Vail Resorts Inc (MTN) 2005 Q3 法說會逐字稿

At this time I would like to welcome everyone to the Vail Resorts Inc. fiscal third quarter earnings conference call. (OPERATOR INSTRUCTIONS) I will now turn the call over to Mr. Adam Aron, Chairman and CEO of Vail Resorts Inc. Sir, you may begin.

Thank you very much, operator. Good morning everybody and welcome to the Vail Resorts fiscal 2005 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. 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, 2005. On today's call I would like to begin by giving you an overview of the financial results for Vail Resorts for the third fiscal quarter, followed by some comments about the remainder of the 2005 fiscal year. In addition, I will discuss this morning's separate press release in which we announce that we have entered into an agreement with the Ritz-Carlton Hotel Company to develop luxury condominiums in Vail's LionsHead in conjunction with our proposal to create a new fifth public portal to Vail Mountain. At the conclusion of my prepared remarks, Jeff 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're using the term reported EBITDA to report earnings for each of our operating segments, namely Mountain Lodging, Resort and Real Estate. Resort, as you know, is the combination of the Mountain and Lodging segments. 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 fill reconciliation of these non-GAAP measures to GAAP can be found in this morning's press release and on the vailresorts.com website in the Investor Relations section under the Regulation G compliance tab.

Let's now turn to Vail Resorts' operating performance for the fiscal third quarter results, covering the three months ending April 30. Sometimes in life the numbers speak for themselves and require little amplification. Obviously, we are pleased with Vail Resorts' operating results turned in by our talented management group and dedicated employee groups for both the third quarter in all of fiscal 2005 year-to-date.

Looking to our Mountain segment, which is comprised primarily of our five ski resorts, Mountain revenue increased 10.0% as compared to last year's third quarter. Lift ticket revenue increased 12.4%, due to a combination of an 8.5% increase in total Companywide skier visits, plus a 3.6% increase in the effective ticket price, or average realized lift ticket price, known as ETP.

Paid skier visits for the quarter, excluding season pass holders and complimentary tickets, rose 8%, while season pass year visits grew 11%. The growth in paid skier visits were primarily driven by an increase in so-called destination visitors, both of domestic and international origins. Those guests who travel to our resorts from afar, and tend to pay higher prices for lift tickets, as well as purchasing more from us in other resort amenities. All five of our ski resorts experienced skier visit growth in the quarter. Four out of five resorts saw ETP growth.

Non-lift ticket revenues grew some 8% year over year in the quarter for the Mountain segment, also benefiting from pricing increases and from the increasing numbers of higher spending destination skiers. This latter metric includes ski school revenue, which is up 11% in the quarter, dining revenue up 3%, retail rental revenue up 7%, and miscellaneous ancillary Mountain revenues up 9%. As a result, revenue for the Mountain segment increased $23.4 over last year's third quarter revenues.

Mountain expenses for the third quarter grew $6.5 million, 6.5, primarily due to the increase in variable expenses resulting from increased skier volumes at all five resorts. In addition, expenses grew somewhat due to conscious choices on our part to enhance the quality and appeal of our product, for example, the planned 33% increase in ski trail grooming at Vail and Beaver Creek. With the benefit of hindsight, these product upgrades appear to have been wise moves, contributing to bringing us more revenue than expense.

Due to the fixed costs nature of ski mountain operations, as well as our having been able to sustain the cost-cutting initiatives implemented over the past four years, flow through of incremental revenue to the EBITDA line for the Mountain segment was 72%. Accordingly, our Mountain segment margins improved by a couple of points in the quarter, from 46.3% last year to 48.6% this year. As a result of revenue increases and tight management of expenses, reported EBITDA for the Mountain segment grew $16.8 million, or 15.5% year-over-year in the third quarter to $124.9 million, up from $108.1 million last year.

For the nine months ended April 30, reported EBITDA for the Mountain segment improved by some $22.8 million, or up 14.7% to $178.3 million versus $155.5 million for the comparable period last year.

The full year ski season saw that Breckenridge, Heavenly, and Beaver Creek, each had the most skier visits in their histories, with Heavenly and Beaver Creek achieving record visitation for the third year in a row. Four out of five of our ski resorts, Vail, Breckenridge, Heavenly, and Keystone, catered to over 1 million skier visits each. The million mark being a boost that can only be made by a dozen or so ski resorts throughout North America. Our market share within the front range market of Colorado for 2004, 2005 ski season rose to 47%, up from 42% last year. Our national market share also rose this season up from 9.9% last year to approximately 10.5% this year.

