Vail Resorts Inc (MTN) 2006 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Vail Resorts fiscal 2006 year-end earnings conference. 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. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded today, Thursday, October 5, 2006.

I would now like to turn the conference over to Rob Katz, CEO of Vail Resorts. Sir, please go ahead.

Good morning, everyone. Welcome to the Vail Resorts fiscal 2006 fourth-quarter and year-end earnings conference call and simultaneous webcast, both open to the public and press at large. I am Rob Katz, CEO of Vail Resorts. Joining me on the call this morning is Jeff Jones, our Senior Executive Vice President and Chief Financial Officer.

Earlier this morning, we released our earnings for the fourth quarter and fiscal year ended July 31, 2006. Before we review those results, I want to remind you that we are using the terms "reported EBITDA" and "reported EBITDA excluding stock-based compensation" to report earnings for each of our segments -- namely, Mountain, Lodging, Resort -- which, as you know, is the combination of the Mountain and Lodging segments -- and Real Estate. Complete reconciliations of reported EBITDA and other non-GAAP financial measures can be found in this morning's earnings release and on the vailresorts.com website in the investor relations sections under the Regulation G Compliance tab.

I also need to mention that comments made on this conference call, other than statements of historical fact, are forward-looking statements that are made pursuant to the Safe Harbor provisions in the Private Securities Litigation Reform Act of 1995. Certain risks and uncertainties could cause the actual results to differ materially from those contained in the forward-looking statements. Investors are directed to the risks and uncertainties described in the documents filed by the Company with the Securities and Exchange Commission, including the Company's Form 10-K for the 2006 fiscal year.

So, with that said, let's turn to our results. I am extremely pleased to report that Vail Resorts has completed another record year. We exceeded our own strong expectations, setting records across many key categories including net income, resort reported EBITDA, resort reported EBITDA excluding stock-based compensation, resort revenue and skier visitation, demonstrating that our focus on continuously enhancing the guest experience is certainly paying off.

Clearly, a portion of our success in fiscal 2006 was due to the strong early season snowfall in Colorado. However, we should note that as the season progressed, snowfall in the latter part of the season did return closer to historical averages. In addition, our performance in fiscal 2006 was on top of record performance in both fiscal 2005 and fiscal 2004, and we showed double-digit growth in resort reported EBITDA in each of these years as well. This kind of sustained performance is truly the realization of many of the improvements we have made today to our mountains and our emphasis on world-class service levels.

Our strong winter season at our Colorado resorts was partially offset by a challenging year at Heavenly, which faced unusually difficult weather conditions, especially during the Christmas holiday and many other weekends during the season. Our mountain resorts had approximately 6.3 million skier visits during the 2005-2006 season, a 5.9% increase over the prior year. This compares to a 3.5% increase in total US skier visits this year.

In addition, we experienced a 6.4% increase in our effective ticket price. The increase in ETP was triggered by both absolute price increases as well as a higher level of destination visitors, who tend to pay higher prices for lift tickets, in addition to spending more on ancillary businesses, including ski school, retail rental and food and beverage.

We also realized a 12.3% increase in season pass revenues, which comprised 23% of our total lift revenue in fiscal 2006. These increases resulted in a 12.7% increase in overall lift revenue. Additionally, we saw commensurate increases in all of our ancillary businesses, including ski school, dining and retail rental. We realized a high flow-through of these revenue increases to the bottom line, resulting in a 22% increase in mountain reported EBITDA, excluding stock-based compensation.

In addition to a record year for the Mountain segment, I am also very pleased with the performance of our Lodging segment, which, when excluding the impact of hotel sales, experienced a 4.1% increase in revenues. Our lodging properties benefited from both increased occupancy and increased average daily rates, resulting in an increase in RevPAR of 10.4% on a same-store basis. In addition to their own strong performance, our lodging properties are a critical part of providing a comprehensive experience to guests at our mountain resorts.

We were also able to take advantage of healthy hotel valuations this year, with the sale of the Snake River Lodge & Spa this past January. As we previously reported, we began managing the hotel under our RockResorts brand, pursuant to a long-term management agreement with its new owner.

So, while we look back with pride on the past year, we are hard at work and intensely focused on continuing our success in fiscal 2007. Although it is still too early to draw any firm conclusions, some of our early-season metrics are showing positive trends. Advance sales of season passes for the 2006-2007 season are currently running up 22% on a unit basis and 35% over last year on a sales dollar basis. As a reminder, these season pass sales will be recognized as revenue over our 2006-2007 ski season.

