Vail Resorts Inc (MTN) 2011 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Vail Resorts fiscal 2011 fourth quarter results conference call. During today's presentation, all participants will be in a listen-only mode. Following the presentation, the conference will be open for questions. (Operator Instructions). Today's conference is being recorded September 22, 2011. I would now like to turn the conference over to Rob Katz, CEO of Vail Resorts. Please go ahead.

Thank you. Good morning, ladies and gentlemen. Welcome to the Vail Resorts fiscal 2011 fourth quarter and full year earnings conference call and simultaneous Webcast, both open to the public and press at large. I'm Rob Katz, Chief Executive Officer of Vail Resorts. Joining me on the call this morning is Jeff Jones, our Co-President and Chief Financial Officer.

Before I turn to a discussion of our results, let me remind you that we are using the term reported EBITDA to report earnings for each of our operating segments, namely Mountain, Lodging and Resort, which is the combination of the Mountain and Lodging segment, and Real Estate. The Company defines reported EBITDA as segment net revenue less segment operating expense plus or minus segment equity investment income or loss. And for the Real Estate segment, plus a gain on sale of real property. The Company also uses the term net debt, which is defined as long-term debt plus long-term debt due within 1 year less cash and cash equivalents. 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 section.

I also need to mention that comments made during 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 actual results to differ materially from those contained in the forward-looking statements. Investors are directed to the risks and uncertainties described in the document filed by the Company with the Securities and Exchange Commission, including the Company's Form 10-K for the fiscal year ended July 31, 2011 released this morning. In addition, the Safe Harbor language in today's press release also applies to our comments on this call. Our guidance and forward-looking statements made on this call are made as of the date hereof and we do not undertake any obligation to update any forecasts or forward-looking statements except as may be required by law.

So with that said, let's turn to our fiscal 2011 results and fiscal 2012 outlook. Fiscal 2011 was a successful year for the Company, as we showed strong growth in numerous key areas and continued to drive numerous initiatives that positions us very well for the future. I am very pleased with the performance that we delivered, including our fourth quarter results. Our loss in the fourth quarter was actually greater than the prior year due to the inclusion of Northstar-at-Tahoe's seasonal losses. However, we saw revenue growth in the quarter in all our primary business areas, which continued through August, the first month of fiscal 2012.

Looking back there were a number of key accomplishments. Despite continued challenges in the overall economy, we reported strong revenue and EBITDA growth in both our Mountain and Lodging divisions. We successfully acquired and integrated Northstar Tahoe and saw record results at the Resort. We generated significant real estate revenue and cash proceeds, favorably refinanced our senior subordinated notes and initiated our first ever regular quarterly cash dividend. And most importantly, we achieved record guest satisfaction scores across all of the Company's properties. For the year, Mountain net revenue increased by 17.8%, or 7.7% excluding the impact of Northstar-at-Tahoe, anchored by the success of our season pass program, with season pass revenue up 9.2%.

We saw total skier visitation up 4.1% and our pricing initiatives drove an 8.3% increase in effective ticket price, or ETP, excluding season passes. The visitation increase far exceeded the US ski industry's growth rate of 0.6% during the 2010, 2011 ski season. Our ancillary businesses also performed well during the year, reflecting improvements in consumer spending, with yields up in all areas. Mountain reported EBITDA increased 15.8%, including Northstar-at-Tahoe. Lodging revenue increased 9.9% and Lodging EBITDA, excluding a $2.9 million benefit from a legal settlement, more than doubled with RevPAR growth of 6.4% and the addition of the property management business in Tahoe, as well as One Ski Hill Place in Breckenridge. Resort reported EBITDA including both Mountain and Lodging of $221.9 million, increased 19% over the prior year and exceeded the upper end of the guidance range we provided in December 2010, which had been adjusted to include the Northstar-at-Tahoe acquisition, as well as the legal settlement. Jeff will go into the numbers in greater detail on the call.

Turning to Real Estate, we generated strong cash flow from sales at the Ritz-Carlton residences in Vail and One Ski Hill Place in fiscal 2011. During the fourth quarter of fiscal 2011, we closed on 4 Ritz units for a total of 26 whole ownership units sold in addition to the 45 fractional units that were sold to Marriott in the first quarter. Since the end of the quarter we have closed on 2 additional units and have 2 units under contract. The pace of sales at the Ritz-Carlton is outperforming the activity we have seen from the other luxury third party developments in Vail. At One Ski Hill Place we closed on 4 units in fiscal 2011, in addition to the 36 initial closings in fiscal 2010. While Real Estate reported EBITDA totaled a loss of $5 million for the year, most importantly net cash proceeds from real estate sales in fiscal 2011 equaled $166 million.

We are excited about the upcoming season and expect to build upon the positive dynamics from fiscal 2011 with several new initiatives in fiscal 2012 that will further elevate the market position of our resorts. Our optimism, however, is tempered by the uncertainty we are seeing in the broader economy, which has worsened over the past few months and its potential impact on travel and leisure spending for the coming year. That being said, we are still anticipating continued solid growth in fiscal 2012, supported by some positive momentum in our preseason indicators. First, our season pass sales through September 20, 2011 are 9% higher in sales dollars and up 1% in units as compared to the same period in the prior year and adjusted as if Northstar Tahoe were owned in both periods.

