Ryman Hospitality Properties Inc (RHP) 2004 Q3 法說會逐字稿

Welcome to the Gaylord Entertainment Company third 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 5284109. At this time all participants have been placed on a listen-only mode, and the floor will be opened for questions following the 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 am the general counsel and senior vice president for Gaylord Entertainment Company. Thank you for joining us today on our third 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 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 the important factors, among others, set for in Gaylord Entertainment's filings with the Securities and Exchange Commission and in its third quarter 2004 earnings release and 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.

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 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 would like to turn the call over to our chief executive officer, Colin Reed.

Thanks, Carter. Good morning, everyone, and, as usual, I would like to welcome back all of you who know us and acknowledge those investors joining us for the first time. We are pleased with the results and the performance of the company in the third quarter. In many ways, it was business as we had predicted. Our hospitality business continues to thrive as we make great progress in the corporate meetings and travel marketplace. In fact, we delivered on our plan, but for the impact of Mother Nature in the form of an unprecedented sequence of hurricanes that hit our properties in the Southeast.

Since our last conference call, several important milestones have passed that merit additional comments this morning. As I just mentioned, we are experiencing strong momentum in our hospitality business. The hospitality environment, by and large, continues to strengthen, and our hotels continue to be recognized by customers as businesses that create great value for them. The Gaylord Texan has now been opened for six months, and we have received outstanding customer recognition. We have established a timeline for the official opening of the National Harbor Project and, yes, we are already taking advance bookings. We continue to make progress on building the ResortQuest brand.

I will review each of these topics and then Dave, our chief financial officer, will discuss the operating and financial performance of the company and finally provide guidance. I will then offer a brief closing statement, and then we'll open up the call for questions.

So let's first discuss our hospitality business. Over the last couple of years, many of you have heard me talk about the type of hospitality business that we aspire to be. Simply put, we are trying to build a hospitality business that is recognized by our customers as one that provides superior value for them in a sustainable way. In our opinion, there is no single brand that has seized industry leadership in the large meeting and convention sector, although we firmly believe that we are clearly on our way to accomplishing this. We have pointed out to you before that our goal is to book between 1.35 million and 1.4 million group move nights each year for future years, and then book within each year approximately 300,000 to 400,000 and leisure room nights. Now, these numbers, of course, exclude any impact from our Washington project.

Now, if we are able to accomplish this, we will operate our hotel business in excess of an 80-percent annualized occupancy rate, which is well ahead of those businesses that we tend to compete with. This is our goal, and one that is well within our reach, and I'll talk more about this in a moment.

Now, please bear with me for a second, because I want to get a little philosophical about our industry. Being recognized by customers as one that provides superior value will only happen when two things occur -- first, the customer has to be able to see that physically the product is superior or different but, second, and probably equally as important, the customer has to be able to recognize that there is a non-physical differentiation created by the service levels and touchpoints that the facility or facilities provide.

For most of the industry, there is not a major difference from one competitor to another regarding their physical and non-physical attributes and, by and large, price is often used as the marketing tool. I believe our strategy of differentiation through product and service to be extraordinarily powerful, because it will allow us not only to fill our hotels with convention customers who seek us out but, more importantly, fill our hotel with customers who have a higher worth to us than the industry average.

From all perspectives, we are striving to be different, both from a product and service point of view. And, long term, this differentiation will create enormous value for us. Typically, what you see in this industry is when times are good and demand rises faster than supply, the industry grows occupancy and rate, and when times get tough, the opposite occurs. Our goal is to break the paradigm and build a business where customers reward us for being different for creating great value for them consistently.

Now, a few moments ago, I told you our goal was to book somewhere between 1.3 million and 1.4 million group room nights each year, and we've had great success towards this. In fact, in 2002, we booked approximately 1.2 million room nights; in 2003, 1.3 million; and previously we have guided between 1.3 million and 1.4 million for 2004. Happily, I am pleased to report that we are narrowing that 2004 net group night production guidance to 1.4 million room nights. Now our net 1.4 million group room nights is a furious pace of production and one that we are extremely proud of, but in all probability, our pace of bookings for '05 may back off a little from this '04 pace because of, one, availability of room blocks, and this is a nice problem to have; and, two, have selectivity at the price we are willing to book.

In previous communications, we have said we believe that in '05, '06, and '07, we will drive high single-digit revPAR growth, and today we are confident that we will accomplish this, because of our strategy and advance reservations that we have on the books.

So let me share with you some of the third quarter highlights. We had a very impressive third quarter in our hospitality segment despite the expected midsummer seasonal softness in Orlando and Nashville. I am pleased to report that our same-store hospitality revPAR of 89.92 was better than expected and total revenue per available room in the quarter increased 3.3 percent to $202.61, well over double our revPAR for the quarter.

