Ryman Hospitality Properties Inc (RHP) 2004 Q4 法說會逐字稿

Welcome to the Gaylord Entertainment Company fourth-quarter 2004 earnings 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're also joined by Mr. Key Foster, Vice President of Treasury and Investor Relations, and Mr. Carter Todd, Senior Vice President and General Counsel. At this time, all participants have been placed on a listen-only mode, and the floor will be open up 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'm the General Counsel and Senior Vice President for Gaylord Entertainment Company. Thank you for joining us today on our fourth-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 forth in Gaylord Entertainment's filings with the Securities and Exchange Commission and in its fourth-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 for 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. I would like to welcome back all of you who know us and acknowledge those investors joining us for the first time. Now while it's nice to grow revenues by 300 million or 67 percent and consolidated cash flow by 28.4 million and 44 percent in 2004 over 2003, from my perspective I'm most pleased with the improvements we made in the areas that will allow our business to grow and flourish in the coming years. In our hospitality business, I am specifically referencing our employee and customer satisfaction performances, that those show up as a line item in our operating statements that clearly shape how frequently customers will book with us.

At ResortQuest, you can conclude that our first full year of ownership was a little disappointing when just reviewing the financials of the business. But we feel we accomplished a lot, and I believe this brand will emerge in 2005 as the dominant brand in the vacation rental industry. 2005 will be a good year for Gaylord Entertainment. Now since our last conference call, we reached several important milestones that merit additional comment this morning. We are proud to report healthy growth in the fourth quarter in all of our businesses compared to the same period last year. Our hospitality business has real measurable momentum. The Gaylord Texan has now been opened for 9 months and continues to garner outstanding customer recognition. We have broken ground for our exciting new National Harbor project and have had exceptional response in advance bookings and customer contact. This will be a spectacular property and development.

Over the next few minutes, 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. And as usual, we will then open up the call for questions. So I mentioned the strong momentum in our hospitality business, reflecting the fact that we're delivering on our plans and succeeding. Our hospitality business has been strengthened with the addition of the Texan. Adding a third world-class property has solidified our rotation strategy with our customers, and model of providing convention center hotels with state-of-the-art exhibition facilities, exemplary customer service, and top-notch restaurants and entertainment offerings all under one roof is unique and unmatched in the marketplaces where we do business. We have made great strides in enhancing our customer service offerings, and we continue to receive positive feedback on our hotels from our guests and the meeting planners who book large group stays.

Smith Travel Research compiles competitive data in which the most recent data indicates that Gaylord Properties have maintained their competitive market, ranking amongst the top 5 properties in their respective markets on a RevPAR basis in 2004. This recognition is a direct reflection on the quality of our superior service and our ability to meet customer needs. As a result, Gaylord has emerged as the leading large meeting and convention hotel company in the country, which is clearly reflected in our strong advance bookings numbers, our increasing rotational booking numbers, and the types of customers who are utilizing our properties for their conventions.

Now one of the things we've tried to do over the last couple of years is to give you, our investors, exposure to the metrics that we think are most critical to the long-term success of our company. Advance bookings are, of course, central to how well our company will perform 2 to 4 years from now, given the leadtime between bookings and arrival. But the question you may ask is, what truly affects bookings? Well, clearly customer satisfaction drives bookings, but the key to our business is to understand and deliver on those things that drive customer satisfaction. In this respect, I want to discuss the most important driver of customer satisfaction, namely our employees. One of our strongest held beliefs is that a happy and motivated workforce increases guest satisfaction which, in turn, drives customer value and profitability.

Therefore, in 2004, we conducted our second annual employee satisfaction survey to assess the cultural climate of our organization by measuring employee engagement. We worked with a major outside market research firm to capture, analyze, and benchmark our results. Now over 85 percent of our workforce completed this survey. I am thrilled to report that the results of the satisfaction survey were very, very positive. Gaylord employees reported significantly higher scores on all measures when compared to both hospitality and cross-sector benchmark companies. Compared to these normative groups, there were 3 times as many top-box or strongly agreed scores on job satisfaction, stated intention to remain at Gaylord, and willingness to stake their own personal money in the success of the Company. Our consultants tell us from their extensive research in this field that these three measures are the most strongly predictive of employee retention and their enjoyment in dealing with the customers.