As expected our growth rates have tempered since early June and these results are in line with the overall increase we expect in the total season pass program when the selling periods generally conclude in late November. As many of you have observed, over the past few years we have seen interim swings in growth rates of our season pass sales. It's important to remember that our goal is to grow total revenue from the overall program. We typically launch various promotions and pricing actions throughout the spring and fall, some of which can affect the timing of guest purchases. We were very pleased with the growth of the program last year and are intently focused on continuing that momentum this season. We now sell approximately 300,000 passes a year, which accounted for 35% of total lift revenue in fiscal 2011.

Once the selling period for season passes concludes, we begin promotion of advanced lift ticket sales, which need to be purchased 7 days before arrival. Last season we grew advanced lift ticket sales just under 25%. Season passes provide stability to our business and we are pleased with our ability to get an increasing number of guests to commit to buying passes for our Resort well in advance of the start of the ski season, particularly in these economic times. Second, although it is still too early in the cycle to tell, bookings are up in both room nights and revenue over the prior year at the same point in time with demand stronger at the higher end, especially at our luxury properties in Vail, Breckenridge and Beaver Creek. We are also seeing success with our expanded efforts to market to international guests and are looking forward to continuing to grow with that segment of our visitor base.

Third, our retail business reported strong sales growth during our annual Labor Day sales events and into the first few weeks of September, even against tough sales comparisons in the prior year. Importantly, gross margin percentages were higher as well, continuing a trend from last year. We will be adding approximately 10 new stores this coming year, including 2 Patagonia branded stores. In addition in July, we acquired O2 Gear, an established online mountain sports retailer. We will use O2 Gear's platform to build out an expanded online presence for our retail effort that will allow us to leverage our bricks and mortar locations and growing customer base into a new sales channel. I'm also pleased that our Board of Directors has declared a quarterly cash dividend on Vail Resorts common stock. The quarterly dividend of $0.15 per share of common stock will be payable on October 27, 2011 to shareholders of record on October 12, 2011. Now I would like to turn the call over to Jeff to further discuss our financial results and our fiscal 2012 outlook.

Thanks, Rob. Good morning, everyone. This morning we released our financial results for fiscal 2011 ended July 31, 2011 and filed our Form 10-K, which you can find now available at our Vailresorts.com website. Now turning to the highlights of our results. Overall, as Rob mentioned, we are very pleased with our results for the year and our ability to continue to deliver steady organic growth combined with incremental strategic growth, including from the acquisition of Northstar Tahoe. We experienced strong growth in our Mountain and Lodging segments, which combined represent our Resort segment. Lift ticket revenue increased 7.7% excluding Northstar-at-Tahoe, which was led by the increase in season pass revenue's strong pricing growth and the increase in total visitation that Rob mentioned earlier. Vail Mountain and Keystone both showed large increases in visitation in fiscal 2011.

Vail Mountain benefiting from recent capital investments made, both on Vail Mountain and in base areas, including an expanded luxury lodging bed base. And Keystone benefiting from a broadened family focused marketing initiative. And we look forward to building on the momentum in fiscal 2012. Our pricing initiatives, including differentiated peak period pricing, led to an 8.3% increase in ETP, excluding season pass holders and Northstar-at-Tahoe. Total ETP, also excluding Northstar-at-Tahoe, increased 3.5%, as our pass holders skied more on average this season. Our ancillary businesses also performed well in fiscal 2011 with ski school, dining and retail rental reporting respective gains, excluding Northstar, of 7.8%, 11.5%, and 6.8%, as consumer spending continued to improve.

Excluding Northstar, Mountain operating expenses were up 6.7% and were impacted by more operating days due to the late Easter holiday, as well as higher variable costs associated with the overall increased volumes across our resorts. Labor and labor related benefits in the current year also were higher due to the full year impact of the prior year's partial wage reinstatement, our matching component of the 401-K plan and a more normal level of wage increases, partially offset by a $1.5 million decrease in Workers' Compensation costs. Retail cost of sales excluding Northstar were up only 1% on tighter management of inventory and lower levels of markdowns, as well as improved buying power. Mountain EBITDA margins increased 70 basis points to 29.5% for fiscal 2011.

Looking at Lodging, as Rob mentioned, Lodging revenue increased 9.9% and Lodging reported EBITDA increased almost 4-fold to $8.8 million inclusive of the $2.9 million legal settlement. RevPAR increased 6.4% through both higher occupancy and ADR. We were especially pleased with the results from our Vail lodging properties, notably with the air about continuing to build momentum as one of the top ski hotels in the US. Additionally, One Ski Hill Place came online this year and already started setting new standards for luxury lodging in Breckenridge, including very strong ADRs in its first season. Overall our Resort reported EBITDA increased by 19%, with Resort reported EBITDA margins improving by approximately 60 basis points for fiscal 2011 and 90 basis points excluding Northstar.

