Ryman Hospitality Properties Inc (RHP) 2003 Q3 法說會逐字稿

Good morning ladies and gentlemen and welcome to Gaylord Entertainment Company's third quarter 2003 earnings conference call. Hosting the call today from Gaylord Entertainment is Mr. Colin Reed, president and chief executive officer along with David Kloeppel, chief financial officer. They are joined by Jason Morgan, VP of Strategic Planning and Investor Relations and Carter Todd, senior vice president and General Counsel.

At this time, all participants have been placed on a listen-only mode and the floor will be open for questions and comments following the presentation. Gentlemen, the floor is now yours.

Good morning, my name is Carter Todd and I'm the General Counsel and Senior VP for Gaylord Entertainment Company. Thank you for joining us today on our third quarter 2003 earnings call. With me today are Colin Reed, our President and CEO, David Kloeppel, CFO and Executive VP and Jason Morgan, our VP of Strategic Planning and Investor Relations.

You should be aware that this conference call may contain forward-looking statements within the meaning of the private securities litigation reform act of 1995, including statements among others regarding Gaylord Entertainment's expected future financial performance. For this purpose, any statements made during this call that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, words such as believes, anticipates, plans, expects and similar expressions are intended to identify forward-looking statements. You are hereby cautioned that these statements may be affected by important factors among others set forth in Gaylord Entertainment's filings with the Securities and Exchange commission, and in its third quarter 2003 earnings release. Consequently, actual operations and results may differ materially from the results discussed or projected in the forward-looking statements.

Gaylord Entertainment undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. This communication is not a solicitation of a proxy from any security holder of Gaylord Entertainment Company or Resort Quest international. Gaylord and Resort Quest have filed and the SEC has declared effective a registration statement on form S-4 in connection with the merger.

The Form S-4 contains a prospectus, a proxy statement and other documents for the November 18 stockholders meetings of Gaylord and Resort Quest. Gaylord and Resort Quest mailed the proxy statement and prospectus to the respective stockholders on or about October 13. The Form S-4 proxy statement and prospectus contain important information about Gaylord Resort Quest, the merger and related matters.

Investors and stockholders should read the formats for the proxy statement and prospectus and the other documents filed with the SEC in connection with the merger carefully before they make any decision with respect to the merger. The Form S-4 proxy statement and prospectus and all other documents filed with the SEC in connection with the merger are available for free of charge at the SEC web site www.sec.gov.

In addition, all documents filed with the SEC by Gaylord in connection with the merger will be made available to investors free of charge by writing to Gaylord Entertainment Company, 1 Gaylord Drive, Nashville, Tennessee 37214, attention investor relations.

All documents filed with the SEC by Resort Quest in connection with the merger will be made available to investors free of charge by writing to Resort Quest International Inc., 8955 Highway 98 West, Destin, Florida, 32550, attention investor relations.

Gaylord resort quest, the respective directors and executive officers, may be deemed participants in the solicitation of proxies from Gaylord stockholders and resort quest stockholders.

Information concerning Gaylord directors and executive officers, and their direct and indirect interest in Gaylord, and information concerning resort quest directors and certain executives officers, and their direct and indirect interest in resort quest is contained in both companies most recent annual proxy statements, and in the afford mentioned proxy statement regarding the merge.

Investors can obtain free copies of these documents from the SEC's web site, Gaylord and resort quest, using the contact information above. I would also like to remind you, that in our call today we will discuss certain non-GAAP financial measures.

In a reconciliation of those non-GAAP financial measures, to the most directly comparable GAAP financial measures, has been provided as an exhibit to our earnings release, and is also available on our web site under the investor relations section. At this time I would like to turn the call over to our chief executive officer, Colin Reed.

Thanks, Carter, good morning everyone, welcome to our third quarter conference call. I want to welcome back all of you who know us, and I would like to extend a special welcome to those investors joining us for the first time. This morning we will keep our prepared comments brief, as usual, in order to allow time for questions.

I will begin the call with a recap of the quarter, touch on how our brands are evolving, and I will then give a brief update on the status of the pending acquisition of resort quest international. Dave Kloeppel, Chief Financial Officer, will then review the operating and financial performance of the company, and provide guidance for the final quarter of the year.

Finally, I will make a brief closing statement, and then we will open up the call for questions.

Our third quarter results from a REVPAR perspective were a gain in line with the guidance that we gave on our investors at the end of the second quarter, and I'm pleased to say that, our profitability was better than expected, due to the cost management processes we have implemented. In fact, we generated adjusted EBITDA of $11.8 million for the quarter, approximately $2 million better than we previously reported.

Rather than steal Dave's thunder, and discuss with you more about the results, what I would like to do is touch on this morning some of the very interesting things that are going on within our company. That we believe over the long-term will build great value for you, our shareholders.

Over the last couple of years we have spent our time on these quarterly calls communicating to each of you, the actions that we have taken in the quarter and the progress that we have made, as we have worked to transform the company into a focused hospitality and leisure business.

Today I believe we are on course to accomplish the goals we set out. And I'm genuinely excited as we look forward to the next couple of years. In the next 14 days the shareholders of resort quest and Gaylord Entertainment will vote on much discussed acquisition, and shortly there after subject to the vote, resort quest will become part of Gaylord Entertainment. This is a particularly exciting because once this transaction is complete, Gaylord will own three wonderful brands, that are unique and can grow and compliment each other.

Early last week, we announced that we had priced our $350 million senior notes offering at 8%. And we anticipate this offering will close on or around November the 12th. As some of you may know, we had initially intended to sell $225 million of notes but because of the attractiveness of the terms of the offering and the demand, we up sized.

