeppel:]

Thanks, Colin. As it is customary on our quarterly calls, I am going to review the financial performance of our business in each of the Gaylord properties. However, before I jump into those numbers, let me provide some additional detail on key trends in our businesses that Colin touched on, and we are referenced in our press release issued earlier this morning. It is been a busy first half of the year for Gaylord. We opened the Gaylord National, and the property is very quickly settled into being the best convention hotel on the Eastern Seaboard. Additionally, we refinanced our bank debt through new bank facilities announced last week. We believe our ability to replace our existing facility and extend our maturity debt in this kind of a credit market has quite endorsement by our lenders as the strength of our business model from their perspective. At the same time, we continue to deliver positive bottom line results, in an increasingly difficult environment for hospitality. Same-store CCF increased 8.2% this quarter, over the same period last year, while same-store revenues increased by 2%. So, we were successful in expanding margins 190 basis points and delivering profit inline with our expectations and above the guidance, we provided six weeks ago, on our Investor Day, despite modest RevPAR growth of only 0.3%. More specifically, the drivers of this quarter's same-store CCF results were threefold. First, attrition and cancellation fee collections were up about $1.6 million over the prior year quarter. This increase in fee collection is the expected byproduct of the increased attrition we have been experiencing here to-date. As you all know as we have discussed at length of the Investor Day, we only book attrition revenues at the time they are collected. Second, the second driver of this quarter’s performance was a 5.4% increase in same-store ADR and an approximately 19.4% increase in transient room nights. These more than offset a 3.8 point drop in occupancy. Third, our near-term visibility into group occupancy along with the systems we have put in place over the past 12 months better enable us to manage our properties efficiently, ensuring lean operations and the appropriate staffing levels according to current demand. Bottom line, is that the large group centric model we built, which is far different from any other in the hospitality industry is functioning the way its suppose to. On the books, group revenue maybe a risk from time to time from attrition, but profitability does not have that same level of risk. Thanks to the contractual agreements, we have in placed with our group customers. When we discussed our outlook on the balance of the year of the Investor Day, we described three areas of risk for the business. Attrition and cancellation levels, in the year booking trends, and transient business, so let me provide some color on each one of these items that we have discussed just a few weeks ago. As you know the majority of our occupancy is booked years in advance, with contracts guarantying that we receive a portion of our anticipated revenue through attrition payments. As we discussed at the Investor Day, we have experienced a material increase in attrition rates in the first half of this year, because of the way we account for attrition and cancellation fees, higher attrition levels will impact RevPAR results, since fewer guests than expected are occupying our rooms. However, we still receive attrition and cancellation fees, which are accounted for as other revenue. This means that RevPAR CCF are not impacted in the same way. This is why RevPAR, while an important metric for other hotel companies in the industry, does not fully gauge our success, especially in the market, while we are seeing attrition rate above recent historical levels. Attrition at our same-store properties this quarter was about 10%, as compared to 8% in the second quarter of last year. For the first half of 2008, attrition was about 11% compared to 7% in the first half of last year. Groups are reducing their room block in advance of their travel days, as they are anticipating lower attendance for their events. These reductions in room nights impacted occupancy and revenues in the quarter, while the associated attrition and cancellation fees, which are recognized when collected, typically are not realized in that same quarter. We also discussed in June how increased attrition is affecting our end year growth versus net bookings. Over the past couple of years, the impact of all the various adjustments to in the year gross bookings has resulted in net bookings being higher than gross bookings. This year, however, given the current trends in attrition, in the year bookings are now lower than gross bookings. For the quarter same-store gross bookings were up 31%, in other words we signed contracts for 31% more room nights this year than we did last year. However, net bookings have decreased 18%. That is caused by a change in the attrition levels. In other words, we are having lots of success signing contracts with our customers; however attrition rates are limiting these positive impact. Finally, at our Investor Day, we identified transient business as another risk factor for the balance of 2008. There were contrast what you are hearing from other lodging companies, we experienced an 8.9% growth in our