Turning to our Lodging segment. Lodging revenue for the third quarter grew by $5.4 million, an increase of 10.6% over last year, primarily due to increased occupancies and increased average daily rates, or ADRs, in our own hotels.

Lodging expense in the quarter grew $3.7 million, which like the Mountain segment expense growth was primarily due to increased volume related variable expenses. in this case associated with increased occupied room nights.

Lodging reported EBITDA for the quarter of $13.1 million is 9.2% favorable to last year's 12.0 million. I should point out that last year's third quarter Lodging reported EBITDA figure included approximately $600,000 of equity income, from the Ritz-Carlton Bachelor Gulch. Since the Ritz was sold and closed prior to the start of this year's third quarter, there is no such Ritz-Carlton benefit included in this year's third quarter results.

Our year to date nine-month Lodging reported EBITDA improved from 11.0 million last year to 15.2 million this year, up 38.2%. These figures include equity investment losses of 2.7 million, and 2.2 million for the first nine months of fiscal 2005 and fiscal 2004, respectively associated with the Ritz-Carlton Bachelor Gulch.

As always, let me provide you with some third quarter operating statistics for our own hotels. RockResorts' own hotels enjoyed a 9% growth in revenue per available room, or RevPAR. This was the result as a 3 point increase in occupancy from 71% to 74%, and a $9 or 4% increase in ADR, average daily rate, from $225 last year to $234 this year.

As for own hotels that do not carry RockResorts brand, those properties primarily located at the base of our ski mountains, RevPAR was up 10%, the result of occupancy increasing by 2 points from 71% to 73%, and the average daily rate, ADR, increasing approximately $12 or 7% year-over-year from $173 to $185.

We also made a few important announcements recently regarding the makeup of our lodging assets. While the third-party management contract of the Casa Madrona Hotel in Sausalito, California was terminated upon the hotel's sale to new owners. We were successful in securing a new RockResorts designation and management contract for the lodge and spa at Cordion (ph), a very well-known and highly regarded luxury resort hotel in our own backyard in the Vail Valley of Colorado. In addition, we closed on the purchase of the remaining 49% minority interest in the Snake River Lodge and Spa in Jackson Hole, Wyoming and now own 100% of that hotel.

We now have full control and flexibility in considering a much broader range of options with the respect to the ultimate ownership and management of this property, in keeping with our previously articulated strategy to consider the sale of owned hotels, given the current climate of what has to be considered attractive hotel evaluations.

To that end, we most recently announced that we've entered into a contract to sell the Vail Marriott Mountain Resort and Spa to Diamond Rock Hospitality for $62.0 million, less certain closing adjustments. The hotel will remain branded as a luxury Marriott resort, and Vail Resorts would continue to manage the hotel for a fee for some 15 years. We will announce all the particulars when the purchase is closed, which is expected sometime in this fiscal quarter. But we have previously indicated the hotel was sold at a multiple of the foregone (ph) cash streams more than 50% higher than the historic multiples of cash streams for Vail Resorts as a whole, as articulated by most financial analysts covering our Company.

Looking at both our Mountain and Lodging segments combined, total resort reported EBITDA in the third quarter was $138.0 million, a $17.9 million increase, or a 14.9% improvement over last year's resort reported EBITDA. For the first nine months of fiscal 2005, resort reported EBITDA was up $27 million or 16.2% year-over-year, from $166.5 million last year to $193.5 million this year.

In looking at Vail Resorts' operating performance in the quarter, and for the fiscal year so far, as I said at the beginning of this call, this is a quarter in which the numbers speak with clarity for themselves.

Turning to Real Estate. Real Estate revenue increased $10.1 million to $14.3 million for the quarter, reflecting expected change in the mix of what was sold in the third quarter of fiscal 2005, compared to the same period last year. Real Estate expense increased $24.8 million to $16.2 million. Last year we reported that Real Estate expense for the quarter was actually a credit of $8.6 million as it included the release of a $15 million liability on the Company's balance sheet. This resulted from the early payoff of the outstanding Smith Creek Metro District bonds paid by the Bachelor Gulch Metro District. The offset of liability relief was recorded as a reduction in fiscal 2004 third quarter real -- operating expense.