Bookings through our central reservation systems for our five mountain resorts are up 24% in room nights and 32% in sales dollars. While these are certainly some strong early indications for next year, it is important to remember that a material portion of this increase may reflect earlier purchases rather than incremental purchases. As such, we currently believe that our ultimate increase in sales of season passes and room nights booked will be considerably lower than what these metrics currently indicate. At the same time, the Company does benefit from earlier purchases, as it locks in a larger portion of our revenue earlier in the season.

I would like now to turn the call over to Jeff Jones, who will give you a more detailed overview of our results for the quarter and the year as a whole and review guidance for fiscal 2007. I will then review the status of some of our real estate projects, as well as some other exciting new initiatives that are underway at Vail Resorts. Jeff and I will then both be available for questions. Let's now turn to Jeff for our fourth-quarter and year-end results.

Thank you, Rob, and good morning, everyone. As Rob previously mentioned, earlier this morning, we released our earnings for our fourth quarter and fiscal year ending July 31, 2006. Also, this morning, we filed our Form 10-K for fiscal 2006. I would now like to take you through some of the highlights of our fourth-quarter and year-end results.

As we review our financial results, it is important that you keep in mind that as of August 1, 2005, Vail Resorts adopted the fair value recognition provisions of SFAS 123(R), share-based payments, using the modified perspective method. As a result, for fiscal 2006, the Company recorded total pretax stock-based compensation expense of $6.5 million as compared to $0.4 million for fiscal 2005, while in the fourth quarter, total stock-based compensation expense was $1.8 million versus $0.1 million in the prior-year fourth quarter.

As you know, the fourth quarter is typically a loss quarter for the Company, since while the mountain resorts are open for a portion of the fourth quarter to summer sightseers, there are no ski operations (technical difficulty) quarter. Therefore, I will focus my comments on the fiscal year results.

The mountain segment results for the year show very similar trends to what we reported at the end of the third fiscal quarter. For the year ended July 31, 2006, we saw record year-over-year growth in the mountain segment revenue of 14.7% to $620.4 million from $540.9 million for the comparable period last year. The increases are due to the double-digit lift ticket revenue growth of 12.7% Rob described, combined with commensurate strong increases in the ancillary businesses, including ski school, dining and retail rental.

The lift ticket revenue was driven by the combination of increases in skier visitation, effective ticket price or average realized lift ticket, known as ETP, and higher season pass revenues. In addition to the increase in lift revenues, ski school revenue was up 13.6% and dining revenue was up 5.5% during the year. Dining experienced a lower percentage growth in the other ancillary businesses, due to the reduction in revenue resulting from the conversion of certain formerly owned restaurants to lease locations, and the closing of certain owned restaurants due to construction at Lionshead related to the development of the Arrabelle at Vail Square.

In addition, our retail rental operation experienced revenue growth of 24.3% for the year, which is partially as a result of the acquisition of six new Any Mountain locations in the San Francisco Bay area. Excluding the impact of this successful acquisition, retail rental revenues still increased by a very strong 10.1%.

Turning now to the cost side of the business, Mountain operating expenses grew by $51.2 million in the year, while corresponding Mountain revenues grew by 14.7% or $79.6 million. Excluding retail rental, which has higher variable costs, and the Any Mountain acquisition this year, and stock-based expense, Mountain segment expenses increased by 7.6%. These increases are primarily due to higher variable costs associated with higher revenues, excluding USDA Forest Service fees, credit card fees, dining cost of sales, fuel and utility costs due to higher absolute cost increases and labor-related expenses to support increased visitation, including in our ski school operations.

As a result of the strong revenue increases, combined with continued cost controls, reported EBITDA for the Mountain segment rose 19.8% year over year to a record $181.2 million from $151.3 million the previous year. Reported EBITDA for Mountain excluding stock-based compensation increased by 22.0% for the year, and Mountain margins excluding stock-based compensation -- defined as Mountain reported EBITDA excluding stock-based compensation divided by Mountain net revenues -- increased by 180 basis points from 28.0% last year to 29.8% for the current fiscal year, evidencing the strength of our organic growth model.

In fiscal 2005, the Company sold its minority interest in the Ritz-Carlton Bachelor Gulch and sold the assets of two additional hotels, the Lodge at Rancho Mirage and the Vail Marriott. Additionally, in the second quarter of fiscal 2006, the Company sold the Snake River Lodge & Spa in Teton Village, Wyoming. We retained management contracts for the Lodge at Rancho Mirage, the Vail Marriott and Snake River Lodge & Spa, while the Bachelor Gulch hotel continues to be managed by Ritz-Carlton.