same-store transient room revenue in this quarter. July continued this trend with transient revenues up about 25% versus the same month last year. We dwelled a portion of our resources to building up this piece of our business and these efforts paid off by offsetting some of the group business lost their attrition. While we are encouraged by these results, we remain cautious about the outlook for the remainder of the summer, and the fourth quarter holiday season, our highest transient periods of the year. I will discuss the impact these trends are expected to have on our balance of the year guidance, in my closing remarks. However, first, let's review the quarter's property level performance beginning with Opryland. In Opryland the shift toward more corporate group business, first our ADR up 6.5%, which led to a 3% increase in revenue to $73.5 million. The increased ADR help to offset the decrease in occupancy that drove RevPAR down for the quarter. However, thanks to our cost control initiative and incoming revenue from attrition and resort fees, CCF increased 8.5% with margins of 31.4% for the quarter, up approximately 160 basis points. This should be noted that the operating statistics from last year reflects 12,574 room nights being out of service. This year obviously we had no room nights out of service because our room renovation is complete. Moving now to Florida for the Palms, the Palms had a very solid quarter with growth across all key metrics. The properties ADR increased due to additional transient guests, which helped to support the 3.6% revenue growth and the 8.3% increase in RevPAR for the quarter. Based on a favorable shift in mix for groups, ADR also was up for the quarter. CCF increased 12.4% for a 260 basis point increase in CCF margin. Now looking at the Texan, revenue was down slightly at the Texan for the quarter. RevPAR was up about 1%, largely due to an increase in ADR that was offset by a decrease in occupancy. Total RevPAR decreased by less than 1%, and due to an increased attrition in cancellation fees and lower commission business, CCF increased 4% to about $16 million. CCF margin was 33.1%, and increased 160 basis points over last year. Before discussing the results from the Gaylord National, I wanted to make one more comment about trends within our sales. Outside of the room spending growth in the first quarter, on an occupied room basis, in other words, how much each occupant was spending, was up 6.4%. That statistic has been growing at about 7% per year over the last couple of years. This past quarter outside the room spending growth, slowed to about a 4.2% per occupied room growth rate. Now given the current challenging economic environment, we are pleased to be able to continue to drive 4.2% per occupied room growth. That said, we will be watching that statistic closely for continued signs or additional signs of belt tightening across our businesses. Now move to the National. As Colin mentioned earlier, we were extremely pleased to host so many of you at the National in June. As those of you, who attended saw, the property is truly a spectacular example of the superiority of Gaylord properties. We continue to be extremely pleased with the success of this property, particularly the outside-the-room performance. Revenue for the quarter was $61.8 million, and RevPAR and total RevPAR were 143.19 and 359.02 respectively. Now let me put this in perspective for you. In its first quarter of operation, one that we have probably said, we thought was not perfect from our perspective. The National was nearly the brand leader in RevPAR and total RevPAR. Looking at other measure that is comparison to our other properties, you should know that the National produced more banquet revenue per group per room than each of the other properties in our existing networks. The National also ran a 10%, 17% and 44% premium and total revenue per occupied room to our other three properties the Texan, Palms, and Opryland respectively. Now, that is a spectacular performance for our first quarter of operations. In addition CCF was very solid with a 22.7% CCF margin, and as we continue to operate for hotel, we expect we will continue to get better from a margin management perspective. As then looking to the property continue to grow and have reached approximately 1.5 million room nights. Obviously we are very proud of the accomplishments at the National in the quarter. Now on to the outlook for the remainder of '08, based on the continuing trends and attrition and its impact in 2008 bookings and our continued cautiousness related to the transient business during the fourth quarter holiday period and some softening in outside-the-room spending levels, we are adjusting our same-store RevPAR and total RevPAR guidance to 1% growth to 3% growth. Additionally, total RevPAR we are adjusting down to 1% growth to 3% growth as well. Now interestingly and as we said earlier, our business model is operating the way that we would expected to. So, from a CCF perspective, we believe that with the protections that our business model offers that our CCF will be more protective than one might think given a reduction in RevPAR and total RevPAR guidance. So, we are simply reducing the top end of the range of our CCF guidance from $207 million to $202 million. With that, I will turn the call back over to Colin.