Needless to say, our employee centric cultural has shaped how our customers feel about us, and frankly, I am very excited with the results. In short, our customer satisfaction scores are uniformly higher at hotels, and in particular our new Texas scores are quite impressive. Across all Gaylord Hotels, 8 out of 10 customers rate us a 7 out of 7 on the satisfaction scale. And it is for this reason, our advance bookings and rotation rates are where they are today. At the beginning of last year, we said our goal was to achieve 1.4 million room nights in advance bookings for the year. I am pleased to say that we have exceeded that target. This is an approximate 15 percent improvement over 2003, and adds to an already strong pipeline of future business.

Now this coming year, our pace of bookings is likely to be flat to slightly down from the levels we experienced in 2004, largely due to the lack of availability of room blocks in our selectivity at the price at which we are willing to book rooms. Now this is an important point. We firmly believe that we are delivering substantial overall value to the customer that is better than what is being delivered by our competitors, and we will not compete on price. Prospectively, add growth in profitability is more tied to the quality of the customers than to the quantity. In previous communications, we have said we believe that in '05, '06, and '07, we will achieve high single-digit RevPAR growth, and today we are confident that with our current pipeline of advance bookings we will accomplish growth in this previously indicated range.

The Gaylord National, which I will discuss in more detail later, is experiencing strong interest from prospective customers as well as strong advance bookings. We think -- we began booking at the Gaylord National in November of last year, and by year-end we had booked over 113,000 room nights. In fact, these early bookings substantially exceeded where we were at this stage of development at the Gaylord Palms and the Gaylord Texan. This is truly a testament to our brand and to the work of our outstanding employees who are critically motivated to sustain our exceptional reputation. By any metric to achieve these bookings for a convention hotel opening in 2008, with no bricks and mortar in the ground and just a dirt road leading to the site, is extraordinary. The reception from the meeting planners has been exceptional across the board.

Our brand strength can also be seen in our rotational metrics. 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 trailing 12-month basis. By that measure, 50.4 percent of large group bookings were rotational in 2004, a significant increase from 2003, when our rotational bookings were a healthy 37.5 percent of room nights booked.

So now let me share with you some of the overall fourth-quarter highlights. We had a fourth quarter very much in line with where we predicted it would be. As far as our hospitality segment is concerned, our same-store RevPAR of $105 was slightly better-than-expected, and same store total revenue per available room in the quarter increased 1.4 (ph) percent to $232.28. Dave will get into more of the fourth-quarter and full-year 2004 numbers, so let me now touch on some of the highlights at each of our properties.

Gaylord Palms had an outstanding quarter on every metric. The Palms had a strong quarter-over-quarter RevPAR growth of 21 percent to just over $111, due to increases in both occupancy and ADR. Additionally, occupancy was driven by increases in both business and transient customers. The transient business was driven by outstanding execution of our holiday events. The Gaylord Texan continues to generate excitement amidst the meeting planner community and local area. In its first 9 months, the Texan has had a great top line and has received outstanding reviews from meeting planners and attendees, most demonstrated by the 2005 Paragon Award, which recognizes hotels, resorts, and conference centers that did the best job handling corporate meetings last year.

As we have indicated to you, as is normal after a hotel opening, we have refined the cost structure of the Texan. The initial sales and marketing costs were a little above where we wanted them to be, as were our overall stocking (ph) levels, but they have been refined and I expect this business to show very solid profitability growth this coming year.

Gaylord Opryland had a good quarter with RevPAR up slightly from the fourth quarter of last year to $106.69. Now while the hotel performed well, we did have a hiccup with several of our holiday events. Unfortunately, as it turns out, the (technical difficulty) holiday season did not have the broad appeal and market traction the previous years' shows have had. This negatively affected the show's attendance and marginally impacted occupancy of the hotel. Now the good news is our management knows what went wrong, and this has been corrected for next year.

As for our newest project, the Gaylord National Resort and Convention Center on the Potomac, as we have previously reported we broke ground on December 2nd, and designs are underway for the 42-acre resort overlooking the Potomac River in Prince George's County, Maryland. The Gaylord National will be located less than 10 ten miles from the national landmarks and federal buildings of Washington D.C., and the Gaylord National will be (technical difficulty) National Harbor development, the largest combined hotel and convention center in the nation's (technical difficulty). As I discussed earlier, we have had great success in advance reservations, and we expect to open the doors to this wonderful property on or around March of 2008.

Now let me take a few minutes to update you on ResortQuest. We saw healthy growth in the fourth quarter with increases in both RevPAR and occupancy. We still have had a few lingering effects from this summer's hurricanes, and we still expect that most of the units that were damaged will be back online by the end of the first quarter of this year. We incurred some exceptional medical costs that were unanticipated at ResortQuest which Dave will reference. We also continue to invest in the business, which is prudent, because we are creating a platform upon which we will see increased growth in 2005.

