Ryman Hospitality Properties Inc (RHP) 2004 Q2 法說會逐字稿

Welcome to the Gaylord Entertainment Company second quarter 2004 conference call. Hosting the call today from Gaylord Entertainment is Mr. Colin Reed, President and Chief Executive Officer and Mr. David Kloeppel, Chief Financial Officer. They are also joined by Mr. Jason Morgan, Vice President of Strategic Planning and Investor Relations and Mr. Carter Todd, Senior Vice President and General Counsel. This call will be available for digital replay. The number is 973-341-3080 and the PIN number is 4660431. At this time all participants have been placed on a listen only mode and the floor will be open for questions following today's presentation. It is now my pleasure to turn the floor over to Mr. Carter Todd. Sir you may begin.

Good morning. My name is Carter Todd and I'm the General Counsel and Senior Vice President for Gaylord Entertainment Company. Thank you for joining us today on our second quarter 2004 earnings call. You should be aware that this conference call may contain forward looking statements within the meaning of the Private Securities Litigation and 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 facts 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 the important factors among others set forth in Gaylord Entertainment's filings with the Securities and Exchange Commission and in our second quarter 2004 earnings release. And consequently, actual operation end 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.

I would also like to remind you that in our call today we will discuss certain non-GAAP financial measures and a reconciliation of those non-GAAP financial measures to the most directly comparable GAAP financial measures. It has been provided as an Exhibit to our earnings release and is also available on our website under the investor relations section. At this time I'd like to turn the call over to our Chief Executive Officer, Colin Reed.

Thanks Carter. Good morning everyone. I'd like to welcome back all of you who know us and acknowledge those investors joining us for the first time. Since our last conference call several importantmilestones have passed that merit additional comments this morning.

We've opened the Gaylord Texan successfully to strong customer acceptance. The hospitality environment continues to improve. We've made significant strides on the National Harbor project. We have what we think is good news regarding Bass Pro Shops and we continue to make progress with ResortQuest. Now I will review each of these topics and then Dave Kloeppel, our Chief Financial Officer, will discuss the operating and financial performance of the Company and provide guidance for the coming quarter and full year 2004. And then finally I'll offer a brief closing statement and then we can open up the calls for questions.

We've quickly established the Texan, our newest property, which officially opened in the second quarter, as the best that Texas has to offer. It has become a popular attraction for those living in North Texas as well, with strong traffic at our restaurants from the local residents in the Dallas - Fort Worth market. Total RevPAR of the Texan was more than twice RevPAR, demonstrating strong sales in food and beverage and entertainment offerings outside of the room.

The Texan is truly representative of our efforts to supply our guests with excellent restaurant and entertainment offerings and customers are responding. A large part of the success at the Texan is due to our committed, wonderful workforce and are reflected in our customer satisfaction scores which are in fact very impressive.

Our early customer satisfaction scores at the Texan has been a full 15 percentage points higher than those achieved in the first few months of the Gaylord Palms Hotel operating like. This is very positive news.

Overall we see emerging strength in the convention sector of our hospitality business, but it's clear to us that this strength is driven by our superior positioning and execution -supported of course by an improving economy. We have seen large group bookings gain momentum and expect this to continue for reasons that I'll describe in a moment.

Our strategy is simple in words but tough to perfect - simply put, we employ the best possible workforce, that is exceptionally well trained and is proud to work for us. In turn, our stars as we call our professionals, treat our customers with respect and dignity and by doing so provide great customer satisfaction, which translates into superior customer satisfaction.

We talk a lot about customer satisfaction and for good reason. It's a critical measure for our company, because we are convinced this metric is a great indicator of our prospects for renewed bookings. It also provides the means for us to measure the value we're delivering to our customers in this competitive environment.

We are pleased to share with you that our customer satisfaction scores continue to track at very high levels. And because of these high levels of satisfaction, which is fueling the reputation we're gaining in the industry, our advanced bookings have been absolutely tremendous, particularly when you look at it on a year over year basis.

Specifically in the second quarter of 2004, we booked more than 350,000 group room rates with stays in future periods - a 44% increase over the same period in 2003.

For the year to date our advanced bookings are up 42% over the same period a year ago. Our tentative and prospect inventory - customers with whom we are in active negotiations, continue to rise at all three of our properties. In fact at the end of the second quarter we had a total of 1.4 million room nights under negotiations - 14% more than at the end of the second quarter in 2003.

Thanks to the fact that our actual year to date bookings are also strong, coupled with the inventory of tentative and prospects, we're pretty confident that we'll be able to achieve our annual target for advanced group bookings of between 1.3 million and 1.4 million room nights. If we achieve our usual annual transient room nights, we'll be well positioned to achieve our previously guided high single digit Rev progress annually in 2005, 2006 and 2007.

