Vail Resorts Inc (MTN) 2004 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the 2004 third quarter conference call for Vail Resorts. At this time, all participants are in a listen-only mode. Following today's presentation, instructions will be given for the question-and-answer session. If anyone needs assistance at any time during today's conference, please press the star followed by the zero. As a reminder, this conference is being recorded today, Monday, June 14, 2004. I would now like to turn the conference over to Mr. Adam Aron, Chairman and CEO of Vail Resorts. Please go ahead, sir.

Thank you very much, operator. Good morning, everybody. And welcome to the Vail Resorts fiscal 2004 third quarter earnings conference call and simultaneous webcast, both open to the public and press at large.

As you know, I'm Adam Aron, Chairman and CEO of Vail Resorts. I'm in New York City this morning doing television and press interviews to get the word out about our fantastic third quarter financial results.

Joining me on the call this morning are Jeff Jones, our Senior Vice President and Chief Financial Officer and Leslie Roubos, our Director of Corporate Financial Planning and Investor Relations.

Earlier this morning we released our earnings for the third fiscal quarter ending April 30, 2004. Earnings that exceeded management's expectation as we closed out the 2003/2004 ski season in grand style.

On today's call, I'd to like to begin by giving you an overview of the record financial results for Vail Resorts for the third fiscal quarter followed by some comments about the remainder of the 2004 fiscal year and beyond. In addition, I'd like to conclude by giving you some color on our recent press releases in which we announced that we have officially kicked off an array of redevelopment projects in Vail Village and Vail's LionsHead. I'll also discuss some of our other Real Estate initiatives. At the conclusion of my prepared remarks, Jeff, Leslie and I will be happy to take any questions you may have.

Before we do so I want to remind you that in conjunction with the SEC rules regarding the use of non-GAAP financial measures we use the termed "reported EBITDA" to report earnings for each of our operating segments, namely Mountain, Lodging and Resort. Resort, as you know, is the combination of the Mountain and Lodging segments, as well as Real Estate.

Reported EBITDA for the Mountain, Lodging and Resort segments is defined as segment net revenue less segment operating expense plus segment equity investment income. Real Estate reported EBITDA is defined as Real Estate net revenue, less Real Estate operating expense plus gain on transfer of property plus Real Estate equity investment income.

A full reconciliation of all these non-GAAP measures to GAAP can be found in our press release and on the Vail Resorts.com Web site in the Investor Relations Section under the Regulation G Compliance tab.

Let's turn to the some might say sizzling fiscal third quarter results covering the three months ending April 30. As I mentioned earlier, the financial performance for the quarter exceeded our expectations as we experienced record third quarter Resort revenue and record third quarter Resort reported EBITDA.

Now it's certainly true that last year's third quarter should have given us an easy comparison due to the Iraqi war occurring during the busiest month of our ski season last year. But nature did us no favors this year, especially in March, which experienced abnormally warm temperatures, melting existing snowfall and well below average new snowfall.

Press accounts have March being the warmest and driest since longer than any of us on this call have been alive. As a result, many of our competitors in Colorado struggled mightily as the ski season should have been hitting its peak.

Indeed our own third quarter skier visits were actually down almost 2% below last year's third quarter skier visits. So our performance in this year's third fiscal quarter turned out to be a lot more than just enjoying an easy comp.

Thankfully in the quarter Vail Resorts skillfully managed pricing increases, skier visit mix changes, Lodging yield management techniques and cost containment efforts that all allowed us to post record financial results for our Resort segment for the third quarter.

Turning specifically to our ski resorts, our Mountain segment, Mountain revenue increased 11.1% as compared to last year's third quarter, despite the 1.9% drop in total company skier visits. The drop in skier visits was almost entirely due to a measurable decrease in local and front range skiers all of whom reside in Colorado.

But remember these are the guests who, for most part, purchased more than 125,000 of our season passes. This is but another affirmation of our strategy to get Coloradoans to ski on season passes instead of on day tickets and in the process take day-to-day changes in weather conditions out of the equation.

While Coloradoan skier days were reduced somewhat, nonetheless, the lift ticket dollars we collected from those same people actually increased because we already had their money in the bank as of last November. The increase in season pass sales booked in the third quarter was coupled with an increase in visits from higher spending destination skiers, meaning those of our customers who reside throughout the United States, an increase in international visitors, due in part to the favorable currency exchange rate and a whopping 12% increase in our average realized prices known as Effective Ticket Price or ETP.

This price growth due both to actual absolute price increases and to mix changes. In total, this all translated to an approximate 10% year-over-year increase in lift ticket revenue for the quarter.

Beaver Creek, which is having another record year, was the one of our resorts which showed an increase in both skier visits and ETP for the quarter. While skier visits grew 4% over last year at Beaver Creek in the third quarter, Beaver Creek's ETP for the quarter was up an extraordinary 24%.