Now, total revPAR is a great measurement of the total customer experience. A major highlight of the quarter was the notable performance of our food and beverage operations at all three of our properties. A big part of that drive to differentiate our customer experience is to provide a superb dining experience as well as exciting entertainment and nighttime options. As success in this regard is really a testament to the long-term efforts of extremely knowledgeable and dynamic culinary staff and the high level of service we have implemented in all of our food and beverage offerings. This effort is now being recognized by industry groups and all of their customers, and that recognition is evident in our financials as demand for the experience builds.

As I talk with both prospective and current meeting planner customers, I am convinced that we have the properties, people, and strategies in place for long-term success in the group meeting market. No current competitor can offer the combination of wholly owned, beautiful resort hotels with state-of-the-art exhibition facilities in top convention locations around the country, a standardized level of exemplary customer service that is consistently upheld in any Gaylord hotel and top-notch restaurants and entertainment offerings all under one roof.

As many of you know, we have spent the last few years instilling a successful service culture amongst our managers and wonderful staff at our hotels. This hard work is absolutely reaping rewards in the form of our industry reputation and ultimately increasing the numbers and quality of our room nights booked. I am proud of what we're achieving in developing this brand, and we believe that position in the market will only get stronger as we continue to cautiously pursue the right development opportunities for the business. This brand strength can be seen in our rotational metrics.

As we have discussed, our strategy is to encourage corporate groups and associations to book in a rotational pattern within our group of properties. We view these rotational bookings on a -- let me say that again -- we view these rotational bookings on a trailing 12-month basis. By that measure, 43 percent of large group bookings have been rotational or, said another way, multi-location in nature.

Let me now touch on some of the highlights of each of the properties. The Gaylord Texan has outperformed their expectations in almost every metric. We are thrilled at the outstanding reviews from meeting planners and attendees. Occupancy is coming at 75.7 percent for the quarter, which exceeds even our initial excellent purpose have been tracking at very high levels. The Texan's results in the third quarter also not only outpaced some of our internal goals, but greatly surpassed competitors in the Dallas/Fort Worth area, with a revPAR index of 136 percent. This is indicative of the response from our guests to the exemplary service in unmatched entertainment experience we offer at the Gaylord Texan.

Within the Texan, we are particularly pleased with the early performance of our restaurants. As I discussed last quarter, the Texan has become quite a draw for the local residents in the Dallas/Fort Worth market, which is consistent with our strategy of developing revenues outside of the room.

Over the years, I have had the opportunity to be involved in the opening of many hotels and casinos, and this opening was one of the best I have witnessed. I am personally delighted with the professionalism demonstrated by our management team in Texas. We continue to aggressively refine the operation to improve margins and to address issues such as parking, caused by business volumes. And, I will tell you, these types of issues are much more easier to address than not having sufficient revenue.

Gaylord Opryland had a very good quarter and benefited from higher occupancy rates -- 2.7 percent quarter-over-quarter. This increase helped drive higher revPAR and total revenue per available room at the Opryland. We are delighted that the customer service levels continue to improve again on Opryland. Our great start for this landmark property earned customer satisfaction bonuses, which are, of course, based on how our customers rated service throughout this period of time.

Gaylord Palms was somewhat affected by the hurricanes with a decrease in the year-over-year quarterly occupancy of 7.4 percent due to lower group occupancy and lower transient average daily room rates in August as a result of the evacuee rates we offered during Hurricane Charlie. During and after Hurricane Charlie in August, the Gaylord Palms served as a disaster recovery staging area for a Florida utility company. However, the increase in business was not enough to overcome the lower rates and the decrease in transient room occupancy caused by the hurricane.

I want to say that we are proud for Gaylord Entertainment and Gaylord Palms, in particular, was able to assist residents in such trying times for the state and the entire Gulf area. Our employees, both in our hospitality segment and at ResortQuest, demonstrated the resiliency, dedication, and value for which our company is becoming known. Their hard work, professionalism, and perseverance through the adversity of such an unusual state of severely inclement and dangerous weather is a great validation of our company-wide focus on service, which we believe ultimately distinguishes us within the industry.

As for our newest project, as we discussed on the last call, government officials in Prince George's County, Maryland, approved two bonds towards the National Harbor Project back in July. With that initial funding approved for the cost of the infrastructure development and part of our initial construction costs, we were able to unveil more specific plans for this project in late September. Gaylord National Resort and Convention Center on the Potomac will be part of the planned 200-acre National Harbor Development, the largest combined hotel and convention center in the nation's capital region.

Situated on a scenic bluff overlooking the Potomac River in Prince George's County, Maryland, the Gaylord National will be located less than 10 miles from the national landmarks and federal buildings of Washington, D.C. We expect to open the doors to the property in March of 2008. Gaylord National will offer an unmatched entertainment experience to convention and large meetings in the finest location on the Eastern Seaboard. We are confident that the quality and variety of retail, dining, and recreational amenities and the grand scale of convention and exhibition space within the property will make the Gaylord National the preferred destination in the nation's capital region. Accordingly, we are now open for business, so to speak, and we are already booking meetings for 2008 and beyond.