In early 2004, we laid out a plan to invest in technology, invest in our people, and develop a comprehensive marketing strategy which included a service guarantee. In addition, we told you that we would grow in those markets we feel have the most economic potential. In 2004, and the fourth quarter in particular, we have been working on these plans. We've made great progress on our technology and website strategy, and we will continue to update you more as we approach the expected rollout commencing in the third quarter of 2005. We have built the framework for precisely what the ground will stand for in the minds of customers and owners. We have tested the 100 percent customer satisfaction guarantee in certain markets, including Utah and Hilton Head, and the initial feedback has been very positive, and the intent to return response from consumers who have been exposed to the service guarantee has been substantially high.

As for growth, we have begun to selectively acquire units for management. We closed on the acquisition of 6 businesses from East-West Resorts, which added 2000 luxury units to complement a year-end inventory of 17,035 units under exclusive management. We just closed on a transaction with O'Neill Hotels and Resorts Limited to acquire their Whistler Lodging Company business units for approximately $4 million Canadian. This company manages approximately 600 well-located condominiums in Whistler, British Columbia, which will complement our existing portfolio and enable us to achieve substantial synergies. Both of these transactions are consistent with our growth plans, in that it further expands our business in the premier ski and beach destinations. We will continue to evaluate other opportunities and acquire where it makes sense and where we have, of course, significant synergies.

The last 12 months have been pretty hectic as we have changed management on most fronts, architected our technology, website, service standards, and service guarantees, mapped every resort vacation market in the country, integrated every location financially, and brought the control systems pending Sarbanes-Oxley into the 21st century. The next 12 months should be pretty exciting for the ResortQuest brand as the foundations are setting concrete for this business to emerge as the dominant brand in the sector.

Now on to our attractions business. The Grand Ole Opry had a particularly strong quarter, led by a strong October, as the roadshow wrapped up a very successful season. We continue to remain excited about the growth prospects for this brand, in particular given our TV platform for the Opry and Great American Country's recent acquisition by E.W. Scripps Company. We're excited about this additional distribution for the Grand Ole Opry. Now, why don't I turn this over to Dave who will walk you through the financials. Dave.

Thanks, Colin. I'm going to spend a few minutes describing the major drivers of our financial results for each business unit for the fourth quarter 2004, and then I will provide some guidance for '05. The quarter saw Gaylord experience some very positive events and some challenges, as Colin described briefly. In terms of establishing a base for the future, 2004 is a terrific year. In the hotel segment, our strategy to drive transient business in slow group meeting periods showed significant results. This year's hiccup notwithstanding, Opryland has been successfully executing its event-based transient strategy for years, and this year The Palms and Texan followed suit. The Palms and Texan have become known in their respective regions as the transient destination for the holiday season. ICE at The Palms helped that property grow transient room nights in the quarter to a 25 percent increase over the same period in 2003. The Texan in its first year of operation drove as many transient room nights through its Lone Star Christmas promotion in the fourth quarter as The Palms did. We expect good transit results from all of our properties in 2005.

Group business in the quarter was solid across all three properties. Opryland and The Palms increased group rooms occupied by 4 percent, while also driving a group ADR increase of 4 percent. And at The Texan, group rooms accounted for 76 percent of the property's occupancy for the quarter, a typically slow group period. For the full year 2004, Gaylord Hotels experienced a very strong year from a group perspective, which reflects the beginning of our effort to improve the quality of the groups in our hotels. As a result of these efforts, the mix of our occupancy reflected a modest shift to corporate customers from other types of groups. Corporate customers represented 34 percent of our occupancy in 2004, compared to 27 percent in 2003.

Also in the year, we acquired more new customers than ever before. In 2004, we booked 274 STAR accounts. These are the largest accounts that we interact with. This 274 STAR accounts that we booked in '04 is a new record for the brand. 120 of those groups had not stayed in a Gaylord hotel before. Also, of the 2004 total bookings, approximately 40 percent are scheduled to stay with us in 2005 or 2006, equating to approximately 550,000 room nights.

For the quarter, the Hospitality segment revenue was $136 million, an increase of 40.6 percent from last year's fourth quarter. The increase was primarily result of higher outside the room revenues and the inclusion of The Texan. Same store Hospitality segment RevPAR and total RevPAR were $105.03 and $232.28, respectively. Consolidated cash flow for the segment was 33.2 million for the fourth quarter of '04, compared to 20.8 million for the fourth quarter of '03. Consolidated cash flow margins in the segment increased from 21.5 percent in the fourth quarter '03 to 24.4 percent in the fourth quarter of '04. This is due to effective cost controls and a 4 percent ADR increase year-over-year.