And while the other four resorts had slightly fewer skier visits, year-to-year in the quarter they each saw an increase in ETP as well. Average ticket prices at Vail for the quarter were up 11%, Breckenridge's ETP was up 8%, Keystone was up 12%, Heavenly's ETP was up 9%.

Non-lift ticket revenues grew a healthy 12.3% year-over-year in the quarter, also benefited from pricing increases and from the increasing numbers of higher spending destination skiers. This latter metric includes ski school revenue which is up 5.5%, dining revenue up 9.6%, retail revenue up 8.4% and miscellaneous ancillary Mountain revenues up 40.9%, albeit on a small base.

As a result, revenue for the Mountain segment increased $23.3 million over last year's third quarter revenues. Certainly not bad, especially considering snowfall at our resorts was well below average during March, the absolute peak month of the ski season.

This just confirms that thanks to our unique array of assets, strategies and management sophistication, Vail Resorts is not nearly as snowfall dependent as some outside observers may think. Every bit as important are previously announced and previously discussed efforts to cut costs while keeping product quality high, clearly have been successful.

Mountain expenses for the third quarter grew just $8 million. Primarily due to increased labor costs associated with company-wide annual wage increases for all of our employees and given the improved financial performance and accrual for the expectation that bonuses will be earned under the management incentive compensation program for the company's 400 most senior managers.

Variable expenses resulting from increased revenue and general inflation added to the costs. But these were offset to a great extent by our determination to tightly manage expenses all year long.

Total Mountain expenses grew in the third quarter by only $8 million, while corresponding revenues grew $23 million in the quarter. Therefore, our flow-through in the quarter of incremental revenues to the bottom line for the Mountain segment was an impressive 65%.

As a result of revenue increases and tight management of expenses, reported EBITDA for the Mountain segment grew 17.5% year-over-year in the third quarter to a record $108.2 million and reported EBITDA margins increased from 43.7% to 46.1%.

And it is not just that reporting a good third quarter for our Mountain segment. You may recall that things have been looking up for our Mountain resorts throughout the entire year.

For the nine months year-to-date, reported EBITDA for the Mountain segment improved $27.9 million or 21.9% to $155.4 million compared to $127.5 million for the comparable period last year.

While we're thrilled by the strong ski area performance, we were similarly pleased and encouraged with the improvements realized in our Lodging segment, which also performed well during the quarter. Lodging revenue for the third quarter increased 7.5% over last year, primarily due to increased average daily rates or ADRs in our own hotels.

A large part of the ADR revenue growth was driven by gains at the Vail Marriott which saw both increased occupancy and ADR in its first full year of operations after the completion of its two-year renovation. The Lodge at Rancho Mirage in Palm Springs also saw increased occupancy in ADR as did our Lodging properties in Breckenridge.

Lodging expense in the quarter grew $4.2 million, and is again due to general inflation and increased volume related variable expenses in this case associated with the good news of increased occupied room nights. Lodging expense also grew due to an unfavorable $900,000 swing year-over-year in the recording of expected incentive compensation expense.

On a property-by-property basis, many of our Lodging division managers will be pleased to learn that bonus accruals were booked this year, as earned, while in last year's third quarter, previous bonus accruals were actually being reversed as it became increasingly likely last year that bonuses would not be earned.

Also good news was that Lodging equity income improved almost a million dollars year-over-year due to the improved second-year operation at the new Ritz-Carlton Bachelor Gulch. I want to remind that you since we're using an equity method of accounting treatment for the Ritz-Carlton Bachelor Gulch, approximately $1.1 million in interest and depreciation expense at the Ritz-Carlton is reported on the Vail Resorts Lodging equity income line which in turn is included in Lodging reported EBITDA.

The total Lodging result is a modest Lodging reported EBITDA growth of $200,000 year-over-year in the quarter, putting aside the delta year-over-year and the booking of management bonuses, Lodging reported EBITDA would have been up $1.1 million year-over-year for the quarter. Having said that, it is, again, important to note that our year-to-date nine months Lodging reported EBITDA has improved from $7.3 million last year to $11.1 million this year, a hefty 51% increase in the nine month Lodging reported EBITDA.

This year, our Lodging properties have benefited from the improvement in the economy and U.S. travel industry, as well as our careful management of expenses, improved occupancy in our RockResorts luxury hotels, positive consumer response to the renovated Vail Marriott and improved financial results at the Ritz-Carlton Bachelor Gulch in only its second year of operations.

As always, let me provide you now with some third quarter operating statistics for our owned hotels.

RockResorts owned hotels enjoyed a 5% growth in revenue per available room or RevPAR. This was the result of a 1.5 point increase in occupancy to 71% and a 3.4%, that was 3.4% increase in ADR to $224.77.

Results for our non-RockResorts branded owned hotels, those properties primarily located at the base of our ski resorts were also quite positive during the quarter with occupancy totaling the same 71%, but that's up 3 points from 68% the year before, and with an average daily rate increasing $4 year-over-year from $169 to $173. The result was a healthy 7% increase in RevPAR for the quarter for the non-RockResorts owned properties. These are Lodging results with which we are very pleased.