By and large, the investor groups we communicated with, seem to now understand our story and I believe several years from now we will look back at this time as the point of which the investment community was after several years of confusion finally able to determine the sound strategy and direction of the company. Many of you have heard me say this before, but from a broad strategic perspective, our hotels are very different to the others that are under the nation's hospitality umbrella because so much of our business is not subject to the transient or corporate consumer.

In fact, 80% of our room nights sold are to groups, and 86% of the 80% are to large groups. These large groups are mainly association that visit once a year and generally stay at our hotels regardless of the economy, resulting in our ability to predict with a large degree of accuracy future periods of occupancy and REV PAR. These large associations on average will book four years in advance and our large corporate groups generally book 2 1/2 years in advance.

The upshot is that you cannot look at our business, and gauge its health by how well we did this previous quarter because this last quarter was to a large extent dictated by actions taken 2 1/2 to 4 years ago. What excites me is that some of the trends we're seeing in our business are very encouraging and these trends will positively shape the future of our company.

Specifically, our efforts to meet and exceed expectations of our customers continue to be very successful. I continue to focus on this aspect of our business because I believe that as hospitality and entertainment company, quality of service determines whether our customers return. At Gaylord hotel properties now continue to deliver a consistent superior level of service.

As some of you may recall, back in 2002 we introduced a bonus program that is payable for all front-line staff at our hotels provided we meet a basic financial hurdled but more importantly, a customer satisfaction hurdled. For the first time this last quarter, all staff at both of our major resort and convention properties achieved the highest level of customer satisfaction, incentive bonus pay out because our customers ratings of our service levels are telling us we are doing a first-class job.

And yes, advanced bookings are also increasing. Satisfied customers become repeat customers and the hard work from our staff is paying off in the form of strong forward bookings. In the third quarter of 2003, we booked approximately 308,000 group room nights for stays in future years.

And net room nights booked during the first nine months of 2003 were 21% greater than those booked during the same period of 2002. And by the way, I just been given the October numbers and we booked approximately 50% more rooms in October than we booked in the previous October.

2002 was a record year for Gaylord Hotels when we booked almost $1.2 million room nights for the year. Now, recent disclosures we announced we expect to book between $1.2 million and $1.4 million net room nights for this year and I believe that will be accomplished.

Even more exciting, we have a reservoir of almost $3 million prospects and tentative bookings, which if they can be converted to definite, will further fill the bucket of advanced confirmed reservations of our company.

There's another piece of the puzzle I would like to share with you. Over the last few months we have invested substantially in conducting expansive research aimed directly at the meeting planner who represents the large groups. There are many enlightening pieces of information we extracted from this research that will help shape, that will help shape the way we do business, but one such piece it was understanding of the rotational pattern, both geographical and frequency of the 600 to 1500 room night customer.

Without divulging the specifics information to our competitors, it's clear to us that our focus on providing a consistent high-quality product coupled with a high service experience in multiple location strategically placed across the country is very compelling to the meeting planner, because so many of these large groups rotate.

Interestingly, 37% of all the large group bookings we made in the third quarter were rotational, meaning they were for more than one location. Now, all of this data pertaining to bookings that we share with you is so very, very important to us because it provides us with great visibility and predictability to occupancy for future periods.

Now, not only are our customers telling us we're doing a good job, but multiple trade magazines bestowed numerous accolades in the last quarter on both our operating hotels and I asked our marketing guys to give me a list of this staff and i would be here all day if I was to read them all out to you and I'm not going to do that that. But we have been honored for both overall service and quality of several of our food and beverage outlets and as well as the hotels in general.

Let's move on to Texas. The momentum at our Texas property is building. Our hospitality team is definitely feeling the growing excitement of the April 2004 opening. During the third quarter we completed the recruitment of executive management team adding some of the best talent in our industry. Construction is on pace and on schedule and the response from the meeting planners that have recently been frequenting our property has been extraordinarily favorable.

Over the next few months we will hire and train most of the 1,900 staff members, who will provide our first Texas customers with the highest level of service that we can deliver to them. I recently visited this property and I'm convinced it is simply the finest destination resort and convention center in the, in America's southwest, it really is very, very extraordinary.

Meeting planners are giving us very favorable feedback and the press and TV in Texas reported on how fantastic this resort looks. If any of would you like a guided tour our next trip to Dallas, call us, providing you don't bring along any of our competition. I can guarantee you will be very awed by this.

Switching over to our attractions business, for the past year or more our focus with the attractions segment has been to expand distribution of our Grand Ole Opry content. We have made great strides in this regard, and during the latest quarter we began a partnership with great American country network to broadcast the popular Grand Ole Opry live on television six times a week during prime time to their national cable TV audience.

We have also expanded the distribution of America's Grand Ole Opry weekend to 2,205 radio stations nationwide, and through the armed forces radio network this program can be also heard worldwide. We remain very excited about the rapid expansion of the Opry distribution avenues as are the artists and the fans and we continue to be enthused about the opportunities for growth as the reaching strength of the Opry brand continues to increase.

Before I turn the floor over to David, let me update you on the progress of our announced acquisition of Resort Quest International.

We have received all necessary regulatory approvals and both companies have scheduled shareholder votes to approve the transaction on November 18th. Pending that vote, we now expect this acquisition to close later this month. Our integrations teams have set plans in place and we are ready to hit the ground running with this business.

All of us here at Gaylord are looking forward to welcoming the resort quest operations and brand in to the Gaylord Entertainment family. We very much believe that resort quest will round out our hospitality portfolio and prove to be highly synergistic with our existing business units. As you can see, there's much excitement and momentum at Gaylord today and we are energized to execute our growth strategy over the coming quarter and years.

David is going to discuss the details of our operating results and guidance for the fourth quarter. David?