Taking a look at our bottom line, net income attributable to Vail Resorts Inc. was $34.5 million or $0.94 per diluted share for fiscal 2011 compared to $30.4 million or $0.83 per share in fiscal 2010. In fiscal 2011, we had a $7.4 million pretax charge for debt extinguishment related to the successful refinancing of our senior subordinated bonds. Excluding this one time charge, net income attributable to Vail Resorts would have increased by 28.6% and diluted EPS would have totaled $1.06. Our balance sheet remains in a very strong position. We ended the seasonally low fourth quarter of fiscal 2011 with $70.1 million of cash on hand, net debt at 1.9 times trailing 12 months total reported EBITDA, down from 2.8 times at the end of the prior year fourth quarter, and no borrowings under the revolver component of our Senior Credit Facility.

During the year our Resort business generated $102.8 million of free cash flow, after Resort capital expenditures, all of our debt service and taxes, and exclusive of our real estate activities, acquisitions and dividends. We also successfully refinanced both our Senior Credit Facility and senior subordinated notes during fiscal 2011, extending their maturities to 2016 and 2019 respectively. And we now have virtually no principal payments due on debt until 2019. Before turning it back to Rob, I'll conclude my remarks by announcing our guidance for fiscal 2012. As always our visibility on the upcoming season at this point is limited. Based on our current estimates for fiscal 2012, our guidance range anticipates Resort reported EBITDA of between $233 million and $243 million.

It's important to note that included in our estimates for Resort reported EBITDA for fiscal 2012 is an estimated $7.2 million seasonal loss associated with owning Northstar-at-Tahoe in the first quarter of fiscal 2012, which did not occur in fiscal 2011, since it was acquired in the last week of the first quarter of fiscal 2011. However, fiscal 2012 will not include $4.1 million of one-time Northstar-at-Tahoe acquisition related expenses that occurred primarily in the first quarter of fiscal 2011. Finally, the first fiscal quarter of 2011 benefited from a $2.9 million favorable litigation settlement in the Lodging segment.

Excluding the impact of these unusual items, our Resort reported EBITDA guidance range for fiscal 2012 reflects an increase of 8% to 12% over fiscal 2011. Our Real Estate segment results are impacted in any given year by the timing and mix of real estate sold and closed. For fiscal 2012, we are anticipating net cash proceeds from real estate sales to total $35 million to $45 million, partially offset by Real Estate reported EBITDA of negative $16 million to $24 million, including approximately $3 million of non-cash stock compensation expense, resulting in estimated net positive free cash flow from Real Estate of $20 million to $30 million. Our net income attributable to Vail Resorts Inc. guidance range is $30 million to $40 million. Now back to Rob.

Thanks, Jeff. I want to conclude by touching on some of the highlights for the upcoming year. Our capital projects are on track to be completed in time for the upcoming ski season, as we continually upgrade our resorts to further our goal of enhancing the guest experience and differentiating our properties. Just to highlight some of the improvements. At our Colorado resorts we are replacing the Rose Bowl chair at Beaver Creek with a high speed quad lift, which will greatly improve the accessibility of some of the Mountain's best terrain. And at Vail Mountain we are building a fine dine restaurant available to the general public adjacent to Mid-Vail. The new mountain restaurant will be part of the continued expansion of outstanding dining options at Vail, which will also add Matsuhisa from Nobu and Elway's Steakhouse, which will be operated by third parties.

Additionally, we are adding several new retail location and are renovating certain of our hotel properties, including adding a Double Tree brand to our Great Divide Lodge in Breckenridge, which will provide expanded access through the Hilton Honors Guest loyalty program. Finally, we are adding a new ice rink in the River Run area of Keystone, continuing our focus on kids and families at the Resort. In California, at Northstar-at-Tahoe we are making dramatic capital enhancements, expanding terrain by 10%, adding a new high speed quad and a mountain top restaurant that will add much needed seating capacity to this fast growing Resort. These initiatives at Northstar, together with the new base village and high end lodging, will complete a comprehensive transformation of that resort not seen anywhere else in the US ski industry and it is the foundation of our strategy to position Northstar as a leading luxury family destination.

Our new partnership with Shawn White, one of the most dynamic athletes in the world, is an outstanding opportunity for our Company. Shawn embodies the creativity and vibrancy we are seeing across our industry and he speaks to a critical demographic for our resort. Shawn has already partnered in the past with companies like Target, HP, B.F. Goodrich and American Express and Bloomberg recently slotted him at number 2 in their power rankings of all US athletes. Shawn, who grew up riding in California, wants to make Northstar his home resort, where he will be training for the 2014 winter Olympics. In addition, we recently announced the launch of EpicMix Photo, a ground breaking addition to the award winning application we launched last season and we announced the conversion of the majority of our paper tickets to RFID enabled hard cards.

Photos are an incredibly important part of the vacation experience and EpicMix Photo completely redesigns both the guest experience and the business model. Our on mountain photographers will easily scan a guest's RFID enabled pass and they will be able to automatically deliver the photo to the EpicMix account of that guest and the same can be done for group shots and for kids. Guests will then get secure free access to these photos for sharing on Facebook and Twitter and they can purchase a high resolution image online for printing. Last season there were just under 300,000 Facebook posts from EpicMix and we expect to grow that exponentially with these new enhancements.