Looking at both our Mountain and Lodging segments combined, total Resort reported EBITDA in Q3 was an all-time record quarter for Vail Resorts. Resort reported EBITDA totaled $120.1 million, a $16.3 million increase or a 15.7% increase over last year's Resort reported EBITDA.

Looking to the first nine months of fiscal 2004, Resort reported EBITDA is up some $31.7 million year-over-year, up an impressive 23.5% improvement year-over-year from 134.8 million last year to $166.5 million this year. Please forgive our enthusiasm, but this really is great news for us.

I must tell you and our own people, many of whom are listening to this call, that I am immensely proud of our entire management group and our dedicated employee force for turning in such a fine performance.

Turning to Real Estate, as expected, Real Estate revenue decreased $7.7 million to $4.2 million for the quarter, reflecting an expected change in the mix of what was sold in the third quarter fiscal 2004, compared to the same period last year. But Real Estate expense decreased $20.2 million, to a credit of $8.6 million for the quarter, due primarily to the relief of a $51 million liability of the company's balance sheet, the offset of which was recorded as a reduction in Real Estate operating expense, resulting from the early payoff of the outstanding Smith Creek Metro District bonds paid by the Bachelor Gulch Metro District.

The Bachelor Gulch Metro District is controlled by Bachelor Gulch homeowners. The Smith Creek Metro District bonds were issued a long time ago to support infrastructure in Bachelor Gulch.

Vail Resorts undertook to subsidize and credit enhance theses bonds until such time as the revenue base in Bachelor Gulch was sufficient to allow Bachelor Gulch to stand on its own legs without such Vail Resorts subsidies.

The good news here is that the Bachelor Gulch development has been so successful that the Bachelor Gulch Metro District was indeed able to issue its own bonds and completely pay off the Smith Creek bonds many years in advance of what we could ever have anticipated, therefore, the liability for the subsidy and credit enhancement on our book was no longer required and in eliminating that liability we write the $15.1 million back to income in the form of a credit-to-expense.

As a result of all that I've mentioned, Real Estate reported EBITDA for the quarter increased $12.1 million to a number of $13.2 million for the quarter compared to $1.2 million during the same period last year. Vail Resorts posted net income for the third quarter of $62.5 million or $1.77 per diluted share compared to 33.5 million or 95 cents per diluted share in Q3 last year.

What this all means is that for the nine month period ending April 30, Resort revenue increased $45 million, Resort reported EBITDA increased $31.7 million compared to the nine month period last year, an incredible 70% flow-through of incremental revenues to the bottom line.

Now let me turn to the remainder of fiscal 2004, which ends July 31.

While May through July is typically considered the slow season for both the Mountain and Lodging segments, we expect to perform better than last year in the fourth quarter. The improvement in the Mountain segment will be driven primarily by cost savings which were identified earlier as part of our year-long $25 million full-year savings plan. And we also expect our Lodging business to further improve as we expect to see increased occupancies and ADRs in many of our Lodging properties.

Our summer Lodging bookings already reflect such increases compared to last year, and as a result, we're feeling good about our Lodging business for the remainder of fiscal 2004. As you know, our previous year-end guidance called for a 26 to $36 million year-over-year increase in Resort reported EBITDA.

And as I mentioned, our Resort reported EBITDA for the nine months ending April 30, 2004 is already up a healthy $31.7 million to last year. This means that if the Resort business was only to perform even at last year's level for the fourth quarter, we would already achieve the mid-range of our previous guidance.

But I just told you that we expect the fourth quarter to outperform last year's fourth quarter, therefore, today, we are increasing our guidance ranges by about $5 million to reflect our better than expected performance in the third quarter of fiscal 2004. We currently expect Mountain Resort, sorry Mountain reported EBITDA for fiscal 2004 to range from 124 million to 134 million, we expect Lodging reported EBITDA to range from 8 to 14 million, and we expect total Resort reported EBITDA to range between 135 and 145 million.

As to where we will fall in that range, the middle of the new range would be as good a direction as could be given at this time. Having said that, there's enough vibrancy and volatility in the remaining months of fiscal 2004 that we cannot tag our finish to the exact million.

We are also today increasing Real Estate reported EBITDA to a range of 28 to $34 million. This reflects the benefit of the early payoff of the Smith Creek Metro District bonds.

The company now expects to report a net loss for the year, ranging from approximately 4 to $14 million, but importantly, excluding the impact of the previously announced charges associated with the early extinguishment of debt and Breckenridge Terrace mold remediation as described in our second quarter earnings release and using a normalized tax rate, we would expect net income for Vail Resorts to range between approximately 12 and $22 million for the fiscal year. Needless to say this is a rapid and solid recovery from last year's Iraqi war-impacted results.