Thanks, Colin. I'll start with a brief overview of the company's consolidated operating performance and then go in to more detail for each business line highlighting the operating drivers. Finally I'll provide guidance for the remainder of the year. Consolidated revenues from continuing operations for the third quarter of 2003 were $98.1 million, down 2.3% over last year's $100.4 million.

Consolidated operating loss for the third quarter of 2003 was $7.9 million, compared to operating income of $18.3 million in the third quarter of 2002. The company recorded net income of $10.7 million, or 32 cents per diluted share in the third quarter of 2003, compared to net income of $100 million or 2.96 per diluted share for the third quarter of 2002. Recognize, however, that the sale of our 33.3% interest in the Opry Mills mall in the second quarter of 2002 resulted in deferred pre-tax gain of $20 million, which was included in the operating results of third quarter 2002. 2002.

In addition, the third quarter 2003 net income figure include and approximate $35.5 million after tax gain from the sale of WSM FM WWTN FM radio station. Adjusted EBITDA was $11.8 million in the third quarter of '03 compared to $16 million in the same quarter of 2002. As Colin noted, adjusted EBITDA exceeded original guidance by approximately $2 million.

Year-to-date consolidated revenues from continuing operations were $318 million, an increase of 7.4% from $296 million in the same period last year. Consolidated operating loss for the first nine months of 2003 was $4.5 million, compared to operating income of $11.4 million in the first nine months of 2002.

The company had net income in the initial nine-month period of 2003 of $15.6 million, or 46 cents per diluted share. This compares to net income of $97.8 million or 2.89 per diluted share in the first nine months of 2003 Once again, the sale of our interest in the Opry Mills mall resulted in internal (ph) pre-tax gain of $30.5 million, which was included in the operating results in the first nine months of 2002.

Year-to-date 2003 figures also includes an approximately $35.5 million aftertax gain from the sale of WFM FM and WWTN. Adjusted EBITDA for the first nine months of 2003 was $50.8 million compared to $39.8 million in the same period of 2002, increase of 29.9%.

And now, let's move to the individual business segments. As Colin described previously, quarter to quarter comparisons can be difficult with our business, as shifts in group mix can have a significant impact on the quarter's results, and this quarter reflects just that.

As we described in our last earnings call, two groups in Florida shifted from the third quarter of '03 to early 2004, impacting quarterly results. Hospitality segment revenues were $82.8 million in the third quarter of 2003, decrease of 2.7% from last year's third quarter. The decrease was primarily the result of reduced ADR caused by shift in-group mix in the quarter. Third quarter 2003 hospitality REV PAR was $93.90, decrease of 3.3% from the third quarter of 2002.

Total revenue per available room was $196.07, a decrease of 2.8% over the prior year. Our properties increased occupancy in the third quarter to 70.5%, which was 1.4 percentage points higher than the prior year period, despite certain large group bookings moving from the third quarter of '03 to 2004.

Moving these events to next year will have a positive impact on 2004, but we were left in the third quarter with some occupancy gaps. Fortunately our sales team filled a number of these gaps and the third quarter of 2003 occupancy was higher. However the last-minute replacement customers were predominantly lower ADR guests and leisure guest whose typically spend less outside the room.

Thus the end result of this was an overall reduction in quarterly REV PAR and total revenue per available room, has previously noted and as was anticipated in our second quarter call. Overall, however, we were pleased to achieve our REV PAR guidance.

Hospitality operating income was $1.9 million in the third quarter of 2003, compared to $6.6 million in the third quarter of 2002. Pre-opening expenses were $3.3 million and $1.9 million for the third quarters of '03 and '02 respectively and due to straight line lease amortization on the Gaylord Palms ground lease, non-cash lease expense included in operating income was $1.6 million in the third quarter of 2003, and the third quarter of 2002.

Hospitality adjusted EBITDA was $18.7 million in the third quarter of 2003, a decrease of $2.7 million from the third quarter of 2002. Adjusted EBITDA margins decreased in the hospitality segment moving from 25.1% in the third quarter of 2002 to 22.6% in third quarter of 2003, primarily reflecting the decline in ADR experienced in the quarter due to the shift in business mix previously noted.

Now looking at the performance of our individual properties, Gaylord Opryland Nashville saw 2 percentage point rise in occupancy to 70.7%, which was offset by $8.53 reduction in ADR. Gaylord Opryland generated REV PAR of 93.46, down from 96.71 in the third quarter of 2002. While total revenue per available room rose $2.83 to $186.45.

The additional occupancy in Nashville was driven by lower rated groups, which also drove additional revenues outside the room. According to Smith travel research, Gaylord Opryland posted 109% and 101% fair share REV PAR index in the third quarter and year-to-date periods of 2003 respectively, as compared to the competitive set, if competitive set of large convention hotels in Atlanta and New Orleans.

Our continued improvement in this index underscores the high quality of service provided at Gaylord Opryland. Gaylord Palms also improved occupancy to 70% during the quarter, and this was primarily driven by our increasing acceptance in the Orlando area leisure travel market.

Similar to Nashville, Gaylord Palms experienced reduced ADR as a result of the heavier leisure mix. This resulted in a 3.5% decline in REV PAR to $103 and 9% reduction in total revenue per available room.

In terms of REV PAR index according to Smith travel research, Gaylord Palms posted 124% and 119% fair share REV PAR index in the third quarter and year-to-date periods. Gaylord Palms year-to-date 2003 REV PAR ranks at number one among its in-market competitive set of convention properties and obviously we're delighted with that performance.

Gaylord Opryland Texas remains on schedule to open in April 2004. As of quarter-end, total expenditures on this project were $330.3 million, with an additional $151 million expected to be spent through completion.