We're very excited at Gaylord Hotel's prospects. We are well on our way to fulfilling our strategic goals of providing great product, great entertainment, supported by a great workforce delivering outstanding customer satisfaction - all packaged with an intimate knowledge of each specific customer.

It's clear we're making great progress in providing great value to the customers and we are being rewarded for this.

We're also pleased with over the past 12-months, 40% of large group bookings have been multi-locational or rotational, as we call them. Now Dave will go into the financial results of the hotels in detail, but our highlight statement would be as follows.

Gaylord Opryland had a particularly strong quarter and exceeded our expectations - benefiting from an increase in group business, as well as higher outside the room standing.

Gaylord Palms posted very strong results in line with our expectations, but slightly down from last year's superb second quarter in '03. This was due to the fact that three large groups did not pick up as many rooms as we had expected, but nevertheless we're delighted with the result of this hotel.

I'm also pleased to share with you one more exciting piece of news as it relates to customer recognition. Every year Meetings & Conventions magazine asks its subscribers, the nation's meeting planners, to nominate the very best hotels in the country in the meeting and convention business. The best is then distilled down to the best of the best and five hotels are chosen in categories of gold key elite and gold platter elite.

Now we've been informed that both the Gaylord Palms and Gaylord Opryland have been selected as Gold Key Elite winners. In addition the Gaylord Opryland has earned the Gold Platter Elite stages and the Gaylord Palms has been awarded with the Gold Platter Award. Now personally speaking I have not historically placed a whole lot of importance on industry awards. They're nice to get. But I consider this award to be quite different, simply because the readers of Meetings & Convention magazine are the bullseye customers for us. And clearly they have voted.

Our only two operating hotels in 2003, are considered two of the best buys. We consider this a real testament to our strategy and it's really gratifying to have our two operating hotels in 2003, selected as the best of the best by our customers.

Gaylord Hotels earned numerous other accolades during the quarter and it's nice to know our efforts are being widely recognized. Despite the recognition also helps us build the Gaylord Hotels brand by solidifying our industry leading position and spreading the word of our fabulous offerings to perspective customers.

Now let me discuss Gaylord Hotel's exciting new project. As many of you know, we have been interested in developing a Gaylord Hotel in the nation's capital region and have been working with government officials in Prince George's County, Maryland on what is presently known as the National Harbor project. And they're pleased to report that the County approved two bonds towards the National Harbor project in early July.

The counsel approved a $65m bond that will accrue to the benefit of the developer and will support the cost of infrastructure development such as roads, water and sewer lines. But more importantly the counsel also approved the $95m bond that will partially offset Gaylord's cost to construct a convention center.

There are a couple of minor permitting details remaining but the approval of these bonds essentially will enable us to begin the process of financing this project and I will ask Dave to explain more on our financing plans in a minute. In the mean time, let me provide a little more color on the project itself.

The site for our National Harbor project is quite spectacular and it will sit right on the Potomac River contiguous to the soon to be expanded Woodrow Wilson Bridge. In addition to the beautiful vistas, guests will have direct access to the Potomac River - one of the great waterways of the eastern seaboard. The property is just a few miles from the heart of our nation's capital with unobstructed views of the Washington Monument and Capital Building. It's proximity to attractions of historic significance is also excellent. For example it's across the river from George Washington's home at Mount Vernon.

Strategically the location makes a great deal of sense for us, because of its proximity to the many associations and organizations that are based in or regularly meet in Washington, D.C. None of the hotels and convention facilities in the Baltimore Washington markets offer the large number of sleeping rooms, restaurants and entertainment and convention and meeting space that we offer under one roof at Gaylord Hotels. In addition, we believe that the many corporations based in the Mid-Atlantic and northeast regions especially those that rotate their meetings around the country, will find National Harbor compelling.

As for the hotel itself, it will be similar to the size and scale of the Gaylord Palms and Gaylord Texan - approximately 1,500 rooms, 400,000 square feet of meeting and convention space, multiple restaurants, a spa and nighttime entertainment. And we currently expect to break ground later this year and open in early '08. As I said, Dave will discuss the financing plans in a few minutes.

But I want to mention that because of the way we have renegotiated our deal with both the land owner and developer and the county, we currently expect this project to generate a return north of 12% unleveraged on an after tax basis - thus giving us broad flexibility in financing.

Now let me switch gears from Gaylord Hotels and discuss progress for the other ResortQuest business. After four years of neglect we spent the last months taking the property's business and laying out the foundation for the brand. We've conducted extensive consumer research and analysis and undertaken exhaustive market by market research. We built the framework for precisely what the brand will stand for in the minds of the customers and owners, as well as developed the marketing campaign that will support the brand roll out, which will be undertaken in phases through the third and fourth quarter.