Now, the meeting planners we target are excited to work with us at our new property after our shared success in Orlando and Dallas. The nation's capital attracts more than 33 million visitors annually, but it is undisturbed as a destination market. Moreover, the region is home to many of the associations that fit our target customer profile, making us even more optimistic about the level of interest we expect from the meeting planners. Dave will discuss our plans to finance this project in just a few minutes.

Now let me take a minute to update you on ResortQuest. As I said earlier, this business was well on track to accomplish its goals until Hurricanes Charlie and Ivan paid us a visit. The negative impacts on the ResortQuest business, in turn, led to a slight shortfall against our overall CCF guidance that we shared with you three months ago. Most of our units under management that were affected in approximately 2,000, all in all, were around Pensacola Beach and the Destin area, and in Southwest Florida on Sanibel and Captiva Islands. We project that many of these units in which we quickly began the remediation process will be back in service by the end of the year, with 75 percent back in service by May of '05.

Specifically related to Hurricane Ivan, our call center had to be temporarily shifted to other ResortQuest locations. This required extensive coordination and dedication on the part of our information technology department and ResortQuest operators and our call center staff. To our knowledge, ResortQuest was the only vacation rental company that provided uninterrupted telephonic service to guests and property owners during the severe hurricanes. This is an outstanding testament to the resilience and dedication of our ResortQuest employees. We are using this differentiated level of service in communicating to homeowners the benefits of contracting with ResortQuest.

Our rebranding and service guarantee programs that we outlined to you last quarter are progressing as planned. Our technology strategy has been crystallized, and the work has begun, which will be completed sometime towards the end of next year. Once rolled out, this technology and business process will give us a huge advantage over the locally operated mom-and-pop businesses.

Now, there are two other ResortQuest topics I want to touch on as a byproduct of our extensive industry research that we undertook last year. We have beefed up our ResortQuest development organization. Our goal will be to add units aggressively in certain key markets either by directly targeting units managed by (technical difficulty) for alternatively acquiring smaller local operators. Needless to say, any acquisition we undertake will be accretive and will be in the markets that are strategically important, and we will, of course, keep you updated on this as our plans unfold.

Second, we will be increasing our marketing and direct sales spend by almost $5 million during 2005 in the critical feeder markets that provide customers to our strategically important local markets. Controlling supply and having a powerful voice in the feeder markets are critical to dramatically growing and developing this brand. We are excited about the brand and dedication and hard work that we have employed on the Gaylord Hotels brand. We will see unit growth, revenue growth, and margin expansion, and very good profit growth.

Now on to entertainment business -- we have two important developments in our Grand Old Opry business. First off, as part of our efforts to both capitalize on the Grand Old Opry's tremendous brand recognition and extend its reach to new audiences, we named Cracker Barrel as the first presenting sponsor of the Opry. This agreement will generate revenue for the company in the fourth quarter and over the long term we will be able to reach millions of Cracker Barrel guests in over 500 restaurants in 41 states. We are excited about this partnership and with pursuing other new and innovative marketing agreements for the Opry.

Second, Direct TV, the nation's leading digital multi-channel television service provider, announced in September that it will carry Great American Country, the 24-hour country music network. As you may know, this network features exclusive live performances from the Grand Old Opry. We are excited about this additional distribution and will continue to focus on creative ways to unlock value in the Grand Old Opry.

Now, before I turn over to Dave, I just want to mention that we have made some progress on the discussions with Bass Pro Shops, and you'll notice that during this quarter we have booked income for Bass Pro Shop, and Dave will discuss that. So with that, Dave, you will discuss the financials, please.

Thanks, 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 their operating drivers. Finally, I'll provide guidance for the rest of 2004.

Consolidated revenues were $195.9 million, an increase of 99.7 percent from the $98.1 million in the same period last year due to the inclusion of the results of ResortQuest and strong performance from the Gaylord Texan. Year-to-date, consolidated revenues were $556.9 million, an increase of 75.1 percent from $318 million in the same period last year. Consolidated cash flow was $25 million compared to $12.9 million in the same quarter of 2003.

For the third quarter of 2004 we reported a consolidated operating loss of $1.3 million compared to an operating loss of $8.8 million in the third quarter of '03. The company had a consolidated net loss of $3.2 million, or 8 cents per diluted share in the third quarter of '04, compared to income of $11.7 million, or 34 cents per diluted share in the third quarter of '03. Year-to-date, consolidated operating loss was $10.4 million compared to $5.3 million for the first nine months of '03. The consolidated net loss was $44.7 million versus a net income of $16.7 million last year. Remember that net income comparisons, period-to-period, reflect changes in the value of our investments in Viacom stock and its related derivatives.