And of note, as of September 30th, all of the cash required to complete and open Texas is on our balance sheet currently. The attraction segment generated revenues of $15.3 million in the third quarter of 2003, which was flat relative to the third quarter of 2002.

Operating income in attraction segment was $0.8 million in the third quarter '03 compared to operating income of $1.4 million in the same period of 2002. Attractions adjusted EBITDA declined to $2 million in the third quarter from $2.7 million posted in the third quarter of 2002.

The shortfall was primarily attributed to non-recurring consulting expenses related to the development of the Grand Ole Opry merchandise program, the transition of cable distribution through great American country, great American country network and lower revenue levels at corporate magic. We expect the Opry to benefit financially from these changes in future periods and for corporate magic to begin to show a recovery as the strength of the economy picks up.

Corporate operating loss for the quarter was $10.7 million, compared to $10.2 million of operating income in the third quarter 2002. These operating losses include $1.8 million and $1.7 million of non-cash and non-recurring charges for the third quarters of 2003 and 2002 respectively. These charges account for items such as depreciation, amortization and the non-cash portion of the Gaylord Entertainment naming rights agreement expense.

Also of note in the third quarter of 2002, there was an approximate $20 million gain reflected in corporate, in the corporate and other segments related to the sale of our Opry Mills, stake in the Opry Mills mall.

As of September 30, the company had long-term debt including the current portion of long-term debt outstanding of $468.4 million. Total unrestricted and restricted cash increased to $175 million, up from 172.9 at the end of the second quarter of 2003. On October 28, 2003, the company priced $350 million ten-year senior notes offering at 8%.

Simultaneous with the notes offering the company entered in to Libor interest rate swap that's will effectively swap $125 million notional of the $350 million in bonds from a fixed 8% coupon to a variable interest rate equal to Libor plus 295 basis points. The company expects to close the notes offering on November 12th.

The company plans to use a portion of the net proceeds to repay its $66 million mezzanine loan secured by Gaylord Opryland Nashville as well as $150 million senior term loan and $50 million subordinated term loan secured by Gaylord Opryland Texas and Gaylord Palms.

We also plan to use a portion of the net proceeds to repay certain indebtedness of resort quest international upon consummation of the company's proposed acquisition of resort quest and to pay fees and expensed related to resort quest acquisition and notes offering.

Also in connection with the notes offering, the company terminated $100 million of its existing Libor interest rate swaps effective as of October 31, 2003, that had locked Libor at 1.48% in year one and 2.09% in year two. The company expects to terminate the remaining $100 million of these same floating to fixed swaps at the close of the notes offering.

Additionally the company has received a commitment from certain of its bank lenders to provide a $65 million revolving credit facility following the repayment of amounts outstanding under the company's current senior secured credit facility, it is expected that the revolving credit facility will be for a term of 2 1/2 years and borrowings of bear an interest rate at a rate of Libor plus 3.5% or the prime rate plus 2.25%. That selected at the company's option.

The revolving credit facilities being arrange by Deutsche Bank securities and Banc of America, in closing of the revolving credit facility which will replace the company's existing $25 million revolving credit facility with subject to customary closing conditions.

We also plan to exercise the first of a two one-year extension options on $201 million senior loan secured by Gaylord Opryland Nashville to extend beyond the stated maturity date of March 31, 2004.

That extension option will become exercisable in December. Pro forma for the announced financing transactions and resort quest acquisition, we expect our weighted average interest rate to remain essentially unchanged.

I will now give guidance for the fourth quarter and full-year 2003. Despite overall weakness in the hospitality industry, the company expects REV PAR to grow for the full-year 2003 over 2002 by approximately 4% to 5%.

However, we expect fourth quarter REV PAR and total revenue per available room to decline by approximately 2% to 3%, once again, consistent with what we had described in our second quarter earnings release.

Capital expenditures for fourth quarter of 2003 are expected to be between $65 million and $70 million, and between $230 and $240 million for the full-year 2003. The company will provide more detailed guidance for balance of 2003 and 2004 including the effects of the resort quest acquisition following the closing of the resort quest acquisition.

However, it's safe to say based on bookings levels we are experiencing and as Colin described earlier, we continue to be comfortable with previous guidance of flat REV PAR for 2004 and high single digit growth in REV PAR in '05 through '07. Now turn the call back over to Colin.

Dave thanks very much. As we said, the third quarter came in right where we expected and overall we had a very solid first nine months for this year. We're now looking forward to a good end to the year, highlighted by the closing of the resort quest acquisition.

With the impending addition of resort quest and out coming opening of Texas, we're all very excited about the coming year. At the hotel business, the metrics look great, The Palms as David said, model product or the future, is the leading hotel in the nation's largest convention market.

Customer satisfaction is up, bookings are up over last year, and last year was a record and as I said earlier, our rotational bookings are also tracking very high. We soon expect to have three superb nationally recognized brands working in concert and I'm confident that we have the people and the resources to grow and unlock the value of these brands for our shareholders. I would like to thank you again for taking the time to join us this morning and now Lynne will open up the lines for questions.

Thank you. The floor is now open for questions. If you do have a question, please press the numbers "1" followed by "4" on your touch-tone phone at this time.

Please hold while we poll for questions.

I hope the silence is a reflection on the succinctness of that presentation.

Our first question is coming from Brett Vielokoff of Performance Capital.

Hello guys. Dave, did how much of Texas CAPEX falls in Q4?

Q4 is about $50 million.

OK. And Colin, can you give any update on two things on Maryland and I know you guys have been real busy, but any further color on potentially pulling capital out of the hotel assets?