We won't go into details at this time, but what I can tell you is that the newly defined brand promise will be backed by an operational commitment to moving ResortQuest to a full service national brand that will include a service guarantee. All of this will be driven by Mark Fioravanti, President of ResortQuest and the new team that he has assembled over the recent months, in whom I'm confident will build ResortQuest into a dominant player in the vacation property management category.

This requires change at the cultural, technological and operational levels and so far the integration efforts are progressing. Mark and his team have begun this process by building a new senior leadership group, comprised of executives with a terrific blend of industry and functional expertise.

As part of these efforts the ResortQuest team is developing a growth strategy based on the quantitative analysis of key vacation markets. Now there is no [specific] travel type data for this industry and as such this team has completed more than 1,600 hours of research in which they have ranked the top 50 vacation markets on criteria including market economics, tourist demographics, competitive offerings and predictive growth characteristics.

Now some of you have asked when are we going to see real growth with this brand? My response is that we've had plenty of opportunities to grow over the last few months but we did not want to undertake growth just for the sake of short term pop, without doing it in the context of a clear strategy. We now know where we want to be, which markets are economically compelling and I'm confident that growth will ensue.

We will continue to invest in the future of ResortQuest. We've made good progress on our technology strategy and we expect to have similar results in other areas.

Now two years ago I told our shareholders that we would transform Gaylord Hotels into a brand of consequence. We told you that we would rebrand, define the service levels, build trust in the customer's mind and create an exciting brand. Now all of the metrics that I have spoken about earlier this morning underscore the progress that we have made, and I am confident that ResortQuest will also emerge into the dominant brand we aspire for it to be.

Now let me switch subjects and talk for a minute about Bass Pro Shops. I've indicated to you over the last several months that we were attempting to make our investment in Bass Pro Shops more transparent to our shareholders by taking our investment above the 20% threshold. I'm going to give you an update on where we are, but I'm not going to be able to give you as much information as you would like, because not all of our agreements are completed in full. But here's what I can tell you.

Bass Pro Shops has repurchased the stock of its other minoritypartner by using its balance sheet. With these shares now sitting in the Bass treasury,our percentage share ownership increased from just under 20%, to approximately 26.5% of this company. Now the founder of Bass Pro has expressed a desire to purchase from us, up to 5 percentage points of our interest and we are currently discussing this issue with him.

As part of these discussions we have laid out some issues important to us, such as corporate governance including board seats, collaborative marketing agreements and many other issues. Now we're moving forward towards contracting an agreement that's a win-win for all and we will be more expansive as this agreement comes together.

As we have said consistently over the last several years, we very much like this business and we believe it has the potential to deliver significant value to Gaylord Entertainment.

Finally, I'm pleased to relay that on July 15th, 2004, the Company was notified by the Securities and Exchange Commission Division of Enforcement that it has terminated the investigation into the restatement without recommending any enforcement to the SEC.

Now at this time I'd like to turn the floor over to David, to provide more detail, the operating results and guidance for the rest of 2004. Dave.

Thank you, Colin. I'll start with a brief overview of the Company's consolidated operating performance and then go into more detail for each business line, highlighting operating drivers. And finally I'll provide guidance for the third quarter and full year of 2004.

Consolidated revenues were $202.1m - an increase of 91.6% from the $105.5m in the same period last year, due to the inclusion of ResortQuest and the strong performance from the Gaylord Texan. Year to date consolidated revenues were $361m - an increase of 64.2% from the $219.9m in the same period last year. Consolidated cash flow was $27.9m compared to $17m in the same period in 2003.

For the second quarter of '04 we reported a consolidated operating loss of $1.4m compared to an operating loss of $1.5m in the second quarter of '03, and the Company has a consolidated net loss of $23.3m or .59 per diluted share in the second quarter of '04, compared to income of $11.4m or .33 per diluted share in the second quarter of '03.

Year to date the consolidated operating loss was $11.7m compared to consolidated operating income of $3.4m for the first six months of '03 and consolidated net loss was $42.7m versus net income of $4.9m last year.

And now I'd like to review the performance by business segment.

First the hospitality segment. The second quarter results in the hospitality segment demonstrate what we've said since we joined the company three years ago. We are different from the rest of the sector. First the RevPAR comparisons quarter by quarter have little meaning, due to the potential for large concentrations of group bookings to skew comparisons and I think the last two quarters demonstrate this.

Second our RevPAR does not track the sector and is not the indicator of future performance you may interpret it to be at other hotels. For instance, our RevPAR was slightly below our expectations for this quarter, primarily due to a soft transient business at Nashville and more on that later, but advance bookings are up 44% on the quarter.

Third as we've described many times, we are more than a building full of rooms. We generate substantial outside the room revenue and as we did this quarter, we can drive that revenue to high levels even when we have lower than expected occupancy.