Real Estate reported EBITDA for the quarter decreased $15.1 million to negative $1.9 million for the quarter, compared to positive $13.2 million during the same period last year. For the nine-month period, Real Estate revenue increased $0.7 million, Real Estate expense increased 23.3 million, and Real Estate reported EBITDA fell 25.5 million. Again, all due in large part to the $15 million benefit last year from the early payoff of the Smith Creek Metro District bonds. There are a number of moving parts here, but I should point out it is just as we expected.

Vail Resorts posted net income for the third quarter of $58.8 million, or $1.61 per diluted share compared to $62.5 million or $1.77 per diluted share in Q3 last year. For the nine-month period ending April 30, 2005, net income was $59.6 million, or $1.65 per diluted share versus $30.3 million or $0.86 per diluted share last year.

Included in the nine-month net income for fiscal 2005 is a $5.7 million gain on sale of equity investment associated with the sale of our 49% interest in the Ritz-Carlton Bachelor Gulch in December 2004, as well as a $0.6 million loss of extinguishment of debt. Excluding the 5.7 million gain on sale of equity investment in fiscal 2005, the charges for early extinguishment of debt in both fiscal years, and excluding the fiscal 2004 mold remediation charge and using a normalized tax rate, the Company's nine-month net income would have been 55.1 million or $1.53 per diluted share for fiscal 2005, a 5.8% improvement, as compared to net income of $52.1 million, or $1.48 per diluted share in fiscal 2004.

Shortly, our fiscal 2005 will end on July 31. As you know, our previously year-end guidance called for a 7 to $15 million year-over-year increase in resort reported EBITDA. Our resort reported EBITDA for the nine months ended April 30, 2005 is already up 27.0 million compared to last year, and we are tracking well ahead of our budgeted goals. However, it is clear to us that a portion of that favorable variance will reverse itself in the fourth quarter, due in part to higher-than-expected legal and SOX 404 compliance costs. Even so, we are today increasing the low end of our guidance range for resort reported EBITDA by about $8 million, and are increasing the high end of the range by some $6 million to reflect our better-than-expected performance in the third quarter of fiscal 2005. We currently anticipate resort reported EBITDA to range between 160 and $166 million for the fiscal 2005 full year.

We continue to expect Real Estate reported EBITDA to remain at a range of 10 to $16 million without change. Therefore the Company now expects to report net income for the year ranging from approximately 22 to $29 million, including the fiscal 2005 second quarter gain on equity sell -- gain on sale of equity investment, and the second quarter loss on extinguishment of debt.

There are four other important items of note to cover before we take your questions. First, advanced sales of season passes this spring for next year's 2005, 2006 ski season are quite strong. Both prices and unit volume of passes sold are up handsomely. And we are currently running up some 35% year-over-year in dollars for passes already sold for next season compared to the same period a year ago.

Second, progress associated with Vail's New Dawn is quite evident. We have completed construction of the $100,000 per space parking garage that we built in Vail Village, and have closed on all 114 such spaces. The public dedication ceremony will take place the Fourth of July weekend.

Speaking of public ceremonies, about 200 people attended and cheered at a festive event we orchestrated in May to witness the beginnings of the Arrabelle at Vail Square. The mayor of the Vail and I each spoke. And then literally after some pyrotechnics, the old LionsHead's clock tower was smashed to smithereens. Indeed, buildings in the core of Vail's LionsHead are being demolished as we speak on land that in a short two years time or so will be the Arrabelle at Vail Square. Construction of the Gore Creek Place residences, the river front town homes located behind the Vail Marriott is also underway.

By the way, we now have binding contracts, not just deposited reservations, on all 67 Arrabelle condominiums and all 16 Gore Creek Place town homes, representing some $290 million in Real Estate revenues. The Arrabelle condominiums prices, as contracted, range from 1 to $14 million, averaging about $1,150 per square foot. The Gore Creek Place town homes sold for between 3 and $5 million, averaging $1,005 per square foot.

Assuming we achieve current construction cost estimates, we now expect to earn between 80 and $92 million of Real Estate project income on these two projects combined. By project income, I mean Real Estate revenue less Real Estate expense, in their entirety for the two projects, but prior to any allocation of Real Estate headquarters overhead or corporate overhead or any tax provision.