The latter, the answer is we haven't really been focused on that here, Brett, for the last month, month and a half, as you can imagine we been trying to, bring resort quest over the line and two, because of the way the sort of SEC stepped back and didn't review the merger, we have been obviously aggressive on the refinancing of the company, which you know about and have read about. So the answer to the question, the last question is no, but obviously we will be doing more work on that, in the next three months, three to four months.

The real hard thing for us on that last issue is, we all believe here at this company that with the strategy that we have in place, with this very focused large group customer strategy we have in place, that there's some real good years in front of us, and I think we have been very consistent that we believe that the periods '05, '06, '07 will have high single digit REV PAR growth, we have been consistent in comments on that, simply because of visibility of advanced bookings.

The issue for us is, that if you translate that into profitability of assets, obviously we believe these assets have substantial ways to go in terms of the increase in their profitability and therefore, any deal we do today, we risk leaving value on the table for our shareholders. So that's the sort of little bit of a dilemma have, we're sort of figuring that through. It's a good dilemma to have because, you know, these businesses are only, we believe, increasing in value.

And my view is that the multiple on these businesses should be better than the general multiples that you see for hotels, because there is a high level of predictability to the cash flows of these hotels, unlike the vast majority of the industry, that is subjected to the, you know, the whims of things like SARS, gulf war and stuff like that.

Now, in terms of Maryland, we have been working very hard here on this project, and when we were out talking to the prospective note holders of our company in the last week and a half, last two, three weeks, what we have been saying is this, that in order to make the Maryland project, a satisfactory project to our shareholders. We obviously need to generate an after tax unleveraged rate of return that's greater than 12%. We believe our weighted cost of capital keeps moving around, because of some of the stuff we have been up to. But probably just a little under 10, probably a little less than that, Dave.

But we want to make sure on an un leveraged basis, that we generate real value here. So we have been working on ways to secure additional chit financing, we got some meetings coming up here in the next month, to move that process forward and, you know, we're very encouraged from all this research we have done, Brett, I'm giving a long answer to your question, but it's very interesting stuff, all the research we have done, it's very clear to us that this project in D.C. is a very appealing project, the target consumer that we go after.

And they have told us that in all of this research and so we are working diligently to bring this baby across the line. There's obviously a long gestation period here between the time we get comfortable with economics and the time we start constructing and open this baby but it's a project we will continue to put effort against.

Thank you, guys.

Thank you. Our next question is coming from Will Marks of JMP Securities.

Good morning, a Couple of questions, resort quest also reported and not covering the company, I'm a little unfamiliar with the numbers really mean, are they still on track for -- I think you said 18 to $19 million of EBITDA for the year.

Yes. Well, their EBITDA for the quarter was consistent with, I think their guidance they gave for the year was $18 million is consistent with that level of performance.

I think, Will, this is Colin. If you look at their release, there is sort of a reconciliation of non-GAAP financial measures and the EBITDA, because the resort quest last year had extraordinary items in it, this year has some extraordinary items in it. Good news is, is that EBITDA, when you exclude all the noise, EBITDA is growing in this period from about 12-7 to 13-1, 13-2.

Basically as we have said all along, this is a business that hasn't had the luxury of the marketing conduit that we have as a company. It's been out spending a few hundreds of thousands of dollars in putting in newspaper advertising and the like and we obviously expect to be able to really create a lot of hype amongst the consumer that seeks out this type of experience.

So you know, in answer to your question, their businesses performing pretty well but we are yet to unlock the door here and we're all waiting with baited breath and pretty excited about the prospects here.

Great, OK. Thank you. A couple questions on guidance. First, so, David, on the interest expense line, should we expect something pretty consistent going forward with third quarter?

When you pro forma and resort quest and layer in new financing, its just kind of give you the apples to apples comparison, the reason we swapped the 125 of the notes and the floating is because the term loan we had outstanding that was secured by float in Texas was priced at Libor plus 350 on swap basis, Libor plus 295, that saved us a little bit of money.

The overall weight average rate when your ProForma resort quest - excuse when you, pro forma combined company of resort quest and Gaylord prior to the note's offering, the average interest rate was 5.1%. And pro forma for the notes offering we're going to be close to 5%.

OK. Actually decreasing a little bit.

Decreased slightly.

He says with a smile on his face, David. Well done.

My last question on guidance last quarter in addition to what you just gave us, you also gave revenue and a margin. Can you give us any light -- we can figure out revenue, but on an EBITDA margin?

In terms of the challenge we have right now, just to let you know kind of what's happening with guidance is, because the resort quest acquisition closes some time in the end, in the middle of this quarter, we are going to pick up resort quest for that sub period, and it would be difficult for us to predict precisely when we are going to pick that up. That's why we didn't give specific guidance on fourth quarter.

In terms of the profitability of the hotel business, the profitability attraction, we don't have any view on that changing from what we have talked about previously for the fourth quarter. So I think we have talked about previously, EBITDA margins were going to decline slightly in the fourth quarter from what we did fourth quarter of last year. Again, that's a rate issue for the fourth quarter versus fourth quarter of 2002.

Does that answer your question?

I think so, yes. Looking at the first half of the year, you significantly outperformed, your margins outperformed first half of '02, third quarter as you guided was down and then fourth quarter what you're saying is going to be down a little bit, maybe in the same percentage neighborhood as third quarter?

Yes, probably so.

OK, yes.

The problem with these margins is that, you know, one good big group with a very attractive rate has a major impact in the quarter. And as we have said so many times, the groups showing up this year are groups that were booked three, four years ago and very little we can do about this year in terms of the group business. So I think David is completely accurate in what he said in terms of the margins. That's the sort of dilemma we have here.

OK. Thank you very much.

Thanks, guys.

Sure.