Looking beyond fiscal 2004, I'd like to highlight four things that bode well for Vail Resorts as we look ahead.

First, as I've mentioned the highly encouraging results achieved so far in fiscal 2004 were achieved despite abnormally low snowfall and unusually warm weather in our peak ski month of March. This caused actual March results to be well below our expectations. Accordingly, assuming normal weather next year, one would certainly expect to see upside in our Mountain revenues in fiscal 2005.

Second, advanced sales of season passes for the 2004/2005 ski season are robust. They are currently running up 8.3% year-over-year in dollars.

Based on this strength, we are announcing today that the price of our single-most popular season pass product, the so-called Colorado Pass, of which we have specifically been selling approximately 100,000 passes per year will rise to $349 effective August 15, 2004. This represents a reasonable and healthy increase of 9% year-over-year compared with last year's $319 price, a good price increase for us, but still we think a great bargain for Colorado skiers and snowboarders.

Third, we are improving the product offering at several of our resorts. This summer we're installing new high-speed lifts at Beaver Creek and Heavenly and commencing the renovation of the Lodge at Rancho Mirage.

Similarly, we're initiating a major grooming initiative, buying more snow cats this summer so that we can increase grooming at both Vail and Beaver Creek by a whopping 33% year-over-year at these two of our flagship Resorts. We believe these improvements in our product across the company will generate both increased visitation and allow us to charge higher prices over time.

And fourth, as announced in our May 27th press release, construction associated with our lucrative redevelopment of Vail known as Vail's Front Door described on the Web site newvail.com has indeed begun.

We have similarly broken ground on a new golf community surrounding our Jackson Hole Golf and Tennis Club in Jackson Hole, Wyoming. We're also in detailed negotiations with a number of third parties to sell them other parcels of our real estate holdings throughout many of our resort locations.

Given such discussions and with some of these projects now underway or near launch, we're optimistic that the profitability and cash flows of our Real Estate segment will rise significantly in the next several years, commencing in fiscal 2006. We believe that many investors value our real estate holdings near to its book value.

Actually, we believe such estimates may be low by $100 million or more. As compelling as this potential real estate profitability is, the development of such projects has the added benefit of enhancing our various resorts and increasing their consumer appeal as well.

In that May 27 press release we referred to $5 million of redevelopment projects occurring over the next several years in and around Vail Village and LionsHead. I want to make sure that everyone is clear that the $500 million figure is not the amount of capital expenditures that Vail Resorts will spend over the next five years in Vail but rather is the revenue potential for all of the projects that are slated by various developers including Vail Resorts in Vail and LionsHead through about 2009.

As to our own projects specifically, the projects being developed by Vail Resorts in Vail represent anywhere from 60 to 80% of that revenue potential, and, of course, we're modeling that our future Real Estate capital expenditures will be far less than the expected revenues. Further, the expenditures will be staggered over several years so as to limit our exposure in any given fiscal year.

Near-term Real Estate capital expenditures are currently scheduled to occur from actual groundbreaking and planning expenses already in fiscal 2004, through to construction expenses well into fiscal 2007 and beyond to 2009. The bulk of the capital on the initial projects is expected to be spent from fiscal 2005 through fiscal 2007.

Thanks to doing some of the more profitable projects up front to selling the land on some projects to third parties, and to a considerable presell expectation prior to breaking ground, our Real Estate segment will have sizable incoming revenue streams, lessening our cost exposure during the duration of these projects.

Importantly, these projects could generate Real Estate profitability far greater than anything we have ever seen before as a company. And lest you be concerned of how we're going to finance all these projects, while we do have ample room under our existing revolver to finance this staggered construction over time, we're also evaluating the possibility of securing nonrecourse real estate construction financing as an alternative especially on the larger projects.

As for some examples of the opportunity, we are currently turning five dilapidated tennis courts at the base of the gondola in Vail's' LionsHead into four single-family homesites. Together these lots are currently under contract for $10.5 million, of which more than half should fall to the Real Estate bottom line. We expect to close on them in late fiscal 2004 or early in fiscal 2005.

We have started construction on a new parking garage in Vail Village, a $10 million garage. We expect to make maybe a million dollars on a profit, on book-value land that is a million dollars, so doubling our land cost if everything goes well.

And the risk here is minimal because we've sold more than 90% of those parking spaces at an extraordinary price of either $100,000 per space or $135,000 for a really good space. And those presales are done prior to groundbreaking.

We're also in the final stages of preparing to break ground on some 16-3 to $4 million townhomes near the Vail Marriott. Profits will again be a very healthy percentage of the generated revenues.

Depending upon the strength of demand which we all think is robust, Real Estate profit here in Vail Village could be in the neighborhood of more than ten times the book value of the land. We expect to start selling these townhomes later this month and can start construction as early as this fall. Closings would begin in fiscal 2006. Those town homes are located by the Vail Marriott in LionsHead.