And now I would like to review the performance by business segment starting with the hospitality segment. As Colin mentioned, the hospitality segment performed largely as we expected for the third quarter. Lower group bookings coming into the quarter led us to expect lower revPAR from our hotels in the quarter. Remember, we are an 80-percent group business, so incremental transient business for us often is not meaningful.

Nonetheless, there were a number of bright spots in the quarter in the hospitality segment. Group demand was slightly stronger than expected, leading to a modest out-performance of our expectations on revPAR. Our ability to upsell groups on food and beverage and ancillary services allowed us to drive an increase of 10 percent in food and beverage revenue per occupied room over last year's third quarter. The Palms Hotel STARS weathered three hurricanes passing over the area with little damage from the storms and very favorable customer reactions to the service they received during that difficult period of time.

And, finally, the Texan continued to mature as a property producing very, very strong revenue growth over the second quarter. The property produced occupancy in excess of 75 percent for the quarter and increased its consolidated cash flow margins by 160 basis points over the second quarter of 2004.

For the quarter, the hospitality segment revenue was $113.7 million, an increase of 37.4 percent from last year's third 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 revPAR were 89.92 and 191.62, respectively, in the third quarter of '04. RevPAR performance, as we mentioned earlier, came in slightly higher than our expectations.

Hospitality segment operating income was $2 million in the third quarter of '04 compared to operating income of $1.9 million a year ago. This increase was due to increased profitability of the food and beverage operations and the inclusion of The Texan Hotel in the operating results.

Consolidated cash flow for the segment was $19.2 million for the third quarter of '04 compared to $18.7 million for the third quarter of '03. Hospitality consolidated cash flow margins decreased from 22.6 percent in the third quarter of '03 to 16.9 percent in the third quarter of '04. This was largely due to the reduction in ADR at The Palms compared to third quarter of '03 and the promotional rates offered at The Texan to groups to promote trial in the first nine months of operation.

As Colin mentioned, the third quarter metrics for the Gaylord Opryland property were solid as expected. This property posted an ADR of $130.89, occupancy of 72.6 percent, up 1.9 percentage points from a year ago, and revPAR of 95.07 for the quarter, up from 93.46 a year ago. As we expected, Opryland saw lower ADR year-over-year due to lower group and transient rates experienced during the month of August.

Gaylord Palms generated revPAR at $86.80 in the third quarter of '04 compared to $103 in the same period of '03. The decline was driven by a lower occupancy rate during the quarter of 62.6 percent, down from 70 percent a year ago due to lower group occupancy and reduction in group ADR in July and, as Colin mentioned, lower transient ADR in August as a result of evacuee rates given during Hurricane Charlie. ADR was $138.28 for the quarter, down 6 percent compared to the prior-year quarter. Total revenue per available room at The Palms was $224.69 the third quarter of 2004, a 7.8 percent decrease from the third quarter of 2003.

Of note, The Palms was particularly successful in yielding the most out of the rooms that were occupied for the quarter. Food and beverage and other revenue per occupied room increased 5.5 percent and 24.5 percent, respectively, over 2003 levels. In addition, our STARS at the Palms rode out three hurricanes delivering terrific customer service to guests in the house and evacuees from surrounding areas.

The Gaylord Texan generated revPAR of $98.60 in the third quarter of 2004 with occupancy of 75.7 percent. ADR was $130.25 for the quarter, total revenue per available room at the Gaylord Texan was $236 in the quarter. While still not operating at its maximum level of efficiency, the property has matured significantly in the past three months operationally, and we expect very good things to come from The Texan.

And now on to ResortQuest -- third quarter occupancy for ResortQuest decreased 1.7 percentage points to 57 percent, and ADR increased to $175.02, up from $161.58 in the third quarter of '03 excluding the approximately 2,000 units that were taken out of service due to the impact of the hurricanes. This resulted in revPAR of $100.30 for the third quarter of 2004, a 5.8-percent increase over the same period in 2003, again excluding those units out of service due to the hurricanes. Total units under exclusive management decreased to 18,346 for the third quarter and excluding those units out of service, units under management stands at approximately 16,350.

As Colin discussed, ResortQuest faced a challenging third quarter due to severe weather brought on by hurricanes, which caused prolonged business interruptions and significant damage to inventory in certain markets in Florida. We estimate the negative impact of the hurricanes to ResortQuest operating income to be approximately $3.5 million for the quarter. We are covered by business interruption insurance that protects us from events like these, and we are currently assessing the business interruption claims available to us and will file a significant claim in the coming months. Results of the third quarter and full year 2004 exclude any recovery available to us under applicable business interruption insurance coverage.

For the third quarter of 2004, ResortQuest revenues were $63.7 million, and operating income was $7.7 million, and ResortQuest DCF was $10.8 million for the period. Operating attractions revenues were $18.4 million in the third quarter of 2004 compared to $15.3 million in the third quarter of '03. Operating income in the operating attractions segment was $1 million in the third quarter of 2004 compared to about $800,000 in the third quarter of 2003. Operating attractions consolidated cash flow increased to $2.3 million in the third quarter from $2 million in the same period a year ago. The increases in CCF (ph) in the segment were driven by attendance at the Opry and Corporate Magic.