And finally the opening of the Texan was unlike any traditional hotel openings. In our first quarter of operations we ran a 23% premium in RevPAR to the market and generated substantial demand of the Dallas - Fort Worth market despite having to provide inducements to some groups to book so close to opening. And in fact, if you look at our RevPAR ranking among our competitors in the Dallas - Fort Worth market, we are the number one hotel in that marketplace.

We are very pleased with our performance in the opening quarter and expect much better things in quarters to come.

For the quarter, the hospitality segment revenue was $128m in the second quarter of 2004 - an increase of 42% from last year's second quarter. The increase was primarily a result of higher outside the room revenues and the inclusion of the Texan. Same store hospitality segment RevPAR and total revenue per available room were $111.23 and $231.22 respectively. As I mentioned earlier, the RevPAR performance came in slightly lower than our guidance range - up 5%, as Colin previously discussed.

Hospitality segment operating income was $9.7m in the second quarter of '04 - compared to operating income of $8.5m a year ago. This increase was due to increased profitability of the food and beverage operations. Consolidated cash flow for the segment was $30.3m for the second quarter of '04 compared to $23.9m for the second quarter of '03.

Hospitality consolidated cash flow margins decreased from 26.5% in the second quarter of '03 to 23.7% in the second quarter of '04 - due entirely to the inclusion of the Texan and the segment results.

As Colin mentioned the second quarter metrics for the Gaylord Opryland property were particularly strong. The property posted an ADR of $143, occupancy of 76.2% - up 8 percentage points from a year ago, and RevPAR of $109.03 for the quarter - up from $94.35 a year ago. As we expected business volumes at Opryland were very strong compared to last year and served to offset the softness experienced in the first quarter.

Moreover, in the quarter we produced very strong total RevPAR growth despite problems in our transient business in May and June. And we produced this very strong total RevPAR growth due to a focus on driving outside the room revenues and we really drove this growth at all the hotels, as you see in our results.

As we described in our first quarter earnings call, we expected a decline in RevPAR at the Palms in the second quarter. Lower group demands on the books led to a decline in occupancy to 77.3% - down from 82.4% in 2003.

Total revenue per available room decreased 6.6% to $302.56 in the quarter. The bright spot for the Palms in the quarter was variability to grow non room revenue from guests in house. If you look at the results, outside the room revenues grew 3% per occupied room meaning we yielded more dollars per guest in house. In the rooms, ADR was $162.61 for the quarter - down 5.1% compared to prior year. RevPAR declined 11% in the second quarter versus the year earlier period.

The Gaylord Texan generated RevPAR of $86.91 in the second quarter of '04 which was a 23% premium to our competitive set. Occupancy was 64% and ADR was $135.75 for the quarter. Total revenue per available room at the Gaylord Texan was $230.16 in the second quarter of 2004 and the property was profitable in its first month of operations and first quarter of operations. The only trouble we had with the Texan in the quarter was that we realized demand was too high for our existing parking to accommodate, which frankly is a pretty good problem to have. As a result, we will be constructing a new 1,200 space parking garage over the coming months.

For the second quarter of 2004 ResortQuest revenues were $57.2m and operating income was $1m. Consolidated cash flow at ResortQuest was $4.9m for the period. Second quarter occupancy for ResortQuest increased 4 percentage points to 51.9% and ADR rose to $149.59, up from $146.96 in the second quarter of '03. This resulted in RevPAR of $77.62 for the second quarter - a 10% increase over the same period in 2003. These increases were driven by strong results in Hawaii and the beach regions - up 14% and 8% respectively. And total units under management decreased to 17,507 for the second quarter - down from 17,854 in the year earlier period, a trend as Colin mentioned, we are in the process of reversing.

Operating attractions revenues were $16.8m in the second quarter of 2004 compared to $15.2m in the second quarter of 2003. The operating loss in the operating attractions segment was $400,000 in the second quarter of '04, compared to operating income of $200,000 in the second quarter of '03. Operating attractions consolidated cash flow increased to $2.1m in the quarter, from $1.4m in the same period a year ago. The increases in consolidated cash flow in the segments were driven by Corporate Magic - our event production business and the Opry.

Corporate and other operating loss totaled $11.6m for the second quarter of 2004, compared to an operating loss of $10.2m for the second quarter of 03. Corporate and other operating losses include non cash charges of $1.4m and $1.8m for the second quarter of '04 and '03 respectively. These charges include items such as depreciation, amortization and the non-cash portion of the Gaylord Entertainment Center and naming rights agreement expense. Corporate and other consolidated cash flow was a loss of $9.4m in the second quarter of 2004 which includes approximately $500,000 of consulting fees related toSarbanes-Oxley compliance and other restructuring activities.

On June 30 of 2004 the company had debt outstanding of $542m - excuse me $542.4m and total unrestricted and restricted cash balances of $109.7m.