Nothing's more exciting than our proposed new pedestrian village at the base of the LionsHead gondola currently slated for groundbreaking in fiscal 2005, depending on meeting presale requirements and remaining regulatory approvals which we expect to receive. We expect to generate a profit margin of anywhere from 30 to 50% on some 150,000 or more sellable square feet, priced at much as 600 to $1,000 per square foot or even more.

And in Vail Village we're currently in the final planning stages for 13 slope-side chalets offering hotel and new spa services of the Lodge of Vail. Some 4,000 to 5,000 square feet each, we hope to sell them at prices approximating 7 to $9 million per townhome with construction beginning sometime in fiscal 2006 if the approvals and presales stay on schedule as expected.

The Vail projects in total include land carried on our books at less than $20 million. While there are no guarantees in life and will not know for sure their profitability until we know at what prices these residential units actually are sold, it is not far fetched to estimate that Real Estate profits on the Vail projects alone could be several multiples of their book value.

In addition, we have plenty of other projects in Jackson Hole, at Beaver Creek, in Keystone and Breckenridge also with significant potential upside. In Jackson Hole, for example, we've just broken ground on a new golf community surrounding our already existing Jackson Hole Golf and Tennis Club, the top-rated golf course in the state of Wyoming with big Grand Teton range views.

We have already sold more than $10 million of home site lots there, some 22 lots at about half a million dollars apiece, and we expect profits at Jackson to more than triple the book value off the land. Hence, putting all this together, our announcement today that we believe our real estate has been significantly undervalued by as much as $100 million or more.

Now that this information is public, we will be meeting further with analysts and investors to help them better understand and more appropriately consider the true value that our Real Estate business brings to Vail Resorts.

In summary, this is turning out to be a record year for Vail Resorts, and expectations for fiscal 2005 and beyond are filled with promise. So before I open the phones to questions, I would like to point out one other positive note, especially for our bondholders on today's call.

Thanks to improved Resort and Real Estate reported EBITDA, our liquidity position has improved markedly. At quarter end, we had zero borrowings under our resolving line of credit and we are pleased to say that our leverage ratio of total debt to EBITDA was under four times and net debt to EBITDA was below 3.5 times, both significantly improved over last year.

At this juncture, Jeff and I will be happy to answer your questions.

As you prepare for your questions, I need to point out that the comments made during this conference call other than the statements of historical information are forward-looking statements that are made pursuant to Safe Harbor provisions in the Private Securities and Litigation Reform Act of 1995. Such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. Listeners are cautioned not to place undue reliance on these forward-looking statements which speak only to the dates hereof.

Such risks and uncertainties include but are not limited to general business and economic conditions, failure to achieve anticipated cost savings and anticipated operational efficiency or conversely adverse consequences from such cost reductions, competitive factors in the ski and resort industries, failure to successfully integrate and operate future acquisitions, adverse consequences resulting from the existing SEC formal investigation, failure to commence or complete the planned development projects and redevelopment projects and/or an inability to obtain financing on favorable terms, adverse changes in the real estate market, terrorist acts upon the United States, the threat of actual war, economic downturns, the impact of SARS or similar unforeseen global events in the travel industry, and the company, expenses or adverse consequences arising from current or potential litigation against the company, implications arising from any new FASB governmental legislation rulings or interpretations and the weather.

Investors are also directed to other risks discussed in documents filed by the company with The U.S. Securities and Exchange Commission. Investors having been so directed, we are now ready to take your questions. Operator?

Thank you. Ladies and gentlemen, at this time, we will begin the question-and-answer section. If you have a question, please press the star followed by the one on your push-button phone. If you would like to decline from the polling process, please press the star followed by the two. You will hear a three-tone prompt acknowledging your selection. Your questions will be polled in the order they are received. If you are using speaker equipment, you will need to pick up the handset before pressing the number. Your first question comes from Scott Barry with Credit Suisse First Boston. Please go ahead.

Hey, Adam, how are you doing? It's Ed Loh for Scott Barry. Congratulations on the great results here.

Thank you very much. We're needless to say pretty excited.

Absolutely. Can you, Adam, can you talk, will you give us some more details on New Dawn, particularly with respect to the development projects over LionsHead? I know there is the projects over at the core and the two projects over at West Day, can you talk about regulatory approval, timing, sort of revenue recognition and just give us some more details with respect to those projects?

Sure. There are, let's see, one, two, three, four, five major projects in LionsHead, and two major projects in Vail Village. You asked about the LionsHead projects, let me talk, as for the two projects in Vail Village, the parking garage has already broken ground, we should break ground on the 13 slope-side chalets beginning of April '06. It's about a two-year construction cycle so we're looking at closing those in Christmas of '07.

In terms of LionsHead, there are five tennis courts that become four single-family homesites. I mentioned revenue of $10.5 million profits of at least half that amount. Those are under contract. They'll close in July or August, we believe.