Now to our stake in Bass Pro -- we mentioned on the last quarter call on July 8, 2004, Bass Pro Inc. redeemed the approximate 28.5 percent stake held in Bass Pro by private equity investor, J.W. Child Associates. As a result, Gaylord's ownership stake in Bass Pro increased from approximately 19 percent to 26.6 percent. Consequently, Gaylord began accounting for its interest in Bass Pro using the equity method of accounting in the third quarter of 2004. The equity method, through which Gaylord will account for its proportionate share of Bass Pro's net income, going forward, has been applied retroactively to all periods presented.

For the quarter ended September 30, 2004, Gaylord's equity income from the investment was $1.6 million. For the year-to-date period, Gaylord's equity income from the Bass Pro investment was $3.4 million. Bass Pro currently operates 22 stores and plans to add 14 to 16 new stores over the coming two years. Gaylord's share of equity income from Bass Pro for 2004 is expected to be between $5 million and $6 million.

Corporate and other operating loss totaled $9.4 million for the third quarter of 2004 compared to an operating loss of $11.5 million in the third quarter of '03. Corporate and other operating losses included noncash charges of $1.4 million and $2.6 million for the third quarter of '04 and '03, respectively. These charges include items such as depreciation, amortization, impairment charges in the noncash portion of the Gaylord Entertainment Center naming rights agreement expense. Corporate and other consolidated cash flow with a loss of $7.3 million in the third quarter of '04 and a loss of $7.9 million in the third quarter of '03.

At September 30, 2004, the company had indebtedness outstanding of $545 million -- excuse me -- $545.7 million and total unrestricted and restricted cash of $73.1 million.

In terms of guidance, the fourth quarter for Gaylord's shift to a predominantly transient customer mix, and at Gaylord Hotels we are off to a solid start in October, and we reiterate our annual guidance for revPAR growth of zero to 2 percent of the full year of 2004. ResortQuest will continue to feel the impact of unit loss in Florida for the fourth quarter as a result of the hurricane damage. Consequently, and as a result of the hurricane impact on both the third and fourth quarter results, we are reducing our 2004 guidance for consolidated cash flow to $95 million from $100 million.

As for 2005, the year is shaping up to be very strong. As advance bookings we have closed over the past few years are realized, and we reap the rewards of our rebranding effort at ResortQuest in the form of growth and unit count. We still expect high single-digit revPAR growth at our Gaylord Hotels, and we expect to drive significant unit growth at ResortQuest.

Finally, capital expenditures are expected to be approximately $130 million to $135 million for the full year of 2004 and an additional $8 million to $10 million for Gaylord National.

Now as to the financing for Gaylord National Project, which Colin described earlier, we are in the process of assessing our options and, as you all know, we are very, very bullish on the Gaylord National Project and believe it will produce very high levels of returns for you, our shareholders. We are in the process of discussing financing alternatives with our financial advisors and have had very strong interest from quite a number of banks and, as such, we have a high level of confidence that the financing required is available at very attractive pricing levels.

Based on the anticipated spending required for the design of the project, there really is no acute need for capital for the project and, over the coming months, we intend to complete our review of available sources and put capacity in place sufficient to fund the new Gaylord National. As we have described before, in the near term this will take the form of incremental availability of indebtedness, and we will use monetization of noncore assets as additional capital available to allow us to continue to grow the business.

And now I'd like to turn the call back over to Colin.

Thanks, Dave. Well, I think, Jack, what we'll do at this stage, rather than me being repetitive on what I've already said, is to take questions.

(OPERATOR INSTRUCTIONS)

Our first question is coming from Nap Overton.

Good morning, a couple of questions. Can you discuss a little bit in more detail what we should expect to see with the advance booking trends, you know, the decline from year-ago levels was -- raised my eyebrow, anyway, after the 40-percent increases that you have been reporting year-over-year, in particular, as it relates to those bookings on a same-store basis, and you also referred a little bit to fewer blocks of rooms being available. Could you be more specific about what we should expect there?

Hi, Nap, this is Colin. Let me give a shot at that, and, Dave, if you have anything you want to add, please add. The third quarter -- let me sort of preface -- the level of bookings in the third quarter was one of the highest quarters of bookings we've ever had as a company. We actually had a very, very, very high level of bookings, well over -- just over 300,000 for 2003. We would have actually beaten the third quarter 2004 -- would have beaten third quarter 2003 handily, had we not had one booking cancellation for 210, 212, major piece of business for out years that were taken some considerable time ago. That was a 40,000 block cancellation that we took in that quarter.