EpicMix is a critical element of our strategy to further engage with our guests and drive loyalty. We believe EpicMix Photo will be a significant enhancement to the guest experience, create a deeper connection for us with our guests and drive positive word of mouth impressions across the web. Before we conclude, I want to thank you for your interest in Vail Resorts and hope you will join us at one of our extraordinary properties this season. Our Company is readying for the first snowfall and the excitement is building for the upcoming season. At this time I want to thank all of our employees for their passion and commitment to the organization and congratulate them on a very successful fiscal 2011. At this time Jeff and I will be happy to answer your questions. Operator, we are ready for questions.

(Operator Instructions). Felicia Hendrix with Barclays Capital.

Hi, guys, it's actually Anthony Powell for Felicia here. Quick question on the season pass sales. How did the velocity of the units change across the summer and the fall period so far? Have there been any changes in the recent days or weeks?

Probably what I would say maybe the color I would give is I think we saw a definite shift in Colorado renewals, in particular, because of some of the promotion activities we did in the spring. And what I would say is I think that's great news for us. That's something we really want to try and drive. We did know that was a shift and that's what we announced then. I think what we've seen is Colorado renewals have been slower I think through the Labor Day period and our sense is that we've kind of seen a lot of that shift probably play out. And again, I think we feel very good about where we're headed I think for the rest of the selling period through the end of November.

One question on the Epic Pass in general, how saturated do you believe that product is across the skiing demographic across the country? Do you believe that you can get more exposure for that product or are you at saturation there?

No, we think actually there's continued significant opportunity to drive Epic Pass penetration in the destination market, but I would say that as opposed to the Bay Area and the Colorado Front Range, I think our issue there is just awareness. We are really the only Company in the ski industry actively promoting this destination product and I think it takes time to educate these guests about the fact that they should be purchasing, right, a season pass for the season. And we knew when we started this program that that was going to be a long-term opportunity and one that would take a number of years to build that awareness.

That's it from me. Thanks.

Thanks.

Thank you.

David Katz with Jefferies & Company.

I wanted to just go back to the first part of the last question about season pass sales, because you obviously have far greater detail on this than we do and I think what I understand is that the preseason pass sales should be taken in aggregate rather than just looking at quarter over quarter because it sounds like the timing of some promotions has moved some numbers around and maybe pulled some into last quarter and may have created a bit of a vacuum for this quarter. But if we looked at the 2 quarters together, right, not knowing which quarter has more units in it and less proportionally, if we looked at those 2 quarters together, what would the year over year unit growth be in pass sales on that basis?

Yes, if you looked at the program together, unit growth is up just about 1% and revenue growth is up 9%, which is what we announced today.

So that -- in other words, that 1% is a cumulative number including what you sold, right, in your -- in third quarter also? Is that right?

Yes.

And are you planning any more promotions that may occur, that may drive some of these that you may have held out of this quarter that may show up next quarter?

Yes. What I would say on this, David, is that we -- our goal, that's kind of what I just shared earlier in the call, is that our goal is to grow the overall revenue of this program, right? And obviously there's now -- we now have multiple passes, lots of different consumers and guests that are buying them, different price points, different thresholds, different benefits at different times. So there's some complexity to it. But our goal is really 2-fold. One is yes, we'd like people to buy the pass, right, even if it's somebody who will ultimately buy in the end of November at the last day of the program, we would rather have them buy in the spring, obviously. And so we are trying to move people earlier as best we can, one. Two, we are trying to raise revenue and so we kind of balance those 2 things out. What I would say is overall, right, last year we had a pretty significant increase in our program.

Our goal, obviously, is to do better than last year, obviously, on units and certainly on revenue, which I think we announced if you remember back in March at our investor conference, was our primary goal for the program this year was driving revenue. What I would say is I think the year is -- yes, there's some shifts that we then have to explain on these calls, but truthfully, I think, we're very comfortable with how the program is playing out. What I said certainly after the results in last spring in the third fiscal quarter was that the big news there wasn't necessarily the absolute growth, but the fact that clearly guests were voicing their support for our new passes and the prices by purchasing and purchasing in big numbers and that's continued. We're seeing that continued support for our new passes, some of which have new restrictions on them, and the increased prices. Does that help?

Yes. So you increased the price and that may actually hold back -- it's difficult to tell what the response to that will be at the end of the day, but at the end of the day the goal is to create more revenue out of it, right, which may sound overly simplistic. But is it normal that you would have some more promotional activities in this as the season pass season, the selling period progresses? Do people know and maybe they'll be holding back and waiting to save that extra few bucks?

No. In other words, what I would -- that's a good point. What I would say is no. We absolutely take the approach that the earlier you buy the pass, the better deal you get all around. Nobody who buys the pass later in the selling period gets a better deal than somebody who buys earlier. But if you haven't bought yet, we do do things that are new in terms of promotions, like we are offering right now a lifetime season pass through a random drawing if you purchased your pass by September 25. And so that -- but everyone's included in that, all the people who bought in the spring are included in that too. But if you're sitting around, you know you're going to buy the pass, we're now providing an extra incentive for somebody to say, well, let me buy it now.

We're giving people -- we want obviously people to make that decision as early as possible. And we have that coming up. We will then have a price -- our prices are only guaranteed through October 15. So then we will obviously be assessing pricing. So if you wait past that day, you take risk that the price could be higher. We then do that again toward the end of November. We then have a Shawn White promotion that will be coming up. In other words, ultimately, what we do is yes, the person who buys at the beginning always gets the best deal, but if you still haven't purchased we give you more incentive to kind of instigate you to action, so-to-speak.