Thank you. Our next question is coming from Matt Overton of Morgan Keegan.

Good morning.

Good morning.

A Couple things. One, if I just look at the hospitality segment revenues and EBITDA calculate a flow-through, I get about 118% flow-through of revenue to EBITDA. Could you comment on that, what's going on there for us?

Sure. You know, as you can see, the decline in REV PAR for the hospitality segment was entirely attributable to rate, so rate does flow through at 100%, unfortunately. The other challenge as compared to last year is energy costs are higher, so that's what's driving this slight, you know, the greater than 100% flow through EBITDA third quarter versus third quarter.

OK. And then on the debt refinancing, this is kind of an open-ended question, but two things. One, I do understand both the Texas and Palms properties are essentially free or completely free and being placed as collateral for any of the remaining debt? Because that term loan was secured by those and clear that up for us.

And then secondly, is there any color you would add from the road show that you did for that debt offering that those of us who were not on the road show might benefit from? Obviously well received but is there any additional color you might want to share with us?

I'll take your first question. I will kick the second question over to Colin. In terms of the security, the Texas, the currently contemplated and term sheet we have from the banks for revolving credit facility would be that that revolver would be secured by Florida only, Texas would be unsecured.

And as I said, $65 million revolver, it that it is right to up size up to 100, we're likely to be in the 65 to 70, 75 range in terms of the sizing and that would be the only indebtedness that would be secured by the Florida hotel. Texas, as you correctly point out, would be unsecured.

And in terms of the color, I really think it's a variation, what we said is a variation and what we posted on the web site, our presentation, was a variation of what we have been saying for the last 12 months and that is that we run a very different hotel business. It's a very predictable business.

We know what our occupancies by and large are going to be for next year, the year after and the year after because so much of that business is coming from these large groups that book contractually well in advance.

I think what we were able to do last week was talk to a whole bunch of folks who haven't been exposed to our company and we were able to talk about our hotel business, talk about the Grand Ole Opry, how we see this as a lifestyle brand and see this business growing and more importantly, how it will support because of the people to whom the Opry reaches is 4 to 6 million people a week that it communicates with through these TV shows and radio shows, how that business can be supportive of the resort quest business and I think we were able to describe last week as the Resort Quest business is in fact an alternative lodging business.

It's a business that we believe can absolutely be systematized and fully branded and we can build trust with the home-owners, trust with the customers and I think that the competitive forces that are out there are just the local mom and pop operators that don't have the wherewithal that we have in the communication points and delivery systems that we have and I think investors at the end of the day, in the bonds, basically said we understand the business and that's why we're attracted to acquire these bonds.

OK. Then I have a couple of questions, just a couple more questions for you but on Resort Quest, one on the potentially negative size, the units declined in the third quarter. I don't know whether you care to comment about that, but it was not your company yet but that was the one thing that popped out at me about their third quarter results.

And then secondly, on Resort Quest, the announced for, I believe, new contracts diminished, vacation rental condominium units or the groups of units within the past three or four months, three of which were existing properties, not new development units. Is there a shift in the marketing strategy there? Because I haven't seen them add existing properties like that as much previously in the past.

Yes, one of the things that the resort quest management has been talking to us about and it's really is a by-product of our paranoia around making sure that we have product that the consumer values and that because we're trying to build a brand here and one of the key things that we need to do in this brand is to make sure that we have, you know, operation that don't have holes in the roof and that are clean and that the consumer says you know what, for the price I paid, I got value. So I think that there has been a general cleaning up of some of the inventory in this business.

But one of the things that we are in the process of working with the RZT folks on is now an acquisition strategy and when I talk about acquisition, I'm not talking financial acquisition about, but a strategy of how we communicate with home-owners that are part of mom and pop operators today and be able to demonstrably prove to those people that there is a superior advantage of being part of our business versus these local operator.

And so Resort Quest really haven't had a unit growth strategy, definitive growth strategy for the last year, year and a half and I don't think I'm talking out of school when I say that or being critical of the business, it just hasn't done that. We will have that in place.

We know how to do that. As you know, our background from the hospitality days and the gaming days, we know how to grow brands and I would expect the issue here is the issue here is to, one, grow the occupancy too. This resort quest occupancy in the fourth quarter was up at 58%, but it meant that in this fourth quarter, you know, there are 42% empty rooms in this facility.

So we have got to build the strategy to deliver more customers and we have got to build the strategy to deliver more units and we will do that.

OK. All right, that's good. Thank you.

Thank you.

Thank you. Our next question is coming from Jacques Cornet of CIBC World Markets.

Lynne, I think he's gone.

Thank you. Our next question is coming from Sam Lieber of Alpine funds.

Good morning. With regard to your prospective bookings for next year, in light of the third quarter shortfall where had you to push back some bookings in to next year and had you to find replacement with a lower mix, lower rate mix, I assume and hence that led to lower EBITDA margins, can you give us a sense of your comfort level with the EBITDA margins going forward and what you think they may look like given the visibility you have on the bookings so far for next year?

Sure, Sam. EBITDA margin for the hotels businesses should be essentially the same as it was for this year. As we have described previously for '04, we're continuing to take a fairly cautious approach toward 2004. We think there may be some bright spots that begin to appear here because of the kinds of events --advanced bookings and because of the nature of those bookings and the increased levels of corporate bookings that we're seeing, but remaining fairly cautious for 2004. So we're continuing to guide that margins will remain essentially flat to hospitality business from '03 to '04 and REV PAR will remain essentially flat from '03 to '04. But if these levels of bookings continue and we experience a bit more sustained economic recovery, we could be pleasantly surprised.

Does that mean you get pleasantly surprised in latter quarters or how does that fit in time wise and obviously given the complexity of bringing on Dallas at the same time.