[Colin Reed:]

Right, Dave. Thanks a lot. So, Pam, let's open up the lines for questions please.

[Operator:]

Thank you, Sir. (Operator Instructions). Thank you. Your first question is coming from Jeff Donnelly with Wachovia Securities. Please go ahead.

[Jeff Donnelly:]

Good Morning, guys. Just a few questions. What costs remain to complete your National and where do things stand with Perini?

[Colin Reed:]

Jeff, Good Morning, Colin. I am going to ask Dave to answer this part of the question, and where they stand with Perini we are in the middle of should I say serious debate in terms of the closeout, and we probably will be pounding the drums a little harder here with this company over the course of the next two to three months. Because we are unhappy with certain things that were not done in the completion of this hotel and unhappy with some of the billings that we have subsequently received from them. All within what we have told you about in terms of total cost. But as we dive into this, we believe that, there is some opportunities to remediate some of these questionable billings to us. That's all I think I can say on that and our lawyers will probably hit me if I saying as much than this. David, well, in terms of total costs, where do we stand right now?

[David Kloeppel:]

Jeff, we are at $937 million have spent to-date. The range that we have out there as of about two quarters ago was about $960 million. We are in the process of going through and closing out the projects and closing out subcontractors. Our anticipated closeout, we are still targeting that kind of range, the $960 million. We anticipate that Perini will continue say that they think that the projects would be more expensive and we are going to say that we think the project should be less expensive. So, we are going to be in a debate for some time and discussion with Perini for sometime. However, for right now, that neighborhood of 960 range, plus or minus, is probably the right target for us to focus on.

[Colin Reed:]

Jeff, let me just give you one more piece of information. We have got some of the finest construction attorneys and construction consultants working on this closeout reconciliation with Perini and we believe our plans against some of the potential over billing to us are pretty sound and we intend to vigorously prosecute this, but we believe that the cause of a cap Dave just indicated.

[Jeff Donnelly:]

Just to be clear the 960 the yes, you think it should cost or which it actually spent unless I mean they think it should be cost?

[David Kloeppel:]

Well, we spent 937. We think it should cost 960 and obviously we had a fight with someone, so we are going to say the numbers really low and they are going to say the number is really high and we are going to excited what the real number should be and you will not have a judge, helps us figure that out.

[Jeff Donnelly:]

Okay. What is understood with, maybe, Gaylord's desire to re-equitize its platform on whether that is selling assets or, what have you? Do you have any update there?

[Colin Reed:]

Jeff, this is Colin. Let me answer that question. There are two options to the question. What we said at our Investor Day is that, we want to strengthen our balance sheet. We said we wanted to do that in two parts. Number one, we wanted to, we were relooking at our bank lines and we have announced that and we feel that is a substantial achievement in this market. The second thing that we said to you is that, we think that it is, as an organization we are committed to sell part or all of our real estate to help fund future growth, but we only want to do the surprise is that we think are appropriate for the assets of our quality. I just want to touch on one thing, and I will get to the conclusion of the answer. Second, when David talked about 1.5 million room nights on Gaylord National, think about the evaluation of that; think about 1.5 million room nights, you can take any ADR, you like between $200 and $250. Then add typically what we get, 1.25 to 1.50 times we ran 1.50 times dollars outside of the room for every dollar inside the room. We are having contract form somewhere. I am not going to get into the specifics here, but somewhere between $700 million and $850 million of worth of future revenue. So, when we are in debate about evaluations, we need to take into consideration the incredible value these hotels have the ability to harness in the future. So, we are working actively on this, and we are continued to work actively on this. We are committed to this and but we are only committed to doing it of prices that we think are fair and reasonable.