In terms of guidance, the company expects total consolidated revenues for the third quarter of 2004 to be in the $199m range and for consolidated cash flow to be in the $27m range. The guidance provided herein excludes the impact of equity income in Bass Pro Inc. and we will provide additional disclosures about Bass Pro in our third quarter financial statements.

Hospitality segment same store RevPAR is expected to decline 4 to 6% in the third quarter of '04 versus prior year period, and we are reiterating our full year guidance of an increase of 0 to 2% for the year.

2004 consolidated cash flow for ResortQuest is expected to be in the $20m range. And finally, capital expenditures are expected to be approximately $130m to $135m for the full year plus an additional $8m to $10m for spending on the National Harbor project.

As for the financing for National Harbor project, which Colin described earlier, we are in the process of assessing our options. As you all know we are very bullish on the National Harbor project and we believe it will produce very high levels of return for our shareholders. As a result of our excitement about the project, we want to retain as much of that value as possible for our shareholders while managing our balance sheet to reasonable levels of leverage. We are in the process of discussing financing alternatives with a variety of sources - banks, partners and other financial advisors and it's fair to say that we are very confident that capital availability will not be a problem in the transaction.

Based on the anticipated spend required for the design of the project there is no acute need for capital for the project and over the coming months we intend to complete our review of available sources and recapitalize the balance sheet. As we have described before, this will take the form of incremental indebtedness, modernization of non-core assets and possibly equity partners. And now I'd like to turn the call back over to Colin.

Thanks Dave. I think we've had a pretty solid quarter and we've accomplished much. The hotel business gets stronger by the day and the new ResortQuest is on the verge of launch and this is very exciting for us. And we believe that we have many, many growth options in this company and personally, I'm very, very excited about the future. Operator, I think what we'll do now is open up the lines for questions.

Thank you. The floor is now open for questions. If you have a question please press star one on your touchtone phone. If at any point your question is answered you may remove yourself from queue by pressing the pound key. Questions will be taken in the order in which they are received and we do ask that while you pose your questions that you pick up your handset to provide optimum sound quality. With those instructions in mind, if you do have a question please press star one at this time. Please hold while we poll for questions. Our first question is coming from Nap Overton of Morgan Keegan.

Good morning. You may have already answered this question or indicated that you can't answer it but I believe it's of interest to what the valuation of J.W. Charles Bass Pro stake was in the transaction?

Nap, good morning - this is Colin. At this moment we're not going to answer that question. We're going to hopefully have the second part of the agreement done and roll this whole thing out. But I will tell you one thing, that we used - we being Bass Pro Shop - used an opportunity to be able to buy this interest at what Bass Pro Shop's considered to be a favorable price, based upon sort of a series of interpretation of the agreements that the Company had with J.W. Charles. But we're not going to get into the disclosure on this at the moment. It's a Bass Pro Shop issue. We're trying to get these other things done and then clear the disclosure on all of this with the founder. But it was a favorable price for the company.

Okay. And going forward, the only other thing on Bass Pro is going forward, I believe it would be of interest - will the inclusion of using the equity method of accounting there, will that contribute a small profit or do you know? Private companies aren't managed for bottom line profit. Will it contribute a small loss in the income statement? Could you comment to that or would you prefer not to?

We expect it to contribute a small profit in the income statement. The reason why we can't be explicit at this point and time is, because in our negotiations we are endeavoring to move some charitable expenses that can't be run through Bass Pro Shop's operating statement out of Bass Pro Shops, as part of our overall agreement. And when those are finally agreed to, we will obviously be able to give you guidance - give the investors guidance as to the equity pick up in this business.

Okay. Great. On ResortQuest, your press release talked specifically about a service - using service based branding principals. I'd be curious as to what the change is there in the ResortQuest strategy? And then another kind of general question about ResortQuest is, I think there's some uncertainty or some question about the real ability to turn that business around, and there's some optimism about you success - potential success in doing that, but we hadn't seen much of it in the first month. Could you comment as to what those prospects really are and what this service based branding principal that you're - what's the change there in ResortQuest?

Yeah. Okay. Good. And guys - David, jump in if I miss anything here. In terms of this business, what we have done and unfortunately this could take - I could spend an hour talking about this but we've been doing Nap, is talking to a whole slue of customers that use ResortQuest, that go to competitors, that don't use the industry to find out precisely why they do what they do. And we have now a very rich amount of data as to customer behavior.

What is very clear is the issue of service and trust from both the consumer and the home owner is such a very valued commodity. Which didn't surprise us. We expected the results to come back what we found the results to be. And what we're in the process of doing is defining, in every corner of ResortQuest, in every business we have in the 29 operating locations across the country, a very specific series of service behaviors.

There are 11 points of contact that we have defined in ResortQuest, from the pre-reservation, reservation, check in, check out - when the folks are actually in the market. There are 11, sort of as we described it, moments of truth. And what we're doing is we are in the process of defining the very explicit service standards that are going to apply in every part of those 11 moments of truth.