Right. Certainly as you look at our business the closer are you to the period of occupancy, the more difficult it is to impact that occupancy positively with new groups coming on, so certainly Q2, Q3, Q4 are where we have more opportunities to produce some positives, you know, as we talked about in the second quarter call when we had these groups who wanted to move from Q3 of '03 to 2004, you know, because of late notice and proximity to the occupancy period, it's difficult to fill those rooms. So, you know, our view is that the back half of the year has some real opportunity for us in 2004.

Sam, this is Colin. Let me also add to what Dave said. As I said in my piece of the communication, what we tend to see are these big associations book four years up-front and on average, four years ahead of time and Corporations, as we have looked back and we have plotted the mean on this, it's about two and a half years.

Now, the dilemma has been that because of the recession that we have been all operating under here in the last, you know, two years, two and a half years, a lot of corporations pulled back the amount of large meetings that they had.

A lot of these corporations just stopped having meetings. Now, the problem that we have right now is, and the rest of the industry does, is that in that 3 million bucket of tentative and prospectives, there are a bunch of those folks that are contemplating having meetings in 2004.

The issue is, will they sign? And when do they actually make the decision to do it? How comfortable do these companies get in that fact the recession is gone, the recovery is well on its way? And that's the dilemma we have in sort of breaking down, is it going to happen in the second quarter, is it going to happen in the third quarter you?

I think in the next three to four months we will obviously have a much, much, much stronger view about the whole of 2004 and as Dave said, if corporate America continues to gain its confidence which we believe it is, because we're seeing a lot more activity on the corporate side, a lot more activity on the corporate side than we did six, nine months ago, there is some pleasant surprises. But it will be extraordinarily bold of us at this stage of the game to say whether that will happen in first quarter, second quarter, he is, etc, across next year.

Fair enough. With regard to Dallas, do you I assume that the first quarter or so is probably going to have relatively attractive pricing package to induce new stays. So I'm wondering how that would hold up, let's say relative to either Palms or Opryland.

Well, I think we haven't been out publicly disclosing stuff like, you know, what pricing day by day, week by week, although we're actively in that mode, because we're booking rooms. Interestingly, we're having to push our grand opening from the second of April to some time early may because we are relatively full through that April period. Opening ceremony. What did I say?

You said grand opening.

I meant the opening ceremony, yes, I don't want to see

I understand what you were saying.

Yes, Right thank you very much indeed.

Thank you, David, for clarifying it. But, you know we're seeing a lot of interest in this product because it is so different, it is so different. And, you know, we are being cautious to attract new customers that we never have seen before, but, you know, I think our pricing model is certainly going to be in or around the model that we're seeing in Nashville. We won't see ADR's and total revenue per available room that I think will be off the mark from the Nashville mark, David.

Yes, I think expectation in Texas Fridays an ADR perspective, it's fairly similar to Nashville. We think that we are, we'll probably produce a bit more revenue outside the room in Texas, per room than we do in Nashville, simply because you have a higher mix of banquets, (ph) versus other types of revenues which is what drives that outside the room revenue.

Great. OK, Thank you, gentlemen.

Sure, Sam.

Thanks, Sam.

Thank you. Our next question is coming from Dean Graves of Grandview Capital.

Hello. Colin, If you could talk to us a little bit about the ramp up period for Florida and I guess for Texas as well, just given the long booking periods for this type of business, I guess I'm personally assuming it would take a while, to ramp up to sort of a mature state. And then more specifically, what kind of EBITDA levels do you think you can get to in Florida and Texas once you have a mature state?

Dean thanks. The first and foremost, putting, being a little repetitive of what we have already said, Florida is already taking no prisoners in this market, it is the number one hotel, convention hotel through the first nine months of this year.

And we, I think, guided that it will generate just under 40, thereabouts, million of EBITDA this year, which is I think given the environment, that we have been operating in with SARS, Gulf War, economy, et cetera, et cetera, I think it's pretty exciting. But nevertheless, it's been operating at about, this year, will operate at about 70% occupancy.

We believe and in fact to a high level we know, because of the advanced reservations we have on the books for '04, 05, '06, '07, we have high visibility to the amount of contracted for room nights in that property, that we will have good growth certainly in the '05, '06, '07 years, because it's the '05, '06, or '07 years, that have been influenced by the bookings that we have put on the books in '02 and '03, before David and I and the rest of the management team arrived here in mid '01, we had a bunch of bookings on the books but it's been the way, we have orchestrated the sales functions, the tremendous job this hotel has done in terms of delivering customer satisfaction, that the wind really is in our sails, and that's what's happening in 2002, 2003, and we expect that to continue in 2004.

So it's the '05, '06, '07 years that we expect this high single digit. So we're not in the business right now David. We haven't given out projections for '05, '06, '07 for EBITDA growth. If you do the math, Dean, on high single digit REV PAR growth, I think you can see that the profitability of this business grows fairly healthily. David, the metrics that's we use in terms of for every point of occupancy, just refresh Dean, please.

Sure, Dean, we have talked in the past about, for the two hotels that have been operating Nashville and Florida, additional point of occupancy in hotels tells adds $2.3 million of EBITDA to the bottom line, and $1 in rate adds $1.5 million in EBITDA to the bottom line.

As you roll this, the high single digit REV PAR growth through into '05, '06, '07, obviously the economics are pretty compelling, and I think two folks have been on the phone earlier, Will Marks and Overton, who have been researched all that, have done that sort of math, and you can review the kinds of EBITDA levels that they have at least projected for those years for the different assets.