I did get that e-mail. But I just want to be extra clear about one thing in your prior answer about Colorado renewals have slowed down a little bit in this currently reported quarter.

No, Colorado renewals were accelerated in last spring and then they were less in the current quarter and in total, right, they've now backed to a line to a normal pattern. So all we've done is -- again, candidly, if we could repeat this exact dynamic next year, I'm not sure we'll be able to, but if we could, we would take it, i.e., moving more people from the fall to the spring. And if we did, we'd be saying the same thing again next spring, which is, guys, it is great news that we are up here, but a lot of this is just going to be moving people earlier. And again, just like in any travel business, if you can get people to book earlier, that's a huge success. Even if ultimately, right, you're not going to get -- like we had a 19% increase in units in the spring, yes, that's a good news situation even if that doesn't translate to 19% growth overall in the program.

Got it. Sorry for belaboring a bit and I hope it was helpful for somebody else. But, thanks very much.

Thanks, David.

Shaun Kelley with Bank of America.

Probably don't want to talk much more about the season pass trend other than to ask I think this question, which I would include in that some of the booking information that you kind of gave as well. But I just kind of wanted to get your sense, obviously with all the macro turmoil you guys carry a fairly high price point, whether it be booking a vacation or thinking about the actual dollar amounts in your season passes. Just any change in trend or demand that you guys have seen since let's call it August 1 as a result of any of the kind of the macro headlines. You made the comment that you tempered your forecast or you might think about tempering your forecast a little bit as a result of it, but have you seen any actual changes in demand?

Probably the only thing I think we've seen is a divergence between the booking pace at higher end luxury properties versus lower end properties within our resorts. And we noted that earlier. So I think what we're seeing is that those 2 things are not booking at the same paces. We're seeing stronger dynamics at the upper end, a little bit weaker on the lower end. I think that's something that we've -- that's a continuation of an overall trend that we've seen over the last couple of years. I think the upper part of the market I think continues to have more confidence than lower parts of the market. So what I'd say is, yes, we have a high ticket item, but actually in some respects we're almost seeing the reverse being true, which is our higher priced items and products are selling better. I don't think at this point we have a significant concern overall, even with the economic trends, but I would say we're being cautious. I don't think -- we don't think now is the time to get aggressive. Obviously, even just today's stock market drop I think feeds into that.

That's helpful, Rob. And then my second question would be just thinking about the EBITDA guidance a little bit, the growth of 8% to 12% I think it's virtually in line with where we are, probably with where a lot of consensus was on the Resort line. You guys had about 40% -- this is my math. In the season period you had about 40% flow-through in terms of revenue dollars to EBITDA dollars and I'm trying to think, if I go back and look at historical kind of up cycle periods, that's at the low end of what you guys have done. Just trying to think about your shift into next year as you kind of lap some of the expenses that kind of -- the operating expenses that got layered back in. Should we expect kind of flow-through as we think about the revenue dollars to EBITDA dollars starting to expand a little bit, just as you kind of -- your season, I think, is going to be a little bit shorter this year, so fewer operating days and some of that. Just maybe a sense there from either you or Jeff about how we should think about flow-through going into next year.

I think I would say, yes. I think we would expect that. I do think it will depend on the market. So you're right, I think in up markets I think we've seen our flow-through expand and I think candidly if we were chatting a few months back when the Dow was at 12,000, whatever, I think we probably would be forecasting a much higher flow-through. So you're exactly right and I think that's certainly something that we feel very confident and comfortable with. I think today we're not -- I don't think we're ready to say yet we're in kind of an up market as we go into next year. And so because of that I think we're being a little more cautious on that flow-through. But even with all that said, barring a real decline in economic confidence from where we are today, I think we should see that continued expansion.

And I guess kind of a corollary to that, just the mix between -- of the revenue pie for next year. This year visitation counts, like you said, were up 4% and very solid kind of performance relative to the overall industry, but as we move into next year where you are looking at season pass units only up 1 now, but pricing you pushed harder, would it be fair to think that more of the mix is going to come from pricing and less from visitation growth. I know it's going to depend on snowfall, so maybe an impossible question, but just your thoughts on mix going into next season.

I think that's probably true because I do think snowfall, particularly in Colorado, drove a lot of season pass visits, which is good and it does help our business but isn't the highest profit margin visit that we have. So, what I would say is that I think if I were standing here a year from now and assuming we had normal snowfall, you'd see some of those season pass visitation -- some of that come down, but I think we're actually quite confident on the pricing piece as of right now. So I do think you'll see a little bit of that mix shift. But I would say our goal is obviously to grow skier visits as well. So it's both. But yes, it's probably a little less on the visit side.

And then I guess my last question was just on Real Estate. Little bit surprised that, and this may be an accounting thing more than anything else, but the $16 million to $24 million GAAP loss for next year is meaningfully higher than what we were kind of anticipating. Jeff, maybe you could give us a sense of -- like if I kind of do the math, if I say $35 million to $45 million of sales, but you're losing $20 million of GAAP reported EBITDA, it effectively implies a 0% EBITDA margin on the sales that you guys are getting next year. That may be a gross oversimplification, given how percentage of completion accounting works or something, but can you give me a sense as to just why -- if we think that the operating losses are generally, I think, $5 million a quarter or so from the business, why there wouldn't be any profitability associated with new -- kind of new unit sales for next year?