But the point of this is this, Nap. As you know, with the three operating hotels we have, we have about 2.2 million available room nights in any given year. And our goal is to accomplish a sustainable 80-percent level of occupancy, and I think we believe that there is no other company that is doing that. In order to do that, we need to book somewhere between 1.3 and 1.4 million group room nights, and that's the pace we're at this year. In fact, we're at the high end of that pace this year, and we were almost at that pace last year. And what we're starting to see is that people are coming to us and saying, "We want to book, we want to book, we want to book," and there are some parts of our annual calendar that we already have bookings -- substantial bookings for 2005, 2006, and 2007, and that's why we've been able to guide high single-digit revPAR growth.

And so what we're saying is, the demand for room bookings is absolutely growing in our business, but the availability, because of the job we've done over the last two years, is starting to get in the way of us booking very, very, very high levels of rooms month-by-month, quarter-by-quarter. We absolutely -- I think the way to think about this is we absolutely believe that within the 2006-2007 timeline, our operating hotels will be pushing 80-percent occupancy. We absolutely believe that, and that's why we've guided this high single-digit revPAR growth.

The other thing that we are being very rigorous on here is just as you see other great brands refusing to compete on price, we are taking that same posture. We believe the value that we deliver to the consumer is so different than the competitive hotels that we sort of bump into in markets like Dallas, in markets -- well, there aren't any other competitive hotels here in Nashville, but those hotels that sort of compete with us are the ones in Atlanta and New Orleans. We believe the value we deliver here in Nashville is so superior, and we are not going to compete on price. We are just not going to do that. We offer a lot more value to these consumers, and we think we can book high-quality customers into Opryland and into our other two big hotels and drive more revPAR and total revPAR and profitability.

So what we're basically saying here is that we expect to do absolutely between 1.3 and 1.4 million room nights, but don't expect this torrid, 20 to 40-percent growth rate that you have historically seen, because it's just not possible to accomplish that with the availability that we have.

Okay, thanks, and that and it's just interesting to see this quarter with the decline in The Palms revenue per available room apparently was in line with about what you expected as hotel group same-store revPAR was down 4 percent in line with your guidance, but there is a significant contrast between the short-term quarter-to-quarter lumpiness of this group business and the general predictability it provides over a two- to three-year timeframe. And that's actually illustrated quite well in this quarter.

Yes, that's right. You know, the other problem that we are having is really one that, to a large extent, we are not in control of. The momentum with this brand has been building over the last two years, and, as you well know, the timeline between when someone books and when someone arrives is anywhere between two and four years. So that's what we've been saying consistently in the 2003-2004. There is not a hell of a lot we can do in the year for the year to capture these large pieces of group business in the year for the year, because the things that we are absolutely building towards is building towards having a sustainable level of 80-percent occupancy in our hotel businesses and as these bookings that we have contracted for in 2003 and 2004 and 2002 start to show up in 2005, 2006, 2007, I think you're going to see a lot more consistency, quarter-over-quarter, patterns than you have historically, because the bookings that we are seeing in this year, in 2004, in The Palms, as an example, by and large, was contracted for back in 2001 and in 2000, and this is before this management team turned up, and it was before this management team has transformed the service culture of these businesses.

But, you know, I think the bottom line here is that we are going to get high single-digit revPAR growth out of this business next year, the year after, the year after. We're building towards 80-percent occupancy in these businesses. We are very confident that we can accomplish this simply because of what our customers are telling us the way they like us, and we believe the top spin for us is to continue to be flawless on our service execution and do business with the higher, theoretical worth consumer. That's our strategy.

And, Nap, this is Dave. I think what you are hearing in the comments about the numbers of bookings you should expect to see and kind of compare that to what our revPAR guidance looks like, I mean, the bottom line is we're getting a lot better at yielding our hotels. You know, when we got here three years ago, this big-group business was new to this management team, and so each year we've gotten better and better at yielding the hotels. So I think what Colin is pointing out is that we now understand a whole lot better group booking patterns than we understood a year or two or three years ago, and so we know a lot better how to maximize yield in a given period, and we also know there are a much larger number of high-worth customers out there than we are doing business with today. So you shouldn't expect to see 10, 15, 20 percent numbers of bookings growth, but we're going to be driving these same levels of bookings of 1.4-plus million room nights a year but with a better, higher-quality customer.

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

Thank you. Good morning, Colin, Dave, Jason. A few questions here -- there was a brief note on the derivative, on the securities. Can you expand on that? Particularly, what you think the net present value of the derivative is right now?

You're referring to the overall Viacom hedging contract?

Yes, yes.

Well, the tax liability due on that contract is about $150 million, plus or minus, in late 2007. The derivatives we mark-to-market every period on our balance sheet -- I think the net value of the asset is around $200 million today, and the net value of the liabilities is around $2 million or $3 million today of the derivative liability.