The second project is the, are the Gore Creek Place townhomes, 16 of them, 3 to $4 million a piece in revenue. Significant profitability at Gore Creek Place.

We hope to sell those commencing this month June, assuming we hit our presell requirement, we would expect to break ground this fall somewhere between Labor Day and Thanksgiving. These are by the Vail Marriott right on the Core Creek for those of you who know Vail well. Again, two-year construction cycle, profits probably in fiscal 2007, right around Christmas of 2007.

In terms of the LionsHead core site, what we all think is maybe the most exciting project of them all, a huge new beautiful RockResorts condominium hotel selling between 100,000 and 200,000 square feet of real estate at very handsome prices given the proximity to the Eagle Bond gondola plus 50,000 square feet of commercial space on the ground floor plus a beautiful new European architecture, kind of a cross between Innsbruck, Salzberg and Prague's old town.

We really think it's going to be stunning. We expect to be in sales for that project by Christmas. We would like to break ground by April of '05 if presales go well.

On the West Day lot, we're applying for approval for approximately 150 units there. We're in detailed negotiations with a major timeshare operator to simply sell that parcel of land at a significant profit and let someone else's capital build out the new and larger and improved bed base in Vail on that site.

There's another project on the North Day parking lot currently at Vail. That project is being discussed. That's probably the last one to go. I don't think that one would break ground before April of 2007.

In terms of regulatory approvals, both projects in Vail Village have been approved unanimously by the Vail Town Council. We would like to get a land exchange completed with the forest service, which we can think can happen over the next year. That would, we can still go forward with the project but it would be smaller without the land exchange having been secured.

We're expecting to break ground on those 13 slope-side chalets and some other things in that area including the addition of a new spa at the Lodge at Vail and some new suites for the Lodge at Vail, we expect to break ground there April of 2006.

Moving back to LionsHead, Gore Creek Place, the tennis court site already has been approved and is under construction. Gore Creek Place has already been approved by the Town Council again, by a unanimous 7-0 vote.

We're in the final throws of regulatory approval by the Town of Vail for the core site project. The town is very enthusiastic about something good happening on this site. The town is aware of our plans in quite specific detail, and everybody seems thrilled and we're expecting a lot of local support. There doesn't appear to be any opposition.

I assume we will get our final, final approvals for the LionsHead core site sometime between July and October. We expect to be in the market selling by Christmas and again breaking ground next year. So that's a little bit of the status of the various projects in and around Vail.

Great, thanks very much.

Thank you. Our next question comes from Ray Cheeseman with Jeffries & Company. Please go ahead.

If I heard you properly, you indicated that it was your hope to break ground on the hotel for LionsHead in April '05. So you'll complete the season, and clear out LionsHead and then go, you know, heavy construction. Will you be able to be in a position before the '06, '05/'06 ski season that we won't experience any disruption in regular visitation flow to that portal of the mountain, especially for your destination guests?

Ray, it's a good question. Yeah. When, we've had some considerable experience with this because eight years ago, when I was just arriving at Vail Resorts, we did some construction in Beaver Creek, and the good news about this LionsHead construction is we're knocking down two buildings in the core that are not really used by anybody. One is an employee housing building. That obviously is used, but we're securing new employee housing beds to replace those beds.

The so-called old gondola building has had very limited use ever since the new gondola was installed in 1996. What we think we can do is just put up some construction fencing around the big hole that will be created by these two buildings no longer being there, and what we did pretty cleverly back in Beaver Creek is we painted that, you know, plywood construction wall in lots of sort of bright, children kind of designs and colors, and then at about every 100 feet, we put a huge plexiglass window and we painted on the side back in Beaver Creek that that was the Beaver Creek Children's Construction Museum. We're going to do the same thing in LionsHead.

The Vail Children's Construction Museum and kids will be able to look in this plexiglass window and see this enormous hole, you know, whatever it is, six, seven stories down. It's kind of fascinating, and since people have to walk around those two buildings anyway now and since there's not much utility coming out of those buildings, we really don't think there's going to be all that much disturbance to our destination guests.

If anything, we think we're going to be thrilled by the fact that this summer at a price tag of $3.5 million, we ripped out the old unimpressive skier bridge that connects the Vail gondola to the mountain at Vail and are putting in a beautiful new skier bridge, twice as wide, very pretty stones, actually Victorian architecture. It's also wide enough that we can groom it during the day to get rid of the washboard effect, and also architecturally since it's pretty, it's already sort of a dramatic statement about what the new LionsHead is going to be. So there are some benefits to skiers right away, even a season before the construction starts.

One of the things I remember when you first talked about the LionsHead redevelopment was that you hoped other property owners would come along and upgrade their products as well. Have you had any luck with that argument to create a LionsHead that was both beautiful and consistent?

Not only have we had luck with it, I think we've had discussions with everybody around the LionsHead core site. You know, we sold condominiums at the Vail Marriott in excess of $900 per square foot, and that's a couple of hundred yards away from the gondola. We're talking about buildings here that are immediately on the gondola.