Yes, Shaun, I think -- first off, I think the expenses that we charge into the Real Estate group really, as we've discussed in the past, it really comes from 3 different areas. One is direct expenses that are incurred by that segment that run the business, both labor, legal folks, everyone that's involved with that. The second piece is marketing expense and that marketing expense is a direct charge that doesn't go into the cost of sales percentage of completion that you charge as you sell units ratably. That gets charged as you incur it. And certainly we're looking at continuing to really spend on the marketing side to generate getting these things sold, what we have in inventory. That's the second piece. The third piece is allocated corporate costs that go to Real Estate, which I would say is consistent year over year given our focus remains the same on how we support that group in selling out both the Ritz and One Ski Hill Place buildings, as well as continuing with our design and approval, especially on Ever-Vail.

So, I think those are the 3 components. I'd say combined, those are in excess of $5 million a quarter, roughly. And because we have dropped our sales from last year to this year, given we sold a lot of units last year in the first quarter when the Ritz first closed, those that were originally under contract as well as the fractional sale to Marriott, with the revenue going down and that expense level staying consistent, I think that's why you're seeing the overall EBITDA going down by a little over $10 million year over year. I think what we really are trying to point out, because it really is the way we look at this business, is right now we're focused on and very pleased with the sales that we're seeing, including through the summer, including just getting a new contract this week and what would be historically at any time a very slow real estate sales period in the mountains.

So we're really seeing great momentum, especially out of the Ritz project and feel very good about continuing to generate proceeds out of that and looking at the net cash that we're seeing the Real Estate group deliver, which is again what we focused on by saying we see that absorbing the expense load and still generating positive cash flow of $20 million to $30 million this year. And I think that's our focus. Obviously, how many units we'll ultimately sell over the season is just an educated guess at this point. But given the momentum we're seeing and given that we already have basically 4 units sold already well before the ski season, we feel good that our estimates are very reasonable right now.

The last thing would just be on that just to clarify on the marketing expenses, because I thought a lot of that was on commission and would be matched to the timing of the actual sales. But is there a higher run rate on just kind of the core marketing expenses, like kind of this year than last year, just as kind of like you said you're just trying to move the units? Or is it like -- I'm just trying to get a sense of is that increasing year on year?

I think overall, again, marketing expense is charged to the P&L exactly when it's incurred. It's not spread out at all. I think we are definitely pushing to where we saw marketing spend benefit some of the momentum we were seeing. I'd say we're pushing that at a higher level this year. Specifically, down in Mexico, because we definitely saw some sales from that high network buyer down there and we also are actually opening up new marketing in New York that we didn't do previously. So I would say that we do have more marketing focus this year now, because last year, as you know, there was a big carryover, especially in the first part of the year and just the people that had signed contracts already years ago and the deal we already had with Marriott. Now it's purely a new -- bringing in new buyers and that's what we're focused on.

That's great. Thanks for all the clarity.

Sure.

Steve Wieczynski with Stifel Nicolaus.

Just to go back to the guidance again, so you're thinking for '12 more so once people get to the mountain. Can you just kind of walk us through what you're thinking about spending levels in terms of whether it's ski school or retail or dining? Are you thinking it's going to be kind of a flattish type year or do things get worse from here?

I think we're looking at growth across all of our various business lines. So I think we would expect to see growth in retail, obviously we've already -- we started off the year already with momentum there. And we do expect growth in ski school and dining. I think, again, obviously -- we believe this will be a year where we -- and again, when you adjust last year for the Northstar losses and some of the litigation settlement gain that we had, we're looking at this year being a year that's kind of consistent with the last few, which is a pretty choppy economic environment, but one where we can actually outperform many others in that environment.

I think probably 3, 4-months ago, right, many people maybe saw this year as being more of an up year, like we talked about earlier. Where actually then I think we would have seen even higher growth, which is what we've been able to show I think in -- when you look back in the '03 to '08 time period. I think we see this year as not -- we're not going back to '03 to '08 so quickly. But we think in what is a choppy economic environment for many people, we will continue to outperform and show strong growth, but tempered at the upper end until some of these more macro trends settle down.

And then second question, last question, on international visitation it seems like that was getting stronger kind of late in year 2011 ski season. How do you think about that going into '12 and what have you seen so far in terms of early booking patterns from international visitors?

I would say I think the international business has been strong for us, and you're exactly right, all of last year, but certainly even more toward the end. I think we're seeing good trends in international bookings already for next year. I think that it is a bit of a mix. I would say that the UK, which had been historically a very significant market for us, has declined dramatically. And actually we're showing growth in international even with those declines. We are not expecting that market to come back given the challenges going on in Europe right now. I think in replacement of that we've seen good growth from Canada, from Australia, from Mexico and really starting with Brazil as well, starting to see some real pickup in momentum there as well and I would say that we do believe overall we'll see continued growth this year in international coming from those markets.

Okay. Appreciate. Thanks, Rob.

Will Marks with JMP Securities.