So the bottom line on the Viacom contract is we continue to watch that transaction and evaluate when is the right time and when is a good time for us to unwind that contract or to do something else with it to fit the shareholders. There is a little bit of a sweet spot on where we can do some things to manage that tax liability in 2007. We're not there today, from a Viacom stock price perspective, but we do continue to watch it, and it's something we try to actively manage.

And so nothing really changed during the quarter with -- I guess that was unclear.

No, nothing really changed during the quarter. We just tried to make sure that people know when they compare net-income-to-net-income, period-over-period, that it's affected significantly by how much the stock price of Viacom changes in that same period.

Okay, great, and the other item -- on capex, you gave the guidance for '04. Can you just mentioned for what it was for the third quarter? Did you still spend money on The Texan or some of it on National?

In capex for the third quarter was about $14 million.

Okay, and so what would it for the fourth quarter be? I guess I could do the math -- I think for the first two it was something like 86 or --?

Yes, it should be about -- call it $30 million, plus or minus.

Okay, and then looking out to next year -- I assume we're basically all done with everything at The Texan. Is it all about the National now?

Yes.

And what are we looking at for next year on expenditures there?

The National, we expect to spend around $70 million in 2005. That's the completion of design; that's groundbreaking; that's taking down the land -- we have not yet purchased the land. We just have an option on it. So 70 is the number on the National for next year.

And when would you expect to break ground -- early in the year?

Will, what we're going to do on that is we're going to move a bit of dirt around symbolically with the politicians in early December of this year.

Okay. I'm picturing you with a shovel right now -- just standing there for cameras.

I will actually have somebody holding the shovel and moving the earth, and I'll be smiling.

Okay, one other thing -- just on ResortQuest -- you mentioned this $5 million of additional -- I think it was -- maybe you can repeat that, but marketing and sales costs, and I guess I'm wondering what '05 looks like. I know you didn't give specific guidance on ResortQuest for '05, but you had been at $20 million for '04 down to, now, 14. What can we look for in '05? Any comments?

I would say to you that had we not gotten whacked by Charlie and Ivan, we would have been at this 19 to 20 range -- we would have been quite confident with that because of the advanced bookings that we actually had in that ResortQuest business. And we expect to see growth, but we're not going to get into the predicting mode on ResortQuest growth for probably another two to three months. One of the things, though, that we -- and there are some reasons for that, Will, that we really don't want to get into right at this stage, but I think they're all sort of reasonably positive, is that one of the things that the ResortQuest management and the senior management of our company see eye-to-eye on is that this whole -- and I tried to (indiscernible) a little bit here -- this whole desire to grow unit count in this business. We really do believe the controlling supply gives us a lot more leverage in the communication with the intermediaries that deliver business into this industry, number one.

And, number two, having a far greater share of voice in the sales and marketing efforts in these big-time feeder markets. The problem that ResortQuest has and, in fact, the whole industry has, is that there really isn't a brand out there that resonates well with consumers. What we have found in all of our research is that there is huge desire to want to go book vacation homes from people who don't do it, but there lacks trust, because there is really no brand out there that they can say, "Aha, I can book here. I can do it well technology. I can pay online with credit cards, and I know when I turn up, I'm going to get what I bargained for." So what we're going to do is, we're going to get aggressive around unit growth, and we're going to get aggressive around communicating the attributes of this brand as this brand unfolds, and we are going to -- just as -- I hate to, I hate to sort of -- get sort of philosophical about this, but, you know, before you reap the harvest, you've got to sow the seeds, you've got to plow the fields, and you've got to fertilize the business, and that's what we're in the process of doing right now.

But, I'll tell you, this management team is very excited about the prospect here for ResortQuest as a brand, and so I think we'll be in a position here in the next two to three months, given some of the discussions we're having, some of the actions that we're taking, to be a little clearer about guidance for 2005 here towards the end of the year.

Thank you, our next question comes from Brent Filekopf (ph) of Performance Capital.

Hey, guys, I have a couple of questions. The first is on ResortQuest. When you talk about unit growth, in a couple of years, how many markets would you like to be in and which markets are really appealing?

All right, shall I answer that first? Have you got another question, Brent, you want to ask, and then we'll answer?

Sure, two others ones -- on Bass, are you able to give us any unit economics on maybe some of the more mature stores and, finally, on Texas, you know, you kind of thought, coming into Gaylord that, given the money spent, the returns probably wouldn't be where you would like the to be. Has your thinking on that changed now that you have two quarters under your belt?

Right -- Bass Pro Shop Texas, the first question was --

ResortQuest, how many markets?