Therefore, Lodging revenue for the year fell by 20.6% to $155.8 million. Excluding the impact of sales of hotels for the year and stock-based compensation expense, Lodging revenue, which includes incremental management fee revenue from the sold hotels of $1.6 million, increased $5.9 million or 4.1%, while expenses increased $4.0 million or 3.0% year over year.

Let me provide you with some year-over-year operating statistics for our owned hotels. On a same-store basis, our hotels had a 10.4% growth in RevPAR -- that's revenue per available room. Occupancy increased 2.7 percentage points or 6.1% to 45.5%, and we experienced an ADR or average daily rate increase of 3.9% or $7.49 to $199.83. Our strong Lodging results evidence our expertise in operating hotel properties in and around mountain resorts, and we are actively looking for new opportunities to leverage this expertise, both around mountain resorts and in selected non-mountain locations.

Turning to total Resort reported EBITDA, the competition of our Mountain and Lodging segments, as I mentioned earlier, total Resort reported (technical difficulty) another all-time record for Vail Resorts, at $194.3 million, a 16.0% year-over-year increase. Resort reported EBITDA excluding stock-based compensation expense increased by 18.8% for the year to $199.3 million. Over the past three years since fiscal 2003, we have seen our Resort reported EBITDA excluding stock-based compensation increase by 24% on a compound annual basis.

I would now like to turn to our Real Estate segment, where revenue decreased $10.2 million to $62.6 million, and reported EBITDA decreased $7.7 million for the year to $6.7 million. The Company's Real Estate operating revenues are primarily driven by the timing of closings and the mix of real estate sold in any given period, and there were fewer real estate closings during the 12 months compared to the previous year. Real Estate reported EBITDA in the current year is primarily generated by contingent gains on development parcel sales that closed in prior periods. The Company is currently in the development stage for several major real estate projects whose revenues and cost of sales will not be recorded until those units are sold. Rob will speak in more detail about the development projects later in the call.

In addition to the segment operating results that I have just reviewed, I would briefly like to discuss a few other material items that contributed to the Company's overall financial results. For the full year, depreciation and amortization expense decreased $3.9 million, primarily due to the previously mentioned sale of hotel assets, as well as higher fiscal 2005 accelerated depreciation for certain assets which were retired in advance of their previously estimated useful lives, offset by the accelerated amortization of the Cheeca Lodge management contract, which occurred primarily in the fourth quarter of this year.

The Company experienced increased net investment income of $5.9 million for the full year, due to a significant increase in average invested cash balances. Interest expense decreased $3.8 million for the full year, due to a reduction in outstanding debt and our bank rates, and it decreased $11.0 million over the last two years.

In addition, in fiscal 2006, the Company recorded a $4.7 million gain associated with the sale of the assets from the Snake River Lodge & Spa. Partially offsetting these positive variances, the Company recognized $5.1 million of expense for the full year, in association with the Company's recent relocation of its corporate headquarters and the separation agreement with the Company's former Chairman and CEO. Additionally, the Company incurred $3.3 million in legal-related costs for the full year related to the Cheeca Lodge contract disputes. Finally, the Company experienced a $6.1 million increase in stock-based compensation expense for the year ended July 31, 2006, due to the adoption of FAS 123(R). The Company generally incurred similar trends in the fourth quarter for the above line items.

As a result and as we expected, the Company reported a fourth-quarter net loss of $31.3 million or $0.80 per diluted share, compared to a loss of $36.4 million or $1 per diluted share for the same period last year. If we exclude stock-based compensation expense, the Company's fourth-quarter net loss would have been $30.1 million or $0.78 per diluted share for fiscal 2006, as compared to a net loss of $36.4 million or $1 per diluted share in fiscal 2005.

Net income for the full year was $45.8 million or $1.19 per diluted share, compared to $23.1 million or $0.64 per diluted share for the same period last year, a 97.8% improvement in net income. If we exclude stock-based compensation for the fiscal year, the Company's net income would have been $49.8 million or $1.29 per diluted share, as compared to net income of $23.4 million or $0.64 per diluted share in fiscal 2005, a 112.8% improvement in net income, excluding stock-based compensation.