[Jeff Donnelly:]

Just one last question Colin. Given the attrition, anything we should draw from the sequential decline in attrition in Q1, Q2 and is there any seem to maybe industry exposure were you have seen attrition rates kick up?

[Colin Reed:]

Jeff, the answer is attrition is going to shift a little quarter-by-quarter and to increase your possible confusion about attrition. Attrition in July was 12%, now they were 12% this time in July as for last year as well. So, attrition obviously changes seasonally based on the types of groups that driven the house and changes on a day-by-day basis, again based on the types of the groups in the house. We do not believe at this point that decrease in attrition from first quarter to second quarter is something that we should believe as a trend that would be in net positive for us for the balance of the year. So, we are not assuming that attrition gets better. We are in fact assuming attrition stay at the level that it has been for the balance of that year. So, we will continue to take a look at third quarter attrition see how that plays into the equation, if we start to see a trend, where we are narrowing the gap to last year's level of attrition, that might be an indicator for trend, but at this point we are not ready to commit to that.

[Jeff Donnelly:]

Thank you.

[Colin Reed:]

Thanks, Jeff.

[Operator:]

Thank you. Your next question is coming from Chris Woronka with Deutsche Bank. Please go ahead.

[Chris Woronka:]

Hey, good morning. Just to take Jeff's question in a different angle. Colin you talked before about not only possibly selling assets, but also finding some venture to where you can go out and I am wondering, in an appropriate world maybe that is the same, entity that you partner with, but is it really mutually exclusive and can you give us a little bit of color on where you are on the growth side of things, especially given the uncertain economic environment. Thanks.

[Colin Reed:]

Yes. Thanks, Chris. Well, on the growth side, we have negotiated these expansions of both Opryland and Texas fully and we are in the process of doing detailed design work and that will go through to probably February, March of next year. It just takes for these big projects, a long time to actually do the detailed design, work on this. So, we effectively have this period between now and then to assess is there a material change in demand for these markets. We will, once we got the detailed design documentation done in February, March next year, then we will be in the situation of bidding the project and then effectively letting the contract if we are comfortable with the world has not materially changed here. On the Palms I think we would before to see counsel this week in Osceola County to secure the incentives that we have talked to them about and then we will be in the same scenario about a year of just doing the detailed design work, conceptual work detail design work before we have to press any button on the big part of the capital, the construction side of it. So, we feel that we have got pretty decent period of time here to assess this mess that we find ourselves in this country and in fact that virally spreading to other parts of the world. We are very mindful that we have to just continue to assist this demand that we are seeing from meeting point as to make sure that it is still the same as we thought it was six, nine months ago from a long-term perspective. The other thing is that we are working as you know due to this that we continue to make progress there. I think this week the final review with the Californian Coastal Commission I think that review is this week. We have had more discussions with organized labor and I am not privileged to say because of confidentialities we have with organized labor, where we sit with that. However, the bottom line is I am optimistic that will not be an impediment to the future. Things are moving forward there, but again we are sitting on top of that market. We are looking at the market and understanding what this environment means to that market. We have other development deals that we have been working on. That in our opinion and equally is attractive to the West Coast operation, that we are assessing. So, we do not feel that we are in any need to go do a five sale on our assets tomorrow morning. We have got a reasonable period of time here, to assess this market, to assess the demand characteristics of this market and then make whatever business judgments we need to make to determine how we grow value for our shareholders, but we think all of these assets, long-term, in a normalized environment can create lots and lots value for us, and we have to find the right capital structure to do that, which generates the highest return for our shareholders.

[Chris Woronka:]

Great, that is very helpful. Just, I mean, not to put any bounds on you or anything, but I mean, is it safe to say that if you already go forward with silver stores some other development that it really have to be with a strategic capital partner and without even going into too much detail such as directionally, where growth is going to come from on new builds?