Third, we have in fact identified more potentially profitable real estate projects in and around Vail, one of which we announced this morning. We have entered into a contractual agreement with the Ritz-Carlton Hotel Company for Vail Resorts to develop through a real estate subsidiary of Vail Resorts Development Company, approximately 108 luxury residential condominiums of approximately 195,000 square feet to be located at the base of Vail Mountain, immediately adjacent to the Vail Marriott in LionsHead. Vail Resorts will develop, build and sell what will be known as the The Ritz-Carlton Residences, Vail. They will be designed to Ritz-Carlton standards, and will be managed by Ritz-Carlton once completed. In addition to having a design and decor in the grand Ritz-Carlton tradition, typical Ritz-Carlton luxury hotel services and amenities will be offered, including 24-hour room service, bell service, daily housekeeping, and several others.

As a major public benefit as part of this project, we have proposed the creation of a new base village mountain access portal, Vail's fifth, featuring the addition of a new high-speed chairlift from the town of Vail base immediately adjacent to the Ritz-Carlton development, and extending well up on to Vail Mountain to the bottom of existing Chair 26 Pride Express located in the upper part of Vail Mountain.

Given the new high-speed lift access to the mountain, with Ritz-Carlton design, services and cachet, and remembering the oversubscribed day one success of the Arrabelle, we believe the Ritz-Carlton Residences project is likely to be a profitable, and indeed lucrative real estate project for us. We will now applied to the town of Vail and the U.S. Forest Service for the requisite approvals. And assuming such approvals are received, could be in the marketplace selling these residences in the next 6 to 18 months.

In addition to the Ritz-Carlton Residences, we own or control land adjacent to and approximate to the Ritz site. One would think it is quite possible that the success of the Arrabelle can be transferred first through the Ritz-Carlton project, and then on to additional projects on that nearby land. We're certainly focused on creating that opportunity. Taken together, the incremental value for Vail Resorts shareholders from our real estate prospects in Vail is without question significant.

Fourth, thanks in no small part to the improved Resort reported EBITDA be out today, as well as the favorable impact of our successful credit facility refinancing at the end of the second quarter, including the complete payoff of the $100 million term loan, our liquidity position continues to improve. At third quarter end we had zero borrowings under our revolving line of credit, and our leverage ratios improved one full turn over last year.

In conclusion, and to summarize my comments, Vail Resorts turned in an operating performance during the fiscal third quarter of which we are proud. As I have said repeatedly on this call, the numbers speak for themselves.

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 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, competitive factors in the ski and resort industries, loss of hotel management contracts, failure to successfully integrate and operate future acquisitions, adverse consequences resulting from the existing SEC formal investigation, failure to commence or to complete the planned real estate development projects, and/or achieve the anticipated short and long-term financial benefits from the development, 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, or actual war, economic downturns, expenses or adverse consequences arising from current or potential litigation against the Company, implications arising for any new FASB governmental legislation rulings or interpretation, reliance on government permits or approvals for use of federal land or operational improvements, 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. Operator, we are ready for questions.

(OPERATOR INSTRUCTIONS). Will Marks with JMP Securities.

Let's see here where to start. On Arrabelle and Gore Creek, the 80 to 92 million of income, first of all, what has been collected so far approximately in terms of down payments?

Approximately -- not approximately -- exactly 10% on the Arrabelle monies, with 5% more scheduled to come, not what we commence demolition, but when we commence construction. You could say we have commenced construction in the abstract, but you have got to take down before you take up. And on Gore Creek Place, 15% is already in. Gore Creek Place is about 64, 65 of that 290. Arrabelle is 225ish of the 290. So the answer is a lot.

On the parking spaces, is that all fourth quarter? Or I guess -- will you be collecting the 10 million or so in the fourth quarter? Has that been paid?

We have already collected all the money. We have actually closed on all those parking spaces. Money is in hand. I don't remember the exact amount. It is around $10 million, it might be a little more.

That was pre-April --.

It is a little more. I believe it is fourth quarter. It is third and fourth quarter. And it is included in the Real Estate guidance that we have reiterated for fiscal 2005.

And then back to the Arrabelle and Gore Creek, how do we get from the 80 to 92 million down to a free cash flow number? What approximately would taxes be do you think?

I will let Jeff take that.

I think you have to take out of that obviously the land basis and design costs that we had already incurred on those in past years. We have them separately disclosed. The land base it is not a particularly large percentage of that total profit, but it is still is a piece of that. And then anything that we have designed, which you know we would incorporate through our cash flows in past quarters. So from a future cash flow standpoint, I guess the number is definitely higher than the 80 to $92 million, but not something that we have disclosed.

And the tax rate?