Now, let me turn our attention briefly to fiscal 2007, which began on August 1st. We are acutely aware that we will face very difficult comps in the year ahead, as a result of the record year we have just completed. With that said, we are still optimistic about the upcoming season.

As such, I would like to give some guidance for fiscal 2007. Based on our current estimates, we expect full-year Resort reported EBITDA, the combination of our Mountain and Lodging segments, to range from $200 million to $210 million, and Resort reported EBITDA excluding stock-based compensation expense to range from $207 million to $217 million. The Resort guidance includes a range for Mountain reported EBITDA of $187 million to $197 million, and nonreported EBITDA excluding stock-based compensation expense of $192 million to $202 million, while we expect Lodging reported EBITDA to range from $10 million to $17 million, and Lodging reported EBITDA excluding stock-based compensation expense to range from $12 million to $19 million.

Fiscal 2007 for our Real Estate segment will be a construction year, with the major projects forecast to close in fiscal 2008 and beyond. It's also important to remember that we have an administrative burden that has increased to oversee our major development projects, the benefit of which will not be realized until fiscal 2008 and beyond. As a result, our guidance is for Real Estate reported EBITDA range from $1 million to $5 million, and Real Estate reported EBITDA excluding stock-based compensation expense to range from $3 million to $7 million.

Finally, based on our current estimates, we expect net income to range from $48 million to $57 million, and net income excluding stock-based compensation expense to range from $53 million to $63 million.

Turning to our balance sheet and the quarter's capitalization events, at the end of our fiscal year, we had approximately $191.8 million of cash on hand excluding restricted cash, no revolver borrowings on our senior credit facility, and net debt, as defined as total debt less cash and cash equivalents, of $339.4 million, as compared to $385.1 million one year ago. Our ratio of net debt to total reported EBITDA improved from 2.12 times at the end of fiscal 2005 to 1.69 times at the end of fiscal 2006.

Also, during the fourth quarter of fiscal 2006, the Company repurchased 315,100 shares of the Company's stock under the previously announced share repurchase program, at an average share price of $34.37, for a total amount of $10.8 million. The Company currently has authorization to repurchase an additional 2,684,900 shares under the program, which is limited by, among other things, restrictions in our indenture and senior credit facility. The Company continues to evaluate appropriate uses of its excess cash, including but not limited to the share repurchase program.

At this time, I would like to turn the call back over to Rob.

Thanks, Jeff. Before I get into our Real Estate activity, I would like to highlight some new additions to our executive team and Board of Directors. First, I would like to welcome Robert Urwiler as our new Chief Information Officer. Robert brings with him a vast amount of experience in corporate information technology management, most recently as CIO of Macromedia. He will play a critical role in leading the Company's future IT needs, particularly as they relate to expanding our e-commerce and customer relationship systems.

In addition, we reported appointed two new board members, Thomas Hyde and Richard Kincaid, to the Company's Board of Directors. Mr. Hyde will serve on the audit committee, and is currently Executive Vice President and General Counsel of Wal-Mart Stores, Inc. Mr. Kincaid will serve on the compensation committee, and is currently Chief Executive Officer and a trustee of Equity Office Properties Trust, the nation's largest office building owner and manager. We are fortunate to have two individuals with such distinguished backgrounds join the other accomplished members of our Board. I know that their experience and business acumen will serve both our company and shareholders well into the future.

Now, turning to our Real Estate efforts, we continue to be enormously excited by our ongoing Real Estate projects, as well as by those that we have just recently begun. While these projects will be highly profitable on their own, they're also key to our core strategy by providing significant upgrades to our resorts and offering guests new services and amenities.

Planning and design for our development of the Peaks of Breckenridge, a master plan ski-in, ski-out community, is well underway, and we're still anticipating a launch of the marketing efforts for this project during the upcoming ski season. Construction of the new eight-passenger gondola connecting the peaks to historic Main Street in Breckenridge has begun, and is expected to be operational by either Christmas 2006 or very shortly thereafter. The gondola will certainly enhance our development activities, but will also help bring Breckinridge to a whole new level of guest experience. The Peaks of Breckinridge will feature approximately 450 residential units and 75,000 square feet of skier services.

The majority of revenue from our major vertical Real Estate developments is still slated to occur in fiscal 2008 and beyond. Construction of the Arrabelle at Vail Square is continuing on schedule, with plans to still close in late fall of calendar year 2007. As of today, we have closed on 8 of 16 Gore Creek Place townhome units, and will close on the remaining eight units in the remainder of fiscal 2007. As a reminder, Gore Creek represents the first major development project in our revitalization efforts in Vail.