[Colin Reed:]

I think that will be a fair way to describe it Chris, because look, for the last five years we pushed our balance sheet a little to get these four big assets refurbed and built and done. We have managed that well and I know the shorts have had a field day this last nine months, because they felt that this company was over-leveraged. However, we knew that we have wonderful relationships with our banks. The banks see the value in this company. The banks, we have opened the commonests to the banks, and they have looked at all of this, all of our resorts' bookings and they are very comfortable with the trajectory of this organization. However, we are in the process this next 12 months of deleveraging, and we have got a balance sheet that is very, very manageable. So, prospectively, we will push leverage, but we will not overly push it because we are not going to put, we are not going to stress the organization. That is just the way we are going to run it.

[Chris Woronka:]

Okay. Very good, thanks.

[Colin Reed:]

Thank you.

[Operator:]

Thank you. Your next question is coming from Bill Crow with Raymond James. Please go ahead.

[Bill Crow:]

Good morning. I have three follow-up questions. First of all, you mentioned in your opening statement that you are seeing pressures on the industry like none you have seen before. What is it exactly that is differentiating the cycle?

[Colin Reed:]

Well, look, we have seen spikes in oil prices before, but whether you like it or not this country in the last 50 years since the great depression has not seen declines in the value of home prices up to 20%. We haven’t seen every major bank since the great depression recapitalizing its balance sheet and basically freezing capital. We haven’t seen escalation in airline prices the likes and supply coming out. I mean you go to Las Vegas and speak to this folks in Las Vegas, I was in the gaming business for 15 years and we all believe in the gaming, but down turns in the economy gaming was resistant to that, that this is vastly different.

[Bill Crow:]

Then it must be reduced airlift impact your markets specifically at this point?

[Colin Reed:]

It is no. It has not, we have looked to the airlift changes market-by-market and we haven’t seen that, and but this is different and what we have got to be every single business is got to be nimble on its toes to understand these changes that we are seeing that historically this country, I have lived here for 20 years. I have not seen the magnitude of this disrupt, of the type of disruption we are seeing. We have an isolation. We have seen the spike in oil prices and we have seen S&L prices back in the early 90s, but here this is, there is a multiple of things going on here and we got to be on our toes. We believe that our business is so wonderfully positioned to last through this because so much of that business is in contract form.

[Bill Crow:]

Colin, you have mentioned the Palms and the fact that the incentive for the expansion is going to vote shortly. We have been down here, I can tell you how stretch the local governments are. Any chance that had has troubled in the past?

[Colin Reed:]

Look, I do not honestly, Bill know the answer to that question. Only the politicians are saying, look. We in Osceola County like the idea of having a major, major convention presence in Osceola County rather than Orange County. What they are saying to us is, we have through the rooms’ tax, we have a lot of revenue that we have already collected that we haven’t spent. We have a lot of revenue that we will collect that is not the earmark presently. By the way we would love you to continue to do what you are doing and so we where be fallen in this week and I can not imagine that they are representing this money will be available then saying no, it will not be. We believe it will be there.

[Bill Crow:]

Fair enough. Finally, somebody is going to ask it I would imagine, so I will go ahead and do it. Any discussions with Robert Rowling since his announcement that is if you want to the position.

[Colin Reed:]

He have been in this business a long time right and you know that companies like us cannot give, make comments on, publicly comments on communication between its shareholders and the company. Because if some of that big shareholders like Baron Capital sat down with us and had ideas and thoughts and you were to ask what are those ideas and thoughts that one of our big longtime shareholders have, I mean it would be inappropriate for us to discuss that stuff publicly and so, I suggest that if you want to know the answer to that question you go call Mr. Rowling.

[Bill Crow:]

Okay.

[Colin Reed:]

By the way I do believe Mr. Rowling has made one of the best investments of his business career by buying just under 15% of that company.

[Bill Crow:]

I think where he bought it, I think that is right.