Tax rate would really fall down to our typical tax provision. So again as I mentioned on the past calls, currently we're not a payer of taxes on a current basis. We still have the utilization of past deductions and NOLs. And we don't anticipate being one through this year and through next year, incorporating in our forecast of cash flow, including all this real estate activity.

Okay. So it is possible when you close on these things that you collect in the 80 to 92 million -- that you make that in cash flow less what you paid already and what you have collected already?

What I would remind you is that we're not going to close on some of these unto fiscal 2007. And at that point we really well start being a taxpayer at kind of a normal tax rate that you would have in your model.

It actually will, to be precise, it is the opposite. You would add the land basis and the previously spent costs, because the 80 to $92 million is less all expenses, and the expenses include the land basis, which is non-cash. And the land and the expenses include what we have already spent, which, if you're looking at how much tax cash will come into the Company, that has been deducted from the 80 to $92 million range.

Great. That's very clear. Thanks. A couple of other quick things. Actually, not that quickly. With the risk, how should we look on pricing, on cash flow? Can you give us any further ideas -- this 1,200 a foot potential?

When we take it to market and I know what the status of the real estate market is at that time, then I will know what the pricing will be at that time. Gore Creek Place is next-door; it sold for $1,005 a square foot. The Arrabelle, with the RockResorts’ brand, sold at $1,150 a square foot. You tell me what the Ritz-Carlton Residences will sell for immediately adjacent to the a new chairlift, a high-speed quad somewhere between 6 and 18 months from now, assuming we get all the requisite approvals.

You didn't have to hire Ritz. You didn't have to attach the Ritz name on it. I assume that part of the reason is to generate higher revenue, is that correct?

I didn't actually think that we could support three RockResorts in Vail, Colorado, the Lodge at Vail and the Arrabelle already being RockResorts. But yes, we think the Ritz-Carlton brand name is a very powerful brand name in the marketplace, and we're optimistic it will be helpful to us. That is why we did the deal.

(OPERATOR INSTRUCTIONS). Will Marks with JMP Securities.

I guess this is what happens when Brian quits his job, right? And he did leave, didn't he?

I wouldn't be shocked if he calls in from time to time.

I will keep going here. Looking out to '06, not that you have given any guidance or plan to, in terms of onetime stuff that may not happen in '06, can you just refresh us on what has happened this year? Sarbanes-Oxley, maybe how much you have spent and what that will drop to next year, if that is the case?

Sure. I do want to preface it and make absolutely clear, we have not given any '06 guidance, and don't intend to on this call, but Jeff will answer your specific question.

Well, really I think Sarbanes-Oxley obviously jumps out, and it is something that has been part of very recent discussions as we're coming down the home stretch on finishing up our year one Sarbanes-Oxley compliance.

What I hear from the outside world is that as people and the calendar (ph) companies start -- have now entered into their year 2 that estimates are out there from as little as a 10% reduction to as much as a 40 to 50% reduction or more in year 2. And I think time will tell how ours is. But certainly our plans are to have a pretty significant reduction in year 2 costs, given that we have used quite a bit of outside third-party consultant help, given that we have got a lot of obviously payments to the auditors to do their work in year 1, that hopefully we can use a lot more internal time next year and get some of those costs down. The cost this year we have not said what they are exactly, but really are in the several million dollar range. So it is a big number that we can go into next year hoping to get down.

And is there anything bad about the ski resorts you can say this year that will make for easy comps next year?

I would hardly describe this year as a bad year for our ski resorts. And so to the extent that we thought March of last year gave -- allowed for us -- allowed for it to be an easy comp for March of this year, we did have some issues along the way. It was very cold at Christmas in Colorado. When I say very cold, I mean like 4 degrees. And it is our perception that even though just about every hotel room in town was occupied, we didn't see a lot of our normal amount of skiers on the hill during Christmas.

It is also true that Heavenly got a tremendous amount of snow. I think at one point the got 4 feet in a day, and 8 feet within 72 hours, and 18 feet in 18 days, which disrupted operations and depressed immediate visitation. But that aside, it was good snowfall year, especially at Heavenly. And it is plausible to us that whatever a skier visits we have may have lost on the day of the big snow, came to us in spades over the next month or two because skiing conditions were very good.

We did have early snowfall in Vail as well. Sorry -- the opposite -- I got a note, which I made the mistake of just reading. I didn't think we got a great early snow in Vail, but I do what I am told. We did not have great early snow at Vail this year. So we started out the season a little light compared to the year prior.