And then we are going to do what you will probably remember we did with the Hampton Inn brand back 15 - 18 years ago. We're going to put a service guarantee in place. So not only will the consumer who is a user today know precisely what it is they're going to get, but also those consumers and there are literally millions of them in the country that don't use the vacation rental home business, because it is a mom and pop cottage industry and they lack trust in actually getting what they think they're going to bargain for.

We believe that we can stimulate new demand into this business - substantial new demand into this business by putting very explicit service standards in place and backing it by an unconditional service guarantee. We have studied this thing in detail here for the last six months and in fact Mark Fioravanti has 80 of his managers in town here today and yesterday laying out the new strategy for the business.

Now that's answer to question number one. In answer to question number two, there is some sort of skepticism about turning this around. The point I would make is this - that we've done this stuff before, Nap, you know that. You know that Mike and I have been involved in building large brands. And I think frankly, what we did with the Opryland Hotel and two other hotels that were quite under construction, we've created a brand from a pretty sorry operating performance at this national hotel 3 - 4 years ago and these advance reservations, the customer perception and the recognition that we're getting from the industry, says that we've now got a brand of consequence here. And I believe that we will absolutely do this.

In terms of what we have said to The Street over the last - since we've owned this business in November - we've been very clear. Don't expect miracles for the first year - we've said that very clearly. And frankly, we're pretty happy that we had good strong RevPAR growth in this business in the second quarter and we had reasonable growth in the first. We expect - as David guided - good growth in the third quarter and I believe this brand is going to be exciting for our company prospectively.

Okay. Thanks and just one last thing David, with the $55m in restricted cash on the balance sheet. What are those restrictions now the Texas hotel is open - what is that restricted for?

The majority of that is advance deposits on ResortQuest stays.

Okay.

And then the other restrictions are on our Nashville loans - that's a CNBS loan. We have an FF&E reserve that we establish, and so $6m to $8m of that $55m is FF&E reserve.

Okay. Thank you.

Thanks Nap.

Thank you. Our next question comes from Will Marks, of JMP Securities.

Hi. Good morning everyone. Question on the family - I've been hearing that the lock up on the Gaylord family and related ownership has expired. Can you tell me one, if that's accurate, and two, what their intentions are if you can even comment at all on that?

Well, it's Dave. Their lock up expired two days ago. And we have had no discussions with the family since the offering frankly, about their intentions on their shares. So no real comment on the family's intentions. I would say if you want to discuss with them their intentions, I would say give them a call.

But what is their ownership stake now?

They have about 9% - all the family put together.

Great. Okay. And unrelated - on the parking lot that you mentioned, any cost information?

It will probably cost us $10m - ballpark all in. And it will probably begin construction late this year and open midway through next year.

Hey Will the obvious question is, why did you guys miss it and we in fact built the same amount of parking spaces at the Texan as we do at the Palms and it's very adequate at the Palms. But unfortunately, we - not unfortunately - fortunately for us, we've got a lot of local demand and this thing we think going to get stronger. So that's why we're taking this hedge right now. And the good news is is we charge for parking, so a parking garage will have a very positive return on capital for us.

Good. Okay. One last question actually on Texas. The projections - I think you had the $15m EBITDA projection for a while now, and it seems like things really opened up strong and your comments are all favorable. I gather there's upside - well I don't want to put words in your mouth, but just any comments on that?

Let me comment and then Dave if you any observations. What we did in the first quarter Will, is we wanted to - I wanted to make sure, and as did this management team down there, wanted to make sure that we opened this hotel delivering great service. We were, as we've articulated, pretty inundated with local consumers coming in and eating and they still are. And we've burned a lot of overtime in that first month to two months of the operation of the business.

We've had teams in placed down in the Texan hotel reviewing labor standards, cost structures - Jason led the team that went down there. And we've modified some labor standards in that hotel positively that will relieve of overtime and we're working that through. And I think that the - we are pretty optimistic as we sit here today, that we're going to accomplish $15m - is the potential for upside potentially. But we'll have a much clearer handle on that here in the next one to two months.

The other issue that's occurring, that is difficult to predict with specificity, is the way in which the transient business is building and it is building. And it's the pace at which that builds. So we'll give you more guidance - Dave, I think will be doing that in the next two to three months on the Texan. And we're doing a few investor conferences in the next two to three months and if there is more news that we can be very clear about for the rest of this year, we willpublicly broadcast it. But, I think if I was a betting man, my bet would be that there is probably more to be gained on the upside than there is on the downside.

Yeah I think Will, as Colin said, we'll probably talk more about the balance of this year and probably more importantly what '05 looks like, later this year. I think the fact of the matter is, whether we do 15 or 16 or 17 this year, it doesn't change the world from our investor's perspective. It's really how is the demand building for '05 - '06 and beyond and based on what we're seeing the interest in the property is extremely strong. The first month of operations was very solid - bookings are coming along very, very well. So -

And the customers are just leaving delighted and so, we're pretty happy with what we've accomplished.