[Colin Reed:]

Yes.

[Bill Crow:]

Alright, thank you.

[Colin Reed:]

Thank you.

[Operator:]

Thank you. Your next is coming from Kevin Milota with JPMorgan. Please go ahead.

[Kevin Milota:]

Good morning. Just hoping good comment on the outside-the-room spending and where specifically you are seeing some of the softness. Is it food, beverage or banqueting?

[David Kloeppel:]

Yes, it is actually across the board. We saw initially in late May, early June primarily in outlets and as we got into mid-June and July, we saw it a bit more still in the banquet type.

[Kevin Milota:]

Okay. Secondly could you working on and give relative RevPAR for each property versus the 3% guidance that you all get.

[Colin Reed:]

I am sorry, ask that question again Kevin.

[Kevin Milota:]

I think the question was could we break down the 3% for the year between the properties rather than just do it in global basis.

[David Kloeppel:]

No, we tend not to do that. However, generally, directionally, I go by quarter and by property and give you general high end of the range or low end of the range. Third quarter for Opryland should be towards the high end of the range and fourth quarter should be towards the low end of the range. Palms, again directionally it should be a little bit bottom of the range. On RevPAR and total RevPAR in fourth quarter should be middle of the range, towards the high end of the range. Then Texan, third quarter, fourth quarter, third quarter should be on total RevPAR basis towards the higher end of the range and fourth quarter it should be toward the low end of the range.

[Kevin Milota:]

Okay. Thanks a lot.

[Operator:]

Thank you. Your next question is coming from Will Marks with JMP Securities. Please go ahead.

[Will Marks:]

Thank you. Hello Colin, how are you doing?

[Colin Reed:]

Good morning, Will.

[Will Marks:]

Good morning. I have a question on the transient. Can you confirm you said second quarter transient was at 8.9, and what was the July figure?

[David Kloeppel:]

19.4%.

[Will Marks:]

I am sorry, 19.4?

[David Kloeppel:]

Yes, you heard that correctly.

[Will Marks:]

Okay. On the same-store?

[David Kloeppel:]

On the same-store basis, that is right.

[Colin Reed:]

Yes, but David finish the statement.

[David Kloeppel:]

Yes. I was going to say, you have to understand in part how transient works for us. Because we are a group house, group comes first, transient tends to come second. When you have attrition that occurs, you tend to learn about that attrition in a relatively short period. So, rebooking those rooms that have attrited with meetings, generally it does not happen. So, generally we are trying to resell those rooms for transient rooms. So, one reason transient is up, is that we are better at transient, but another reason the transient is up is because we have more availability to sell to transients. So, I just mentioned a few minutes ago to, I think it was Jeff Donnelly, that attrition in July was about 12%. Attrition last July was also 12%, but when you have 12% attrition, it gives you more space available to sell the transients.

[Colin Reed:]

We are just doing a better job of that.

[David Kloeppel:]

That is right. We are just doing a better job. So again, as I said to Jeff, we are not projecting that because we are narrowing the gap in attrition, first sequentially first quarter, second quarter, and now July, to last year, we are not assuming that is a trend that continues, and we are also not assuming that transient continues to grow 8%, 9%, 10% year-over-year as it has here today in the guidance, we gave you earlier.

[Will Marks:]

Okay, great. Next question on, looking at the National, you gave 2010 guidance year-and-a-half ago. I do not know if you would like to confirm that, but more importantly, I am curious about 2009. If we can expect it to be halfway there, we are talking about full year in '08, but any comments on '09 from the National would be helpful?

[Colin Reed:]

Well, I would tell you what I would like to do on that. I am not pumping, but we have a Board meeting tomorrow afternoon on Thursday when David and I will be presenting to our Board a long range plan for '09, '10 and '11 and '12. What I would like to do would be hold off making any predictions about 9 and 10 until we have spoken with our Board on this, because I do not like talking about directional information that we have on preview with our Board. I think it is fair to say that given the bookings that we have on the books and the current pace of tentative some prospects, a view of the world in '09 and '10 is generally not too different to our view of the world a year ago when we did it at that point in time.