But you know, that may said skier days statistics, but we collect so little dollars in November. Most of the skiers were there on season passes. Those dollars are already in the bank. I don't know how much the early season affects us from an actual EBITDA standpoint. I think it affects us more reputational in getting the buzz going for bookings for the balance of ski season. But I just -- as I said at the beginning of my comments, we really are not yet ready to give guidance on '06. We will obviously be working quite hard to have a better '06 than '05, but we are not prepared to comment on that today.

A couple of other questions on assets there, particularly hotel sales. Now that it looks like the Marriott is behind you, and based on previous comments that maybe one or two more hotels that sell during the calendar year, is that correct? And any further comments on this?

Yes. I started articulating publicly, I believe, in September 2004, that given what people are paying for hotels it seemed to us it would be smart to alter our strategy and change the balance between the number of hotels that we own versus the number of hotels we manage. It wasn't a major departure in our diversification strategy, it was just manage more, own less and capitalize for the shareholders on some of the inherent value in our hotel asset holdings.

I said at that time publicly I expected to sell one to four hotels over 18 months. In fact, we did sell -- we have sold two in -- whatever that is -- nine or eight. So methodically we're just marching right along to our plan and the public pronouncement I made last year. We have said publicly that, including again today, that we are in receipt of what we believe are attractive offers for others of our properties. There is some distance to go between having an attractive offer and having a completed sale transaction. But we're very methodically continuing to pursue the strategy that has been previously articulated.

And just the last question on CapEx. Can you give us a sense -- I guess first on maintenance CapEx what you're going to send this year and on additional resort projects?

Jeff?

Are you talking calendar or fiscal?

I guess I was asking fiscal, but I think you usually talk about it on a calendar basis, don't you?

Yes, we previously reported last quarter when we had finalized our budget for the calendar 2005 capital plan that we anticipated our Resort capital for 2005 to be very consistent with 2004, in basically the $62 million range for Resorts. 62 to 65ish is where we have been and we still anticipate that. That is our budget that we are working under for the Resort side.

Then on the Real Estate side, you really have two factors here. One is the pure Real Estate CapEx that is being paid out as part of the development of the real estate projects that we have on hand. And as we mentioned before, those really have -- are self funding for two reasons. Number one, you have the deposits that in the state of Colorado you can use to pay towards the capital expenditures that you are paying out. Secondly, we are in the process of putting the final touches on nonrecourse financing that we will be using to really fund the big projects in Vail. And that will take care of all of the CapEx.

The final piece of CapEx that comes out of the real estate projects would be what we would call resort related CapEx. And that would be items that we're doing that we would actually capitalize as Resort assets as part of some of the real estate activity. And things that benefit the resort, things like the hotel component of the Arrabelle. And obviously as we expend money toward that, that will be a piece of that whole development that will come out of that.

So that is really what we're looking for for the year. Really -- Will, one other thing to circle back -- you asked if there's anything unusual in this year going into '06, and I think you were talking about EBITDA. One thing I should point out though there are a couple of other things in this year's numbers that we don't know will reoccur or not. But certainly there are unusual items we highlighted in the earnings release. One was an asset impairment charge related to the RockResorts put, so that we enabled us to own 100% of the RockResorts assets. We did take a 1.6 million charge for that this year.

And we also have higher depreciation cost this year. Part of that is some accelerated depreciation that we have incurred this year, because of some of the buildings we're taking out, as Adam referred to earlier. Earlier than had originally been planned as part of some of the this real estate development in Vail. When you look at our net income numbers year-over-year for the third quarter, really if you take a few of those things out, and then primarily have to adjust in the prior year that the prior year numbers had the $15.1 million real estate credit to expense that came out of the Smith Creek bond payoff. It also had a lower than normal tax provision. The tax provision that we use in this year is the more normal one to use on a going forward basis.

Finally, I think I didn't mention this, but our maintenance CapEx this year is anticipated to still be around $38 million. That is consistent with past years and hasn't changed.

As a follow-up, are we safe -- or in terms of '06, I know you're not giving guidance, but that 62 to 65 million do you anticipate any significant changes with that?

On the resort CapEx side?

The resort CapEx side.

No, I think that is an area that we are comfortable with we think continuing on a -- obviously when we go to do the calendar 2006 capital plan, we will see if there is anything else that could change it either way. But that is a level that fills consistent, given our level of maintenance CapEx and then the isolated discretionary projects that we like to do each year.