We are under contract for the sale of 10 of the 13 Lodge at Vail chalets, at an average price of nearly $2,400 per square foot, which we expect to close on in fiscal 2009. We also hope to launch sales efforts for the first of several projects in West Lionshead in the coming fiscal year.

On March 9, 2006, we announced that our RockResorts subsidiary will no longer manage the Cheeca Lodge & Spa as part of its luxury hotel brand. The hotel's ownership, Cheeca Holdings LLC, terminated the management agreement without advance notice effective March 6, 2006. I can assure you we continue to vigorously pursue our legal rights in regards to that termination. As a result, we recognized $3.3 million in expenses reported as contract dispute charges in fiscal 2006, and we are incurring additional expenses related to this matter in the first quarter of fiscal 2007 as well.

While our company is not a fan of litigation, we consider the protection of our legal rights in the hotel management business to be a critical part of our strategy. Due to the ongoing nature of this dispute, I cannot comment on it any further.

As you know, we previously announced that Vail Resorts is going to relocate its corporate and administrative operations to new offices in the Denver Metro area from Avon, Colorado. We are pleased to report that we have now successfully completed the majority of our move into a great building in the Interlochen Corporate Park in Broomfield, located between Denver and Boulder. Our relocation has allowed us to bring onboard some strong new talent, reinvigorate our existing employees and bring our corporate and lodging operations under one roof. Everyone in the new office is motivated, energized and working hard in their new location. In addition to the benefits in recruiting and strategic positioning, the relocation should offer us a savings in occupancy expense which we will realize in the years to come.

In Vail Resorts has a long-standing commitment to responsible stewardship of the environment. This year, we looked for ways to expand these efforts to include our guests and broaden our exposure. We believe that having a dialogue with our guests about ways that we can protect the stunning natural environment we operate in is both good for the environment and good for business, as our company is perfectly situated to benefit from the growth in ecotourism.

Over the past few months, we launched two initiatives in this area. In the first, Vail Resorts has chosen to offset 100% of its energy use by purchasing nearly 152,000 MW hours of wind energy annually, making us the second-largest corporate purchaser of wind energy credits in the United States. In addition, we have launched a new promotion under which any of our guests to purchase wind power for their family's home through our partner receives a free lift ticket valid at all five of our resorts.

Second, Vail Resorts is partnering with the National Forest Foundation to raise funds for various conservation projects in the White River National Forest in Colorado and the National Forest of Tahoe Basin in California and Nevada, where the Company operates its five mountain resorts. Throughout the 2006-2007 winter season, Vail Resorts will offer its guests at its five mountain resorts the opportunity to participate in a special fund-raising effort by contributing $1 on season passes, $1 on online lift ticket transactions and $1 per room night at its Colorado-based lodging properties.

Each dollar raised by Vail Resorts will be matched with $0.50 by the National Forest Foundation. We expect to raise up to $600,000 worth of proceeds collected by Vail Resorts, donated to the National Forest Foundation to fund conservation projects to further protect and enhance the natural treasures in the two forest areas.

In wrapping up, I want to thank all of our employees for the great results of this past fiscal year. We are all hard at work and excited about the upcoming season.

That concludes our prepared remarks. At this time, Jeff and I would be happy to answer any of your questions. Operator, we are ready for questions.

(OPERATOR INSTRUCTIONS). Grant Jordan, Wachovia Securities.

Two questions. One, you talked about you have got some restrictions in your credit facility as well as your bond indenture, in terms of share repurchases. Maybe you could give us just generally where the restricted payments basket is.

To, if you could just comment on any change in the M&A landscape out there, if you have seen a pickup or a slowdown in terms of potential resorts that might be for sale?

Sure. We don't actually comment on where our restricted payments basket is. Obviously, the indenture is available publicly, which you can pick up. On M&A, unfortunately, we don't comment on that, either. I think we look at consolidation as part of our strategic plan, and we are certainly always on the look for resorts that we can buy that we think fit into our strategy, fit our guest profile and where we can bring a lot of the skillsets that we have to improve them. But I can't comment on anything specifically.

Mimi Sokolowski, Sidoti & Co.

Regarding the Ritz-Carlton project, you didn't make any commentary on that. Has the timeline changed? Are negotiations still on the table? I guess, just a broad update on that, if you wouldn't mind?