[Will Marks:]

Thank you. Okay. On your comment on share repurchase I believe, and as per your Analyst Investor Day, we assume that a lack of share repurchase is due to a major strategic financing, I do not want to call you incorrectly, but any comments there please?

[Colin Reed:]

Well, what we said to you at the Investor Day, which we did not say it overtly directly, but (Inaudible) was that the lack of share repurchase is not an issue of capital availability. It is based on our lawyers' advice as to whether we can or cannot be in the market now doing this when we are doing other things that we haven't publicly disclosed. So, you can take that comment and digest it as you will.

[Will Marks:]

Okay. Then just one final thing. This is going to be diverse. The change in guidance from the Analyst Day till now, your attrition went up slightly June to July from 10% to 12%. It appears that outside-the-room spend has dropped a little bit, transients replacing some of it. Anything you want to fill in there?

[Colin Reed:]

Well, let me say it this way. Dave, you may want to jump in. The difference between early May to now is that in early May, we had a lot more confidence about our ability to build, add group rooms in the year, for the year. Where we are right now? Two-and-a-half months later with this attrition level continuing, we are being cautious about our ability to fill the rooms that we built we could fill back in back towards the end of May. However, the other side of that is that we really do believe that these contracts give us a lot more protection. And given the way our margins are performing, we do not expect that attrition issue that we have now projected through the rest of this year to have a material impact on profitability on our business.

[David Kloeppel:]

Right. Well, I would add that just to clarify that point on our confidence on booking business in the year for this year. The confidence is not an issue with respect to actually booking the business. The confidence issue is related to what happens to attrition. I think it is the net. As I said in my comments, we are up 30% in gross bookings in the year, for the year, but we are down 18% in terms of net. Net is gross minus attrition basically. So, that attrition number has continued to track at a level that is higher than we thought in early June, which was a basis from which we were starting put together our thoughts for the Investor Day. We pointed out other various different risk factors. The one that is related to attrition has been the one that has not had a change in direction. That is the one that is been most significant. We also, as Colin said, are being very cautious with respect to transient business. We have a lot of eggs in the transient basket for November through the end of December. While we have had positive transient trends so far year-to-date, we can not presume that that continues and base our guidance to the Street on those kinds of estimates. So, we have continued to assume that they are not as positive a comp on the transient as you have seen here to date.

[Will Marks:]

Perfect. Thank you very much

[Colin Reed:]

I think we will do two more questions, because I think we have only spoken with six of the big analysts. We will do two more, and then any that we miss, we will deal with offline.

[Operator:]

Thank you. Your next question is coming from Nap Overton with Morgan Keegan. Please go ahead.

[Nap Overton:]

Yes, good morning. A couple of things. One, could you quantify the attrition fees collected and the impact on the second quarter versus the first quarter and/or last year?

[David Kloeppel:]

We are up 1.6 million in attrition fee collections 2Q this year over 2Q last year. Obviously, those are all profits.

[Nap Overton:]

Okay. Then, David, what insight is from just redoing your entire credit facility there? I mean you have got an awful lot of insights right now about the overall availability of capital to the lodging sector. Any color you would care to share about that to put that in perspective.

[David Kloeppel:]

Yes, I would say that capital is still available in the lodging sector to companies who have a strong, well-defined strategy, who have maintained good relations with their banks and who continue to manage their businesses in an effective and efficient fashion. Redoing our credit facility, obviously, was more expensive than it was when we put it in place in February of 2007. That being said, a 100 basis point spread increase is relatively immaterial considering the concern that investors had placed on maturity issue. I think we have a very supportive bank group. I think the bank market continues to be open to lodging companies. For us, that was the most attractive market, given the relative cost of it.