And David, one other piece of math which I think we have from time to time talked about, we have what, $2.1 million room nights available in with our three hotels and, we are booking in contracted form net definite room nights in the one right now between we guided between 1.2 and 1.4 for this year, we did 1.2 last year. That in and of itself would say that if we were to continue to book at that pace for the next three to four years, we're booking, you know, pushing 55 -- explain the math to dean so he can sort of extrapolate it.

Sure.

Back of a envelope here.

We have $2.1 million room nights of total inventory among three hotels. If we book 1.2 to $1.4 million room nights a year, year in, year out, take the top end of the scale, easy math, that's 66% of our business is groups, is booked in group occupancy.

We tend to do about 20% of our business in non-group business, so if you gross that out that $1.4 million room nights of bookings leads to us toward 80 to 84--85% occupancy level in hotels in future years so. That's why we focus so heavily on managing this, these group bookings levels and making sure that we continually disclose those levels to the investment community because we believe those are our leading indicators, the things that tell us we have good things to come.

It's really two things, it's that, but it's also, it's also the way, what is happening to those customers that are leaving our business today, you know, are they leaving very, very happy if they are they resigning up? Because we know the customers that we're dealing with, are customers that by and large rotate through the geographic locations that we are in.

So it's important to us to service the living day lights out of these folks, make sure they leave really, really happy and then two, to continue to book this 1.2 to $1.4 million reservations a year, and if we do that over the next three to four years our business starts to dramatically change. Dean, that was a long answer to a simple question.

That was good. Have you given any guidance on Texas specifically and what you think it can do when it ramps and I think size wise it's roughly the same as -

It's a little bigger than Orlando.

It's a little bigger than Orlando but the rate structure is a little bit lower than Orlando. It's going to, on a stabilized basis going to be right between Nashville and Orlando. You know, we have talked about that in our analysts continue conference in June, talked about that asset act 10% return on cost kind of asset and stabilized basis, the cost is $480 million. So 45 to $50 million of EBITDA as it gets stabilized, three years or so from opening date, we think that's a reasonable level of performance for that hotel.

Great. Then shifting to a separate topic, David, do you have a sense for what your cash interest expense will be next year? I know there's some GAAP noise in the number. Can you remove that and sort of include capitalized interest and what cash would be for next year?

Just cash should be around $30 million.

Great. Thank you very much.

Sure. Operator, I think one more question, if there are other question that's folks have, maybe they can contact either David or Jason Morgan in terms of, you know, our investor points of contact, please.

Thank you. We do have a followup question coming from Brett Vielokoff.

Thank you, yes. It's actually Brian Warner. I had two questions but I will only ask one in the interest of time. Could you talk a little bit about sketching out maybe your branding strategy for resort quest in terms of some of the things you're thinking about in terms of - improving the credibility with, you know, your customers and talk a little to that?

Yes, absolutely. We could --that's a question that we could have us on here all day, Brian, but here's the simple -- this is a reasonably simple business. This is not a complicated business. It needs to do a couple of straight-forward things. First and foremost it needs to, first and foremost, build trust and recognition with the customer. And what we see happening there is a few things.

First and foremost, we are embarking on a large piece of research with Jim and the management of resort quest and AIU study, awareness image and usage study across the country for second home owners, second home users, people who rent these properties. We're also going to do some research with the owner as well. But the AIU study, awareness image usage study will explore what is the image of this brand, if indeed there is a brand. What is the image of this brand, what are these things that the consumer really holds sacred when they book the second home for, you know, beach, desert or mountains? What are things that they want to make sure is provided to them?

You know, great internet access, obviously making sure they check in, check out, the operations, what's their experience, the quality of product? How do we make sure that there is a rating system, a real rating system in this business? Because, you know, the quality of the asset that resort quest manages can be a small two bedroom condo on the beach to a $12 million home in the mountains and there is a vast difference in what is in fact being sold. So we have to come up with a very coherent rating system.

So, we're going to be exploring over the next two to three months through the eyes of the consumer what's important to them, it's then putting the systems in place, making sure we have flawless service in place and then building the brand, it's making sure that there is a defined brand in every marketplace, that the customer recognizes and, you know, and says you know what, I value that.

I'll give a silly example, like what Blockbuster has been able to do in a business that's relatively simple selling home videos, renting home videos, they have been able to create in the minds of the consumer that you come to my store, a Blockbuster store, and you have a greater assurance of getting what you want in a way that is relatively simple for the consumer. What we have to do is find out what those attributes are for the second home vacation rental business and put in that place.

I think over the next six months we will be able to answer that question in very specific terms and I think three months from now. This is the way we have gone about building brands in our past life, Mike and I, in our past history, Mike rose and I in the hotel business and the gaming business and that is really understanding what the consumer wants.

And the other part of it is, is what the homeowner is seeking. Obviously the homeowner is seeking sort of a relatively economic advantage of putting homes with you versus somebody else. But they also want to make sure the homes are getting looked after. So we have got to find, one, a way to communicate the relative economic superior returns to these folks, but two, communicate to them frequently and consistently that their home is a being rented and also being looked after there. So, there are going to be standards we put around this brand and that's sort of a two-minute overview of a very complex question. But we have a good sense of how we're going to do this.

Thank you.

Thank you.

Thank you. I would now like to turn the floor over to Colin for any closing remarks.

Thank you, Lynne, and again thanks everyone for joining us. This is a very interesting time for our company and all of this management team, you know, honored to be working at this organization on behalf of you, our shareholders and we are going to absolutely create a lot of value here and just a little plug, tomorrow night I think on CBS television, it's the CMA awards, country music association awards, and you will see the Grand Old Opry house if you tune in at its finest. Thank you very much indeed for joining us.

Thank you. This does conclude today's teleconference. Please disconnect your lines at this time and have a great day.