So, first, just back to Real Estate for a quick second. On (inaudible) the cash flow $20 million to $30 million to the EBITDA, does the cash flow take into account all the corporate overhead allocation?

Yes. So that's netting out all of the corporate overhead allocation, all of that we're still saying will be positive $20 million to $30 million.

Moving on to a few things. On the CapEx guidance that you had given for the calendar year, how much has been spent already or how much is reflected in the balance sheet at the end of July?

At the end of July for the calendar?

Yes.

Expense. Yes, I think it's approximately $40 million or so, Will. I'll double check that.

$40 million of the total between kind of the 2 numbers, the Northstar and everything else?

Yes. I think we've got the winter carried over well into the spring this year, so I think we got a late start in certain areas on getting the capital spending done over the summer, so it's going to skew more in the third quarter than the second -- or the third calendar quarter than the second calendar quarter. But all the projects obviously are going to get done for the ski season.

Few other things. On pass sales, you may have given this, but what percent is typically sold between the beginning of the year and today or between this September 20 date?

About 50%.

It's about50%, okay. And let's see. I saw on a trade that Hotel Jerome is going to have a new manager.

Right.

Can you just discuss your, I guess, your efforts on management contracts, if you were happy to see that go, if there's other opportunities there, any thoughts.

No, sure. The Jerome was a situation that was a little bit unique for us in that an owner came to us a little bit in transition and wanted to bring us on on a short-term basis, because they were looking at a number of different possibilities for the property, including major renovations, real estate pieces, different things, and so we felt like it would be a good opportunity for us to operate within the Aspen market. The contract was probably a little bit different than others. Then we had the financial crisis, turnover in owners, the property went through a number of kind of gyrations. And what I would say is I think the new owner that came in was maybe a little bit more Aspen focused and I think wanted to bring in somebody that may not have had their home base in Vail and I think that was fine with us. And candidly I'd say we actually had -- Jerome had a great year this past year, probably the best year in the last 3 or 4 years. I think it's really got a terrific future ahead and we certainly wish them all the best with the property.

Few other things. In terms of any kind of cost savings from the shift from the actual paper ticket to the card, kind of the automation of it all?

No, actually, there would be a cost increase of significance, though, not overly material to our financial statements, but because the RFID chip that we embed into the hard card actually costs money where the paper ticket is pretty insignificant. Our view on that is that the pick-up from 2 places, one is obviously a guest experience impact, right. We're selling them a pretty high price product. Now they have something that's a little bit more durable and reusable. One, we think that just even from the transaction itself we think there's positive.

But most importantly, obviously this allows people to participate in our photo business and two and three, which really drove it was obviously this really helps our CRM capabilities, capturing data on our skiers, because although it's -- people will still have the option to remain anonymous, obviously, even with this card. We're hoping that this gives them more of an incentive to kind of personalize their accounts with us and therefore we'll actually have more data. And in our business, CRM and more targeted marketing is really what it's all about, because, as you well know, we are serving this high end clientele and so the more ways that we have to communicate what's going on at our Resort, promotions, packages, the better able we are to really drive revenue.

On -- back to CapEx for a minute. I don't know if you want to give a broad figure, but just looking to find out return on investment for various projects you're doing, including opening the store in Denver.

We generally -- with all of our projects, we really target a 20% pretax unlevered IRR. And obviously different projects contribute to that in different ways. But in large measure we do not launch projects that don't meet that criteria. I would say there are certain projects that are -- that have -- like the restaurant on Vail Mountain, for instance, which was part of the Vail Mountain Club, so a part of that cost obviously needs to get attributed back to the Vail Mountain Club and the $70 million in proceeds that we took in there. So each project has different ways that it contributes and maybe different connections, but we absolutely have very, very tight rigor around making sure that anything we spend we feel can drive incremental profitability to achieve that hurdle return.

And when will you announce opening dates at the resorts? We already have opening dates penciled. I don't know if they're set in stone yet. So I'll have to get back to you with whether or not they're fully public, but we certainly have them penciled in. Obviously, there is some snow dependency on that both in terms of making sure that we can hit the opening, but also in terms of sometimes accelerating those openings. I'll get back to you on exactly what those dates are right now, but I certainly know Keystone is the first week of November. So that would be the first Resort that we're expecting to be open and that, again, targeting that first week of November, which was the same week that we opened Keystone last year. And my final question, if you care to discuss share repurchase, any thoughts on that. Thanks.

Yes, I think we intend -- obviously, last year we made a change in how we're returning capital to shareholders by instituting the dividend. And I think as we mentioned at the time, that's obviously going to be our priority. But we are still going to be looking at opportunistic situations with repurchases and that program is still up and available and we intend to continue to monitor that very closely. I would say in the last quarter we obviously have -- we're limited by certain windows after we announce results to make those purchases. And so it's important for folks to remember when they're monitoring our stock price and wondering why we did buy or didn't buy, that there are some periods, particularly as we head into the next earnings call, where we're really prohibited from purchasing.

So you have been blacked out in recent weeks? Is that safe to say?

Generally speaking, you have a few weeks after you make an earnings announcement to go out into the market and purchase. Obviously, all subject to material information and things like that. But after that period, which generally runs about a calendar month or so after you make an earnings announcement, then you're really prohibited from discretionary purchases.