Will, let's see if there is anybody else on the call, and then will come back to you for more follow-ups.

Yes, I'm done. Thank you very much guys.

Felicia Hendricks with Lehman Brothers.

I guess when you are a little slow to the draw, you really have to suffer. I just have a few quickies. The first is, Adam, you mentioned the great pick up in advance ticket sales for the -- in advance season pass sales for this spring. I'm just wondering you know typically the market in that area has been rather competitive. I was wondering if you could just touch upon any of the competitive products that you have been seeing out there?

The next question has to do with the new high-speed lift that you're going to build as a function of the Ritz-Carlton. I wouldn't suspect, but I am just wondering are you getting any subsidies that might help with expenditures there?

And then my final question is, if I look at your guidance relative to where you reported -- and in the guidance our fourth quarter estimate is a little too high, which could be just our modeling issues. But I am just wondering, are you seeing anything -- this kind of implies that fourth quarter year-over-year might be lower. So I'm wondering if you are seeing anything in particular there?

Sure. Let me take the first two. I'll let Jeff take the third. Yes, the fact that we are up 35% in season pass sales for next year is particularly encouraging, because it has been an intensely competitive market for season pass sales for next spring by the major resorts. We increased our prices by a fairly healthy amount, as much as 10%, while Copper Mountain and Winter Park either held steady or lower lowered their prices. So we have had these season pass sales gains in the face of an increasing price disparity between our resorts and our competitors. We think that speaks volumes about the consumer appeal of our resorts.

The high-speed lift that we're talking about for you Vail skiers on the call, assuming that everybody approves -- Town of Vail and the Forest Service -- will be at the corner of Forest Road and the South Frontage Road on the northwest corner of the land parcel immediately to the west of the Vail Marriott. I don't think we are going to get any subsidies for that lift.

And that will open when?

First we have to get the project approved. And then we would like to sell enough of those condos to make us comfortable of its profitability. We said we will go to market 6 to 18 months from now. And the construction cycle of the building is about two years. We haven't exactly decided in which of those summers we would put in the new lift.

For your third question, really as far as the fourth quarter and why the year to date through third quarter are going to come down a little bit in the fourth quarter to match up with the guidance we just issued. As we mentioned earlier, I think the biggest pieces of that is the SOX 404 efforts. Certainly in the fourth quarter that is when all the final work is being done. We are July 31th filers, and compliance filer for the SOX 404 effort. So that certainly is something that will bring, as compared to last year, some of the numbers back a little bit. There are some increases in higher legal costs as we mentioned earlier.

And then beyond that, you really have the timing of when certain expenditures can be incurred, or would be incurred, versus what we have first anticipated. Even though the Mountain segment is done with operating the ski resort for the year, they certainly have the summer periods when they do a lot of their maintenance projects and things like that. And obviously we just have to try to protect out when the timing of those actual expenditures will be made between the fourth quarter of this year versus the third quarter that they might not have been made, or the first quarter of the following year. And then obviously we still have the full amount of our lodging, golf operations, things like that that we have to track. So basically this latest guidance is based on our latest look. And certainly it will all come to fruition as we see the fourth quarter develop out.

And when I think about those SOX charges, when you run it through do you kind of distribute it among all three of your business lines? When I think about EBITDA margins in each one or do you --?

We do. Yes, it is part of our corporate allocations so it gets allocated to -- as all of our -- what we would consider G&A costs, and SOX 404 is certainly one of them. Those get allocated out to the three segments. Obviously, the highest percentage of that would go to the Mountain segment based on the revenues and things like that at the Mountain segment. But certainly all three segments would get a piece of that.

Mimi Sokolowski with Sidoti & Co.

A couple a couple of quick questions. I wanted to get a little bit more color on the revenues mix for the quarter. And wondered if you could give me an idea of what kind of real estate transactions were recorded in the quarter?

Mimi, are you talking about the revenue mix between -- within Mountain or are you talking about of the three segments that talk about each piece of that?

No, within the Real Estate segment, you booked about 14 million in revenue for the quarter. What projects does that reflect, if there are certain (ph) projects.

Right. In the Real Estate the biggest piece of the revenues for the quarter, or the vast majority of those, would have been the parking structure that Adam mentioned earlier. Again, a lot of those revenues were -- those revenues get booked as each parking space was closed. The majority of those parking spaces are closed in the third quarter, although some of them will get closed in the fourth quarter. But that is the biggest piece of the revenue.