Great and one last question. Just tell me again, how the break down of transient versus convention at each of the three hotels, approximate.

It's roughly in Nashville, it's about 80/20. In Florida it's a little bit - it's about 82/18. In Texas for this year, it's going to be about 75/25. And we expect that to move more to 80/20 next year.

Oh, in Texas?

In Texas, yes.

Okay. Great, thank you very much.

Thank you, Will.

Thank you. Our next question comes from Brett Fialkoff, of Performance Partners.

Hey guys. I have a question on the subsidies. I think you get cash every year. What's the actual mechanics of that?

The way it works is what we have right now is a right to receive a bond. When the project opens we will receive the $95m bond in exchange for handing over the convention center for the same term as the bonds - for a 30-year term. For that 30 year term we'll get paid an 8% return on the $95m principal and also the bonds plus we'll get the bond paid back. So over a 30 year period, we'll get a total of I think about $270m of cash payments, which is $95m of principal plus a compounded 8% return.

Okay. And do you receive any marketing dollars too or it's strictly what you just described?

Yes we also receive a $2m a year marketing subsidy to market the project.

Okay.

That's again, over the 30 year period.

Right. Right. Is there any non-core real estate left to dispose of and if there is how much is it on the books for?

Yes we still have all the non-core real estate we've talked about for the past year or so. It's primarily a big parcel of land across the street from our hotel here in Nashville. And we have some other real estate in downtown Nashville and its value is estimated to be in the $30m to $35m range.

Okay. And a final question Colin. In Maryland the gaming situation is kind fluid, if you didn't get slots there, but Rosecroft did for example, is that good - bad - indifferent?

Hey Brett, I don't want to discuss that publicly, because obviously we will be debating with the politicians how we feel about that and that's a difficult question for us to answer to investors and then to have sort of a somewhat of a different opinion maybe to government. So I would like to defer that question until this thing has played its course.

Okay. Actually I have one more question. It's kind of off of Will's question. Obviously, there is need for capital over the next couple years, but would you consider at all buying back a piece of the Gaylord's family stake?

I mean it's all a matter of at what price they're willing to sell it at and what our other capital sources and uses are. So, I think under the right scenario would we be buying back stock - yes. But it depends on how we do the National Harbor project, what the capital needs for that project are and other investments we may make, as compared to what we think the value of the stock is.

Right. Okay.

Hi this [inaudible]. How are you guys doing? I have one quick question for you. It sounds like in the Bass transaction for the 6% stake, there was sort of - maybe a provision where they could sort of squeeze them down in terms of price. And I'm just wondering going forward on your 26.5% are you sort of pari passu with the Chief Operator?

Well that really wasn't the issue. That really wasn't the issue and we are bound by confidentiality to discuss that in detail. There is no triggering mechanism where the - to my knowledge, Carter - where - Carter Todd, our general counsel is sitting here - where the founder can in fact call out stock. So, I think that's the issue that you're concerned about.

Yes.

Yes. The answer is - with everything I know I don't think that can happen.

Thanks.

Thank you our next question comes from Grant Jordan, of Wachovia Securities.

Good morning. Can you give us the CapEx that was in the quarter?

Total CapEx was $41m.

$41m - okay. And can you just repeat what you said about the balance sheet and future financing plans? I kind of heard recap - possible equity partners. Could you just go over that again?

Sure. As the National Harbor project has become more and more of a reality we've obviously, engaged at a much higher level in discussions about how we may pay for that project. Given the level of returns that we think are available on the project, our available sources of financing are quite broad. We have equity partners who would be interested in partnering with us. We have banks who are prepared to lend to us, and everything else in between. So we are currently evaluating which of those scenarios we think is the best alternative for us and for our shareholders, with two guiding principals in mind.

Number one, we want to generate the highest possible return for the shareholders and number two, we want to manage the balance sheet to reasonable levels of leverage, which I think as we said in our high yield road show, net we'd be in that 4.5 times debt [inaudible] level on a stabilized basis. And on our last dollar in on Potomac that may peak 5 or so, but that's obviously the last dollar in. So, those are the guiding principals under which we're going to manage our balance sheet. And we think over the next few months we'll put that plan in place and be prepared to talk more fully about it.

Grant Jordon. All right. So if you're talking 4.5 times - possibly up to 5 times, it seems like you'd be doing some off balance sheet.

We'll be able to say more about that in the coming months. I'm not sure if we can really comment on it right now.

And in terms of cost - I know it's early in the process, but if it's similar in scope to the Texan, which I guess was somewhere in the $500m range, is this the same ballpark?