Sure. What we are really focused on is the entire West Lionshead development, and we actually are actively involved right now with the town, talking about a master plan for that area. As you know, we have been approved to have a lift land in that area by the US Forest Service, and we're working with the town on putting together the right pieces to really bring that whole development to fruition.

One part of that is the first project which we have talked about is the Ritz project, and that, we believe, will be the first project on that. I can't comment on exactly when that project would come, but, like I said, I think we're hopeful that that's something that could happen this year.

And the other West Lionshead activity outside of Ritz? Can you provide a little detail on that, or embellish a little?

Sure. Right now, the site that we have talked about as a Ritz is really the only site that is zoned and ready to go for development. The other sites are not yet -- have not yet been approved for zoning, and the lift has not been approved by the town. We're hard at work on that. We would hope to have, I think, some announcements on that front again in this fiscal year. We consider that one of our highest priorities, in terms of future development opportunity for the Company.

If I can back you up the second, you said you got approval for the lift to land in that Ritz-Carlton area. But is that just from the forest service, and then you need approval through the town? Are there a couple of steps? Am I misunderstanding?

No, you understand exactly right. We have approval from the Forest Service for the lift, but we also need approval from the town for landing it in that site.

Also, wanted to ask about the commentary in the press release, and I think you had some in your prepared remarks. Hedging -- maybe not hedging yourself, but taking a more conservative approach as it relates to some of the preseason numbers that you have seen so far. You mentioned timing, more purchases earlier -- why would something like that happen?

I think we can take both statistics that we released and maybe take them a little bit separately. I think, on the bookings, I think there is a feeling that I think we have heard that people realized last year that there was a scarcity, that trying to get the exact locations, the property that they wanted to stay in for the exact day, for the exact number of days and the exact type of room configuration that they wanted, if they called too late, they weren't going to get them. I think that that experience last year may have forced people or reminded people to start booking earlier.

I think we also probably have an increase, an absolute increase in those numbers as well. But I don't think we think that when we are done with the season that we are going to have this kind of an increase overall.

For season passes, I think that actually is similar as well. We had number of people last year who do buy a little bit later in the season; they pay a higher price. This time, they may be remembering earlier. They may be thinking about the fact that last season was a good season, and they are accelerating their purchases.

Obviously, we don't know how many people who are booking or buying season passes are incremental purchasers, per se, or people who are just buying earlier. We won't know that until we finish. But it's our best estimate right now that a lot of that increase is not going to be there when we finish the season.

Perhaps it's a bit early to talk about peaks seven and eight, but can you give us an idea of what an average selling price per square foot might be? Certainly, you're probably not going to get the premium that you fetch in Vail. But can you give us an idea where it might fall?

I think we're looking at the Peaks of Breckenridge to certainly be at the top end of where things sell in Breckenridge. It is the prime location, a ski-in, ski-out location that offers -- and with the gondola now, both access to the town and access to the mountain. We think it's really going to be one of the best properties in the entire resort industry.

With that said, we will likely be breaking some new ground with the project, so giving specific guidance is going to be challenging. But yes, we expected to be less than Vail, but at the top of what things can sell for in Breckenridge.

Also, maybe you can comment on this. Acquisition prices -- what would be ideal for you, your theory? Unless it depends on -- if it's situational. But can you characterize what sort of prices you might think are attractive in this environment?

I think, If we are doing the acquisition, obviously, the lower the better. But apart from that, I think it's hard to comment, because it's really very much resort-specific, if we are talking about the mountain resort industry. So there are some resorts that I think we would clearly want to stretch for, and I think there are other resorts that we wouldn't.

I think that really determines -- I think one of the benefits of the industry is that each mountain resort is unique, and they are somewhat non-replicable; they are all different. I think that's the beauty of the industry, but it also means that when you're doing an acquisition, you really need to look at a lot of factors, not just, let's say, EBITDA and use the same multiple you used before.

Will Marks, JMP Securities.

On construction costs on some of these projects, I kind of recall a couple years ago someone saying that for the absolute high end, you're looking at $500, maybe $600 per square foot. Can you just give me some sense -- I hate to bring up an old number -- but what it may cost to build some of the luxury condos in Vail and in Breckenridge?

I really can't, and it's because each one is -- I know this sounds repetitive with some of the other answers I've given. But each one is very, very different. So there is going to be a very different construction cost, for instance, at Vail's front door, where it's a multiuse project, what there's a lot of underground work, where we are doing skier services, a club, townhomes. Let's say, then, the Ritz site that we've talked about or the peaks. So they are all very, very different.