We did also have a remaining lot sale. We had one last lot that we were able to create in Bachelor Gulch and closed on that lot in the third quarter as well. So those are really the biggest pieces, as well as continued progress in Jackson Hole. The development is going on. We are actually booking that under a percentage of completion methodology.

And I guess two more questions. I guess, Adam, this might be one for you. Typically are season passes a pretty good bellwether, barring any abnormalities in general weather for the next season?

I would say no. They are sort of a bellwether of what they are, which is how many season passes did you sell in the spring? There is no guarantee that because you sell them well in the spring, you will sell them well in the fall. But you would rather be ahead in the spring than behind in the spring.

Similarly, the season passes are almost entirely sold within the state of Colorado to so-called front range skiers, and to the nearby environs of Heavenly of their nearby skiers within a couple hours drive. There's not really a direct correlation between how those local drive markets perform and how these so-called destination or out-of-state fly in market and international markets will perform. So I think the right answer to your question is no.

On the other hand, we had a lot of people skiing at our resorts this year, and they are either satisfied or not satisfied with our product. We happen to do a lot of market research and know they're quite satisfied with our product. And I think the fact that the local Coloradoians, who are some of the pickiest and choosiest of skiers, would be buying more passes this year than last, even in the face of higher prices from us and lower prices from our competitors. That has to be taken as a good sign. But I don't know that it means anything more than what it specifically means.

I could probably go on the Internet somewhere and find this figure, but about how much are the season passes in the spring sell for, assuming an adult?

The biggest seller is what is called the Colorado Pass, which is an unlimited season pass at our Keystone and Breckenridge resorts. Through marketing agreement it allows skiing at Arapaho Basin, which do we do not own on an unlimited basis. And it entitles the holder to ten days those skiing at Vail and/or Beaver Creek combined, but restricted on certain key holiday dates. That sells for $349. And that was priced at $319 last spring, hence what I said was the approximate 10% price increase.

And the last question, another kind of general one. What risks, aside from weather, would preclude you from giving any insight on F 'O6 at this point?

The biggest reason is because we haven't budgeted fiscal '06. We are in the process of budgeting fiscal '06 right now, and therefore I'm just not in a position to give you a studied analytic outlook for what will happen to the Company next year. When that budget process is complete -- we have given guidance in the last nine years. I don't think that policy will change -- We will tell you what we know and we think is appropriate to tell you.

Grant Jordan with Wachovia Securities.

Just one question. Can you talk about any sort of M&A opportunities that you're sitting in the market, particularly on the resort side?

Yes. I have to be very careful what I say here. On the last quarterly call, I mentioned a fairly considered discussion of Mammoth, which is for sale, but which is currently 57% owned by InterWest, and InterWest has what might be called a right of last look to match any offer to to buy it. I made certain comments on that call. Those comments are operative, but I'm not in a position today to amplifying on those comments. We're not looking at any other ski resort specifically at the moment. And as for our hotel assets, as I have been saying since September, we sort of are acting and sounding much more like a seller than a buyer.

Would you characterize it that not only are you not looking at other assets, other than potentially Mammoth, going back to what you said on the last call, but there's not really any other assets on the market?

None that I am aware of the caliber that would fit with the Vail Resorts portfolio. Remember, we sort of concentrate on the biggest and best resorts, ski resorts, in the country. That is our sweet spot. And for M&A activity that is where we would be looking. That does not mean we're disinterested in acquisition activity. It just means that I am not aware of any that are on the market at the moment.

And then just kind of a follow-up. I think I have asked this question on calls past. But as you look at your balance sheet, and you guys are doing a good job of bringing leverage down, you seem to be in a good spot, is there any thought about increasing the dividend, or are you having those kind of discussions with your Board?

We're certainly aware of our free cash flow position. And we certainly know that we will have to come up with a conscious strategy on how best to use our improving liquidity position for the benefit of our shareholders. Having said that, we're not prepared to make any announcements of any kind. Specifically the question you asked about dividends is a question for the Board of Directors of the Company. They have not opined on that subject to date.

And I just would clarify. You said increasing our dividend. I would just make it clear right now we do not pay a dividend, and we have have not paid a dividend.

There are no further questions at this time.

Good. Operator, thank you very much for your work on this call. Ladies and gentlemen, thank you for participating. Ski season is over, but we have golf courses out here. Come on out and visit. Thank you and goodbye.

This concludes today's conference call. You may disconnect at this time.