We think property values in LionsHead are going to soar and so do our surrounding neighborhoods. There have been extensive discussions with various parties about doing their buildings next, consistent with the architectural design of our new core pedestrian village. We're cooperating with a lot of these people.

I actually think there's a business opportunity for Vail Resorts to go into partnership and redevelop those buildings with their condo and homeowner associations, but even though we've had detailed discussions, we have back-burnered them a little bit. Already this project is huge. We do need the Town of Vail approval.

We want to make sure that we put forward some middles in manageable enough bite-size chunks that the Town of Vail can approve projects without making them so complicated as to triple their scope. But I think everyone in town expects that after the first LionsHead core project commences, that there are, indeed, going to be others right behind it.

And lastly, if you'll allow me one operational question, you mentioned that the Colorado Card, your most popular discount offering product to the front range skier was increasing by 9%. One, I was wondering could you give us some idea of what is the flow-through for you when you get a 9% increase like that?

And secondarily, does that mean I should expect to see those kinds of increases across the entire product range to offer for skiers? I don't want to say the day ticket's going up 9%, but you probably have a range that you're going to put through on all of your products?

Well, as to the Colorado Pass, not the Colorado Card, the flow, we're going to have a 9% price increase and the flow-through on that 9% pricing increase is 9% less credit card fees, which is a small, small percentage of that increase.

So it's almost 100% flow-through?

Yeah, that's what I meant. I didn't mean 9% of the 9%. I meant all --

You meant all of it.

All of it. Yeah, all of it to the bottom line. Big bucks. $30 bucks time 100,000 passes.

In terms of price increases for the rest of the resorts, we haven't set or announced daily window lift ticket prices. We won't do that until the fall. We do have some expectation as to where they will be. I would describe them as healthy.

And I would point out that we're putting in new lifts at Heavenly and Beaver Creek. We're increasing grooming by a huge percentage, 33% up in a single year at Vail and Beaver Creek. You know, our strategy has always been to offer a premium product, charge a premium price, have premium margins.

This year lift ticket prices at Vail and Beaver Creek were the highest in the nation. I'm pretty sure we will have that same distinction next year. Margins were in the mid-40% range as you heard earlier on the call. We're going to continue to make our product better but we're not going to be shy in charging for it.

Well, thank you very much and congrats on a very nice quarter.

Thank you.

Thank you. Our next question comes from Bryan Maher with Calyon Securities. Go ahead.

Good morning, Adam.

Hey, Bryan.

Good quarter.

It really was.

Quick question, kind of bigger picture. Will all the work you're going to be doing in Vail over the next several years, is it safe to say that most of your growth is going to be coming organically as opposed to through acquisitions?

Yeah, I think that's a safe bet. We, hotel prices have been bid way up. People are buying hotels at 10 to 13 times cash flow. And at those kind of prices we're a seller not a buyer. Although our hotels are doing just fine and profitability is way up, so we like our existing portfolio, but I don't think we're going to go through, grow through acquisition in the lodging front.

In the ski resort arena, you know, we did add Heavenly two years ago. It's been a huge success for us.

Cash flow, we bought it cheap, really cheap because we bought it at 6.5 times from a seller who was in financial distress. Our cash flow has grown by a third at Heavenly in just two years. So we're confident that we can, in fact, achieve improvements at ski resorts if we buy right and we buy the right ones and we put in our strategies.

So I wouldn't say that there would, we would rule out acquisitions of ski resorts, but we would be very disciplined in following our own logic of years' past which is have to find the right blue chip resort in a non-weather-dependent region to the extent that can be maximized which means we're staying out of New England, buy at the right price, have strategies to improve them.

You know if the right thing came along, we would look at it, but I will tell you that we are not in discussions for the acquisition of any ski resort at this time, and as a betting man, I would say that our capital would be more properly directed to all of these lucrative real estate projects in -- actually at all four Colorado resorts and up in Jackson Hole. It just seems like there's so much opportunity there with such little risk. Because, you know, we do tend to presell this stuff before we break ground.

We do get guaranteed maximum-price contracts from reputable contractors to lock in the construction costs. And on larger projects, we may take on nonrecourse construction financing. So while there's risk in life, we're really mitigating the risks tremendously and it looks like there's a lot of money to be made for this company.

The other benefit, of course, of this real estate development and our existing resorts is, what do you think's going to happen to Vail when LionsHead, which is not all that beautiful to be candid, becomes a really pretty base village experience with new, more and very high-quality lodging. We think that the redevelopment of Vail Village could cause an explosion of visitation to Vail, and, you know, we've seen that in Beaver Creek.

Beaver Creek has gone from around 650,000 skier visits to 765,000 skier visits in the past two years, and I think a lot of that has to do with Bachelor Gulch coming into its own. The Ritz-Carlton opening up in Beaver Creek. And improvements to the mountain that we put in place.