I think the number you threw out, I would say, is certainly on the -- yes, that sounds like the high side. But again, it also depends on what you're including. Is that just hard construction costs? Does that include the finish on the inside? So I think I'm going to stay away from giving any kind of concrete guidance on that.

Would the Ritz project go ahead without a ski lift?

Yes, I think that's certainly a viable option for us. I think we have felt that way from the beginning. But at the same time, we think that the further along we are in planning the West Lionshead area -- including, for instance, coming up with a better name for it than West Lionshead -- will really benefit that first site and that first project as well.

Jeff, in the book value of real estate, how much is construction in progress on your development?

Well, I think if you go back to a couple years when we really first started going forward with some of this vertical development, at the time I think we said publicly that we had about $100 million of book value of land on the books. So that might have changed by a little bit. We did acquire a couple of sites in West Lionshead for future development. But I think you can say that the vast majority of the increase in the book value over $100 million is related to the construction in progress.

Of the book value of land, I can't recall -- is it about 40% at Vail? Just an approximate number. I know you don't want to give --

Let me get back to you on that exactly, because I wouldn't want to misquote a number on that.

Maybe you can't comment on this, but there's been some articles about development at the base of Heavenly, kind of around where the Marriott is. Are you guys involved in that at all? I don't believe it's your land, right?

No, we don't own the land around where you are talking about. But I think, certainly, we have been mentioned [essentially] in some of those articles as being involved. We haven't formally -- our policy would be not to formally announce involvement in third-party projects until we have definitive documentation done, and so I think we will hold on that policy.

What do they want to get done there? What is the community looking for?

I think what has been written about publicly is a large condo/hotel project with a conference center and a lot of parking as well, right across from the gondola and right next to the casinos, and a high premium luxury destination [bed-based] creation, which, as you know, there's very little of right now in that area.

There's plenty of old stuff to get rid of, too, there.

Correct.

Just one question. I feel like it's asked all the time, and I can't give a good answer. Looking at your ski resort, how should we look at the cash flow or the returns after CapEx? How profitable are these resorts?

I think what we can talk about is this year, our Resorts reported EBITDA excluding stock-based compensation was close to $200 million, and that's true for the whole company, obviously. We have also talked about maintenance capital being in the range of $35 million to $38 million, something in that range. So you're talking about, from a free cash flow before interest and taxes and discretionary capital, that would be how you would get to the kind of number I think you're talking about. Obviously, as you know, most of the resort-reported EBITDA is coming from the mountain business, and most of our maintenance capital is coming from the mountain business.

Is every resort profitable in that way on a free cash flow basis?

Every resort certainly generates free cash flow, but obviously in differing amounts. But yes, everyone does.

Eric Brown, Banc of America Securities.

Just a couple of questions on Real Estate. I think you mentioned that you were incurring some higher admin expenses related to the Real Estate segment. Would it be possible just to quantify those costs?

No, we would not separately disclose the administrative cost for Real Estate. But I would tell you that the reminder there is when you look at our guidance for Real Estate, but that's after administrative expenses, and also after any marketing costs that we're incurring towards these vertical development projects which the revenues have not yet been recognized for yet. So it's really a reminder that that's net of all of that burden, which we think will obviously pay dividends. Now, we have been, obviously, adding people internally to build up our infrastructure to really been able to support a company that has been shifting more to vertical development. So, therefore, I think that was that comment.

I think you are closing on a couple of projects, I guess at Breckenridge Mountain Thunder Lodge, and then I think you sold a piece of land at some point last year. Are those closing in 2007? If so, when would that be?

The Mountain Thunder Phase II project, which is a little over 30 townhomes, is closing, and we anticipate that hopefully the vast majority of those will close in December of this year.

On the land sale, is that closing this year, or did it close last year?

Yes, I think it's in this year -- I'm making sure that -- which land sale you're talking about?

The one to the time-share.

Yes. That's this year.

(OPERATOR INSTRUCTIONS). Will Marks, JMP Securities.

I know Steamboat wasn't specifically mentioned. Can you just comment if, legally, you could buy Steamboat, if there is any Department of Justice issues for that ski resort?

I can't comment on it, because it's potential M&A, and I think also it's not something that we would even know, because that would be up to the Justice Department or somebody else about any acquisition that we would do. Unfortunately, I'm going to have to leave it at that.