[Colin Reed:]

Let me just add two things. Nap, a couple of things. Number one, most of the major banks are trying to shrink their balance sheet because of the stress and strains that they are under. What I heard from three or four of the big banks that I talked to, David, was that what they are really doing is prioritizing those companies that they want to do business with, because they can not do it the way they have historically done it, which is basically lend every company as much money as they have historically wanted. So, there is some discipline as to whom they are lending money to. The amount of money is also being shrunk, because these banks are trying to bring the size of their balance sheets down.

[Nap Overton:]

Thanks.

[Colin Reed:]

Okay.

[Nap Overton:]

Thank you.

[Colin Reed:]

Thank you very much. One more question.

[Operator:]

Thank you.

[Colin Reed:]

One more question, Pam, and then we will conclude it.

[Operator:]

Thank you. Your final question comes from David Katz with Oppenheimer. Please go ahead.

[David Katz:]

If you have already covered this, I apologize. However, one of the things I would like to get into or get a little better understanding of is the profitability level on attrition fees, right? One of the things we look over the other hotel companies is we can get to a RevPAR growth number where profitability tips and margins start to go down, and in some cases, it is 2%, 3% 4% growth or something like that. In your case, it is a little trickier because of the prospect of those attrition fees. I presume that they are extremely high margin, those fees, correct?

[Colin Reed:]

If 98% or 100% is high, then yes.

[David Katz:]

Pretty high.

[Colin Reed:]

I mean the only cost to attrition fees is to the extent we have booked that business through a third-party channel, then there maybe a commission payable on that attrition fee, which can be up to 10% of the attrition fee. Otherwise, there really is no cost to the attrition fee.

[David Katz:]

So, how do we think about a RevPAR growth number or a RevPAR level where your profitability tips and starts to go down?

[Colin Reed:]

I am not sure --.

[David Katz:]

Or is that not possible inclusive of the attrition fees?

[David Kloeppel:]

It depends on where the RevPAR decline is coming from. If the RevPAR decline is coming from group business that is on the contract to us, then providing these companies solid or associations solid, it does not work the way you implied it works, because we will always collect an attrition time which is effectively profitability. By that, I mean the contracted rooms and food and beverage revenue less the estimated cost on that contracted revenue. By and large if the attrition works within the year, that equals the attrition time that we tend to collect. That' the way it works in our business. This is the frustrating thing that we read so many times in these reports that get published, how critical RevPAR is to our business. We sit and have this conversation, it seems like every quarter and our business is very different. Our business is a bit like being in the apartment renting business. If somebody decided they are going to leave early, they still have to pay for the next year. That is the business that we are in here. When RevPAR declines and it hits us from a profitability perspective is if that RevPAR decline is caused by a complete migration of our transient business. However, as we have been painful in our pointing out, our transient business in fact is growing, not declining.

[David Katz:]

Right, okay. I agreed and perhaps it's a better, since we past the hour perhaps question to have offline, but there must be a point at which if you look at the Opryland, right where total RevPAR goes down 1.8%, but EBITDA margin or CCF margins looks like they are up 160 basis points, right, there must be a point at which that RevPAR number becomes negative enough where you still collect the fees and profitability level is flat, right? It is obviously quite a bit lower than most of the other hotel companies that we look at. I wonder if that is perhaps the calculation that you have thought about. Again, we could do it off line since we are --.

[Colin Reed:]

Let's do that. Let's take it offline. I appreciate your question, David.

[David Katz:]

Okay. Thanks.

[Colin Reed:]

Thank you. All right, Pam, thank you. We are well off the time here. There has been lots of questions and appreciate everyone's engagement. Again, if there is any question that you have in addition to the ones that have been asked, please feel free to call either David, myself or Mark Fioravanti. Again, thank you for your time this morning.

[Operator:]

Thank you. This concludes today's Gaylord Entertainment Company's second quarter 2008 earnings conference call. You may now disconnect your lines. Have a pleasant day.