We're doing the same exact thing in Vail. So there's a lot of benefits in our existing resorts, and I think your premise is correct. We're more likely to grow internally than from acquisition.

Thank you for that very comprehensive answer.

Sorry if it was too comprehensive of an answer, but that's -- Brevity is not my greatest strength. Go ahead. Operator?

Thank you. Our next question comes from Will Marks with JMP. Please go ahead.

Yes, thank you. Hello Adam and Jeff and others. Unfortunately now you had a great quarter and looks to be a great year. We kind of have to put that all behind us or at least the street does and wants to look at next year. And you gave some great points on the revenue side and why there could be some growth, particularly on the season pass. Sales. I mean, how should we look at the expense growth going forward? Any thoughts on that?

Well, we certainly have, ever since 9/11 have run this company with a very, very focused attention on cost controls. We've knocked out $45 million of cost since 9/11 that were imbedded in this company's cost structure prior to 9/11, and given that we, you know, $600 million of expenses, that is a big percentage reduction in expense.

If you just work the math, this company is capable of generating 10% Resort EBITDA growth based on our margins. If Resort revenues are 1.3 points higher than expense growth, and I see no reason why we can't have sort of moderated, controlled expense growth going forward, and I think we kind of year-in and year-out can reliably deliver 7 to 10% Resort EBITDA growth.

Now this year, if we hit the midpoint of the new range, we would have almost 35% Resort EBITDA growth, but, of course, last year's EBITDA and the year before that were depressed by the Iraqi war and 9/11 respectively. So if you kind of take this year's huge growth and spread it back to 2001, which was our last record year, and, you know, it was before the world went to hell on 9/11, you know, we have been turning in this Resort EBITDA growth on a three year compounded basis. And that's kind of where we expect to go in the near-term.

We also think Real Estate profitability is going to be way up, starting in fiscal 2006, not fiscal 2005, because most of these projects that we're breaking ground in 2004 and 2005 start closing in 2006 rather than close in 2005.

And as for your comment that you only have to look ahead, since this is the best quarter we've ever delivered in 42 years, maybe we can, like, celebrate for, like, 20 more minutes before you put it aside and only look ahead.

Sorry. Sorry about that. It was a great quarter.

I have one final question on the debt level. It looks like your net debt fell pretty significantly in the quarter as it did same quarter of last year. And I realize that's a little bit of a seasonal thing. What I am really trying, want to get at, is where do you think the debt will be, let's say, in a year with all of your developments and you're obviously creating some cash flow with sale of the tennis court area, but, you know, in your analyst meeting, you commented that you didn't think your ratios would only improve during this whole development process.

Well, in fact, our Real Estate, our ratios have improved markedly in this quarter. And some of that is seasonal. And as for the specific answer, where we are year or two down the road, I'm going to put Jeff Jones, our CFO on the phone. Jeff?

Thanks, Adam. I don't know if we want to project out a specific debt level out into the future years, but I can tell you based on the growth expectations in EBITDA that Adam mentioned earlier, as well as how we believe these real estate projects will be staged with revenues coming in as we are having some of the capital expenditures going out, we do anticipate that our ratios and especially our leverage ratios will continue to go down even during these real estate projects and that's not assuming that we finance some of then on a nonrecourse basis. Obviously nonrecourse would only improve that on top of that.

Okay. That's helpful. Thank you, Jeff. Thanks, Adam.

You're welcome.

Thank you. Ladies and gentlemen, if you have an additional question, please press the star followed by the one. If you are using speaker equipment, you will need to lift the handset before pressing the numbers. One moment for the next question. Mr. Aron, at this time we have no further questions.

Thank you, operator. Obviously it's a very good day for Vail Resorts. It's very good news. It's better than we expected. It's better than many of you expected. Some of you have been acting on our, on the guidance we've been giving you, and as I said, we beat our own expectations.

You know, let me just put all this in perspective. We reported $104 million of Resort reported EBITDA last year. The midpoint of the new guidance range is $140 million, just 12 months later. That's an enormous improvement, an enormous recovery.

We're very excited about the performance that Vail Resorts is turning in in fiscal 2004, and looking beyond, now that these real estate projects in Vail, Jackson, Beaver Creek, Keystone, Breck are materializing after years of work, there's enormous untapped value in our real estate projects that no one has given us credit for because these projects were way out into the future. Well way out into the future has arrived. The future is now and we're excited about delivering these projects quite successfully as well.

With that, I thank one and all for listening. And hopefully we'll see you out in Colorado or at one of our hotels around the country or up in Lake Tahoe sometime this summer for some of the world's best summer weather and most beautiful golf.

Thanks a lot, everybody. Bye-bye.

Ladies and gentlemen, this concludes the 2004 third quarter conference call for Vail Resorts. Thank you for participating in today's conference. At this time, you may now disconnect.