In terms of construction costs, yes, it's about the same ballpark. That includes the land purchase price and all your construction costs.

And so is the 95 from the bonds included in that or is that on top of the 500?

No, the 95 would be an offset to that 500.

Great. Okay. Thank you.

Okay.

Thank you. Our next question comes from Gary [Schmero], of J.P. Morgan.

Hi. Good morning.

Hi Gary.

Regarding the Gaylord Texan, your transient business - what hotels is that taking share from? Is that - are there other hotels that are near the airport? Is it actually coming from locations that are closer to downtown?

Gary, the transient business is primarily airport transient business. And so it's - the airport market in the Dallas - Fort Worth area tends to run a higher occupancy and rate level than the DFW market does overall. And we're taking most of our transient business from those airport hotels.

Okay. And regarding the convention bookings - what percentage of that is people that are new that - you bring new people to Dallas and what percentage are conventions that have been coming to Dallas and this is a new property for them?

When we opened this - Gary, this is Colin Reed - good morning. When we opened this hotel we had, as stated from memory, about 125 what we call star accounts on the books. These are the 600 plus - 600 minimum customers per night and peak night plus, 125 of those. It was about 85 of those - 85 of those 125 had not been to Texas in the last three to four years.

So, I will tell you anecdotally we - Dave and I had dinner two nights ago with a CEO of a company that owns a bunch of hotels in Dallas and the comment from that individual was we were fearful that the Texan, because of it's mass and magnitude and all the facilities, would just cannibalize this market. But he said we've been very pleasantly surprised that our business continues to improve and if anything, the luster of your hotel is having a positive effect on the image of the Greater Dallas area. And that was the words offered by a guy whose company owns I think eight or nine hotels in that market.

Great. Thank you very much.

One more question please because Dave and I have to, unfortunately, run off to a gathering of ResortQuest managers to try and inspire them.

Thank you. Our last question comes from Beth Lilly, of Woodland Partners.

Good morning guys.

Hey Beth.

Beth.

I have two questions. One is, can you talk about - can you review now the ownership interest in Bass Pro and how it breaks down and who the owners are?

Yes. We own 26.5% and expectively, Johnny Morris and heirs own the remaining shares of this company.

Okay. And -

Who was the founder which - Matt I think, owns 73.5%.

And how did you finance your purchase?

Using the balance sheet of Bass Pro Shops.

Okay so -

The very solid balance sheet of Bass Pro Shops.

So when you are able to talk a little bit more about this transaction, will it be revealed what you paid for your interest?

Beth, just to clarify the structure. What happened was Bass Pro Shops did a buy back of J.W. Child's take, so it wasn't that we used our cash or we invested to buy more shares - to the contrary. Bass Pro Shops redeemed some shares and put them into treasury. So effectively --.

We still own the same amount of shares Beth. It's just that there aren't the same amount of shares that are held anymore. They're back into treasury.

Right. Okay. But is there going to - are you going to talk about them? I mean this goes to somebody else's earlier question. Are we going to - we it then be talked about when you're able to -?

We are in the process of clearing the disclosure with the majority shareholder here as to what we can and cannot say. But our goal is to give you folks the visibility as to what the balance sheet would look like, of that entity, so you can understand the debt and understand what the price that was effectively paid. That's our intent to do that, if we can get clearance from the majority of owners, because it's their company. And give guidance on what we expect the consolidated cash flow and net operating income of the business will be, in accordance with the guidance that we typically give. We will try and give quarterly guidance or annual guidance on that business.

Okay. Great. Now my last question is, in the operating attractions segment, can you talk about the loss in the quarter and then the $1.2m in impairment charges that you took?

Sure Beth. The loss was driven by the impairment charge. We impaired a - there was an IMAX film that the Company was heavily invested in when we arrived - it was completed around the time that we arrived. We had about a $2m book value on it. And last year about the same time we looked at the revenue stream and impaired the asset by about $800,000. We looked at it again this year, in the ordinary course and the revenue stream was deteriorating and we didn't think it supported the remaining $1.2m book value and we wrote it off. So that's the nature of the - the explanation for the impairment and that's also the explanation for the loss.

Gotcha. So Corporate Magic, would you say is improving and you're pleased with it then within that segment?

I'd say it's improving and I wouldn't go so far as to say we're pleased with it yet, but it's certainly improving.

The corporate meetings business is - we've talked about many times, and I think most of our competitors talk it being pretty horrible over the last two to three years. But it clearly is improving and we're trying to figure out ways in the corporate management organization how we can grow this business substantially from the base it's at. But the good news is it's not losing money for us anymore.

Okay. Great. Thanks guys.

Thank you Beth.

Thank you Beth.

Good talking to you. Thank you. Operator, I think we need to curtail the call. If anybody has any additional questions please get in touch with either Jason, Dave, or you can call me. And thank you very much indeed for joining us this morning.

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