Yes, ResortQuest -- let me touch on the ResortQuest first, Brent -- good to talk to you, by the way. We have, I think, made it clear in previous discussions with shareholders on these broad calls, about five months, six months ago, we started a piece of work that was very, very, very expensive. We basically went to every single market -- vacation rental market in the United States and took those markets apart. We basically weighted those markets in terms of value that they can create to our shareholders based upon how many units are in those markets, how many units are growing, how many units will be built, the economics of that market, the feeders of those markets. There were multiple, multiple, multiple criteria that we valued each of these markets on. What we found, Jason -- correct me if I'm wrong here -- is that ResortQuest is only in four of the top 10 economically positioned markets. So there will be new markets that we will enter over the next one to two years in those top 10, but very, very, I would suspect, that -- we're in 29 locations today. I don't expect that 29 to grow to 50. I expect that 29 over the next one to two years to grow to a maximum of some of those markets that we're in that may not be as economically compelling to us over the long term.

So that's the work we've done. What I don't want to do, Brent, and you understand this, and so I tell you this market and this market and this market we really like, because what that does is gives publicly the opportunity for those people that we want to go in and consolidate the opportunity to know that we really do like that market, and it makes their bargaining with us a little bit more aggressive, and we don't like that. We like to buy businesses that have a lot of value for our shareholders if we're going to buy businesses.

The second is -- I think the second question regarding that in terms of unit economics -- one of the commitments that we have made to the principal shareholder here is that we won't get into unit economics. The tenant improvement benefits that they have derived because it will give their competitors like Cabela's and like Gandamount (ph) and, obviously, public information about the ability that Bass has to secure very favorable deals when they go into these markets. I'll tell you that it's our encouragement to the founder and principal stockholder to continue to do as many deals as he can do at the levels of which he is currently doing it, so you can read between the lines. They are very favorable to value creation, we really like this business, and it has, we think, great growth characteristics, and that's one of the reasons we want to stay in this business, because we think the value to our shareholders one to two years from now will be substantially greater than what it is today.

The third question was regarding the economic of Texas, and we said, I think, very clearly, two years ago that if we could redo it all over again, we probably wouldn't do it quite the way we it's been done. And, frankly, that, from a stockholders' perspective of the deal, that still applies, but one of the things that we are encouraged by here, is that clearly this new product in this market is (technical difficulty) into this market. We are seeing that. Our customers like this place. I got a phone call last week from a chairman of a very large public company who had just come off of a three-day convention -- a very, very big convention at the facility, and he basically said, "I haven't seen anything like this in the years that we have been doing these types of conventions. The facility is phenomenal. We love it. I'm glad you've got other facilities. So we are confident -- we told the world, I think, when we did the bond offering -- I think I know when we did the bond offering that we can move EBITDA towards the 40 million to 45 million range in the third year of operation. David, I think that sitting here today with the bookings we have and consumer reaction the way it is, I probably have more confidence in us being able to accomplish that in reasonably short order than I did six months ago. I mean, clearly, the consumer reaction here is just outstanding (technical difficulty).

So I don't know whether I answered your questions well enough, but they will be my answers.

One last question, please, Jack, because we've now been going about an hour.

Thank you, the last question is coming from Nap Overton of Morgan Keegan. Please go ahead.

Two things really related to ResortQuest -- to what do you attribute the decline in occupancy this summer with -- I've been under the impression that leisure demand and travel demand have been exceptionally good, and occupancy being down a little bit surprised me for the quarter. And can you clarify whether any of the $3.5 million shortfall in the third quarter, given that you don't own those units -- is part of that cleanup cost or is it all lost rental -- or management fees from lost rental income? Can you just clarify that for us?

Nap, I'll take those. This is Dave. The decline in occupancy was related to two things -- number one, as you can see, we try to drive rate a little bit moreso than we had in the past, and we showed a pretty solid rate increase during the summer months, and I think that may have taken a few of the consumers, you know, that -- we may have taken in the past out of the equation.

The second thing is, if you look at the summer weather patterns this past summer, recognizing that the majority of our income in the summer comes from Florida, North Carolina, Delaware, South Carolina, those kinds of areas -- there were quite a few unfavorable weather patterns. I mean, Tropical Storm Bonnie hit in mid-August, which is kind of dead-center of the summer holiday season, and it went on from there.

So I think those are the two major drivers of the impact of occupancy in the period and we still drove a nearly 6-percent revPAR growth, so we're pretty pleased with that, given weather patterns and the rest.

The $3.5 million shortfall is, in fact, lost management revenues, and that is -- what it actually is is lost management revenues and then net of any cost-saving actions that we took during the period, we did do a fairly significant layoff just after Hurricane Ivan hit in the Northwest Florida coast and also after Hurricane Charlie hit -- took a direct hit on Southwest Florida. So it's truly the net profit impact of lost management revenues net of any comp savings initiatives that we put in place.

And at some point will be offset by the business interruption claims (inaudible).

Jack, I think what we'll do now is, if we could, if anybody has any particular questions that they would like to follow-up on, please feel free to get hold of either David or Jason or if you want to call me, you can do that, and thank everyone -- I'd like to thank everyone for their time this morning, and we'll speak to you all pretty soon. Thank you very much, indeed.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time and have a wonderful day.