That's fine. I wasn't trying to put you in an uncomfortable situation.

On the EBITDA guidance, can you give us any sense of revenue growth and expense growth, where that should come from? I know you have given us us season pass sales, but just overall?

If you go to the -- I think we start with EBITDA. I think, overall, we would say that our revenue growth in our guidance roughly is not -- we are not -- it would be high single-digit growth, not double-digit growth. Our expenses would track basically with how they normally track, meaning as revenues grow, there is a variable component to it, including our fees that we pay and the like. So I think we are -- nothing that would be out of line with the past ratios.

In terms of cost savings, you have got lower rental expense, you have got, hopefully, no severance in 2007. Anything (technical difficulty).

If you go back to the table in the back, one of the last pages in our earnings release, you will see the guidance that we do call out after our EBITDA that there still are some items, including some more relocation because of the accounting rules are you expense that as it's incurred. You don't accrue for that. So there is some more coming in, in 2007, that is hitting that number.

I'm sorry. Your other piece of that question?

That was it. I was wondering -- well, cost savings?

Yes. The last thing I want to point out is, while we do think on a run rate basis our ultimate occupancy costs for headquarters will be down, that's not reflected in 2007, because it's transitional. We have to enter into subleases within the facilities that we vacated, primarily the Avon Center, the Season Center in Avon. So we anticipate, based on what we're seeing as activity and proposals that we're starting to get in on the sublease front, that we should be able to save money starting really in 2008.

Mimi Sokolowski.

Just one or two more questions on Breckenridge. Rob, would you characterize or could you characterize the demand/supply scenario in Breckenridge? Certainly, it seems like it's nicely tilted towards demand in the Vail and Beaver Creek area. What does the scenario look like for Breckenridge?

You mean on Real Estate?

Yes.

I think it's not -- what I would say is it's probably not as strong as it is in Vail. I think that, certainly, the higher-end market -- the higher you go in the luxury market, I think the better that market seems to perform in this current environment. With that said, I think what we're talking about taking to market in Breckenridge is very much in the luxury segment and in the upper-end segment. We're certainly anticipating good results from that project, given that it is really one of the best locations you're going to find at a ski resort that right now has really had tremendous momentum.

Just so I understand, are you replacing old condos in that area or adding new ones?

No. There is currently -- there's peak seven and peak eight. There's nothing at the bottom of the chair in peak seven right now, because that's going to be completely new. In peak eight, there is no condos there right now, but there is a very large parking lot and there is also a lot of skier services facilities, and all those are going to be replaced. So there won't be -- the parking will really be, now, down at the base, but of course, on Main Street. But that parking can now access the mountains by the new gondola that we are putting in.

So, it might be fair to say that these are more unique, relative to what is available in the area now?

Yes, very much so.

Beth Lilly, Woodland Partners.

I wanted to follow up on Will's question about revenue growth. You said it's high single digit. Can you give us a sense of the components of it, and a sense of how much is pricing and how much is visitations?

That's something, when we given our guidance and our forecasts, we have traditionally and will continue to do so, kept that at the EBITDA level. What I would tell you is, like always, we have not announced on this call what our single-ticket price will be. This season we have publicly been out there selling season passes, so you can take that for what it's worth. I think, traditionally and historically, we have seen our revenues go up through a combination of pricing and (technical difficulty) and season pass growth. I think our expectations would be for all of the above going into this year as well.

You talked about per-square-foot price transactions, and you said something about Gore Creek being $2,500. Is that right?

No, the Lodge at Vail chalets were $2,400 a square foot, for the (multiple speakers) that we have under contract today.

What is the Gore Creek? Did you give that number?

It's $1,000 a square foot (technical difficulty) contracted for a couple years ago.

Eric Brown, Banc of America Securities.

You gave some guidance on the EBITDA for the chalets last call. Does that guidance still stand?

Yes.

At this time, we have no further questions. Do you have any closing remarks?

Yes. Thank you, operator. Thank you all for participating on our conference call today. We have obviously had a very strong year, and we are optimistic about the Company's continued growth potential going forward. Should you have any further questions, please feel free to contact Jeff or me directly. Thank you, one and all, for your time this morning, and goodbye.

Thank you. Ladies and gentlemen, this concludes the Vail Resorts fiscal 2006 year-end conference call. If you would like to listen to a replay of today's conference, you can dial 1-800-405-2236 or 303-590-3000, and enter pass code 11071625. Thank you for your participation. You may now disconnect.