Great. That's all for me. Thank you very much.

Thanks.

Smedes Rose with KBW.

I was just wondering -- I had just two questions. On your guidance, just for the depreciation line, which obviously we need to get to kind of an EPS forecasted, just seems like it's running, at least relative to our forecasts, significantly higher than what we would have thought. Is that just reflecting the CapEx you're putting in at Northstar or is there something else that's going into your depreciable pool of assets that maybe we wouldn't have caught.

Yes, Smedes, good question. There's really 3 major buckets of the increase that's in our guidance range compared to last year. The first would be Northstar. Both the full year impact of Northstar, since we didn't own it for the full year last year, so you get a full 12 months of depreciation and amortization for Northstar versus what we saw last year. Secondly is the significant investment we're making at Northstar this year. So the new capital expenditures that are coming from that. That would be the first bucket. Second bucket would be the assets we both placed in service during the year from last year's capital plan and the new capital expenditures that we're spending, exclusive of Northstar, around the Mountain, how all that aggregates and compares to in many cases replacing fully depreciated assets or assets that were at a lower depreciation bases. That's the second piece.

The third piece is we've made a conscious effort to add many more of our unsold units at One Ski Hill Place and then even some at the Ritz into the property management pool given the success we've had over the last year in the rentals in that, while we're going through the sale process. We also from a real estate perspective we think it's a good thing, because many of the people that stay in the units -- many of the people that bought units stayed in the units before that in advance, so we think those are good targeted buyers once they see the experience of staying in the units. At the same time, it obviously allows you to cover your carrying costs and generate some revenue and create a more luxury rooms for that market specifically in Breckenridge, which has a real lack of that. As you add those units, those get -- start getting depreciated until which time you sell them. So those are the 3 buckets that would cause the increase year over year.

Can you say, I don't think you put it in your release, but what the sales per square foot was for the Ritz-Carlton units that you sold during the quarter? The price per square foot.

I think it was consistent with what we disclosed in the 10-K. So if you go into the MD&A and I think even in the release portion for fiscal '11, we disclose what the average selling price per square foot is and obviously there's always a mix, but what I would say is generally it's depending on what type of unit it was, but at the ritz it fit right into kind of the units we have been selling over the last year.

Then can you just remind us how many units remain at that property to be sold?

Now there's 41 units, if you take into consideration the two that are under contract being closed. So after those close, there would be 41. We would be at 30 units of the 71 whole ownership units available at the Ritz.

Okay. That's it from me. Thank you.

Thank you.

(Operator Instructions). Tim Hamby with Janco Partners.

This is a little bit of a follow-on to the question about your management agreements, but I know there was some unique circumstances around the Aspen property, but was the termination in Miami part of a larger strategy or did they just not fit into the rock resorts branding?

Maybe I -- yes, I think of what I would do is instead of commenting on that property, maybe make a broader comment about the business. We have a mixture of properties on the Lodging side, some of which had significant real estate components to them. And obviously a number of those folks went through some challenging times during the financial crisis and I think we're obviously seeing it, I think other folks are seeing it too in terms of trying to manage through, right, owners that may not have the same capital resources that they did before. And I think that's, obviously, for us just because we're a little smaller and earlier obviously in our life cycle, some of that can be a bigger impact to us than it might be to others. But I think you're going to see some of this, I think, across the industry, obviously we're seeing it. I think all the brands are seeing it. So maybe that's a better broad comment on the situation.

And the second question is we're excited about the EpicMix Photo, I think that's going to be awesome. Do you have any other kind of tie-ins or integrations you're going to do between your O2 Gear and Skireport acquisitions?

Sure. What I'd say is, yes, those are 2 very different acquisitions. Skireport.com was really the second most visited ski information website in North America. Obviously, we've got the number 1 most visited website. So, by combining them, that was a bump. The real bump though was that Skireport.com had close to 900,000 mobile installs of their snow reporting app, where OnTheSnow, the business that we purchased, only had about 50,000 or 60,000. So skireport.com is really a big mobile opportunity for us to really have a more comprehensive strategy in terms of advertising and again, that's not just for us but for the whole industry.

And the O2 Gear acquisition was an opportunity -- we have a very significant position in kind of traditional bricks and mortar stores in terms of selling ski retailer. We are the largest specialty ski retailer in the country. This was an opportunity for us to take all that expertise and the opportunities we have on buying products, the relationships we have with vendors and obviously all the customers that we have, both at our retail operation and candidly throughout Vail Resorts, and start giving them an online opportunity to purchase gear as well. We really saw that as a complement to our retail business, but there's no real connection between 02 Gear and Skireport.com.

Okay, thank you.

Thank you.

Thank you. At this time I would like to turn the conference back to management for any closing remarks.

Thank you, operator. This concludes our fiscal 2011 earnings call. Thanks to everyone who joined us on the conference call today. Please feel free to contact me or Jeff directly should you have any further questions. Thank you for your time this morning and good-bye.

Ladies and gentlemen, this concludes the Vail Resorts fiscal 2011 fourth quarter results conference call. If you would like to listen to a replay of today's conference please dial 1-800-406-7325 or 303-590-3030 and enter the access code of 4468708 followed by the pound sign. Thank you for your participation. You may now disconnect.