Now on to ResortQuest. Fourth-quarter occupancy for ResortQuest increased 2.3 percentage points to 41.9 percent, and ADR increased to $120.24, up from $112.15 in the fourth quarter of '03. This, by the way, excludes approximately 2000 units that were taken out of service due to the hurricane impact in Northwest Florida. This resulted in RevPAR of $50.34 for the fourth quarter of '04, a 13.3 percent increase over the same period in '03; again, excluding those units out of service due to the hurricanes. Total units under exclusive management decreased to 17,035 units for the fourth quarter of '04.

RevPAR changes do not tell the entire story, however, for ResortQuest. Because of the decline in units from the fourth quarter of '03 to the fourth quarter of '04, increased occupancy does not necessarily mean more rooms occupied. In fact, for the fourth quarter, rooms occupied for ResortQuest dropped by 4 percent due to the decline in units available. Despite the decline in occupied room nights, however, gross lodging revenues, in other words, the amount of revenue we collect on behalf of our owners, increased by almost 3 percent, 2.7 percent to be specific, due to more effective yielding of our inventory. The challenge we had in ResortQuest for the quarter was a failure on our part to flex the cost structure effectively in seasonally slow periods, and this is a problem we are arresting as we speak. We are in the field with each of our ResortQuest locations, preparing and executing action plans to address this issue for 2005. In addition, in the fourth quarter, we experienced an unprecedented level of medical claims which adversely affected the unit's results to the tune of approximately $1 million.

For the fourth quarter of 2004, ResortQuest revenues were 37.6 million with an operating loss of $10.3 million. ResortQuest consolidated cash flow was a loss of $7.6 million for the period. Operating and attractions revenues were $18.8 million in the fourth quarter of '04, compared to 16.1 million in the fourth quarter of '03. The operating income in the operating and attractions segment was 2.3 million in the fourth quarter of '04, compared to a breakeven operating income in the fourth quarter of '03. Operating and attractions PCS (ph) increased to $3.6 million in fourth quarter '04, from 1.3 million in the same period a year ago, primarily due to increases in CCF driven by the Grand Ole Opry.

Now onto our stake in Bass Pro. As we discussed last quarter, on July 8, 2004, Bass Pro, Inc. redeemed the approximate 28.5 percent stake held in the Company by a private equity investor, J.W. Childs Associates. As a result, Gaylord's ownership stake in Bass Pro increased from 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 '04. For the quarter ended December 31, 2004, Gaylord's equity income from the investment was $400,000. For the year-to-date period, Gaylord's equity income from the Bass Pro investment was 3.8 million. It's important to note that we account for the results of Bass Pro one month in arrears, so the results noted exclude the seasonally strong December period for Bass Pro.

Currently Bass Pro operates 26 stores and plans to add 15 to 17 stores over the coming two years, 7 of which will open in 2005. For 2005 we expect our share of Bass Pro net income to between 6 and $7 million. At December 31, 2004, the Company had debt outstanding of $575.9 million and total unrestricted and restricted cash of 117.6 million. In November we closed on an offering of $225 million in aggregate principal amount of 6 3/4 percent notes due 2014 at an institutional private placement. The use of the proceeds from the offering were used to repay the Company's Nashville hotel loan and will provide capital for development of the Company's Gaylord National Hotel project and other general corporate purposes.

We are also in the process of raising an approximate $600 million credit facility which would provide capacity for the construction of Gaylord National and the use for general corporate purposes. We expect to close this financing in the coming weeks and will provide more color on the financing once it is closed. We are excited for 2005 which is shaping up to be (technical difficulty). The 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 counts and occupied room nights.

In the hotel segment where are expecting 7 to 9 percent RevPAR growth and 20 to 30 percent growth in CCF from 2004 levels. This is in part due to a full year of operation at the Texan in '05, but also due to (technical difficulty) a nice increase in occupancy and the ancillary spend associated with our group occupancy. For ResortQuest, 2005 will be a transition year, from a turnaround to a growth story. We expect to grow revenues approximately 20 percent through acquisitions and through more effective and extensive marketing than in years past, and we expect CCF to grow to 20 to $25 million for 2005.

Finally, capital expenditures are expected to be approximately $165 million for the full year of '05. This includes approximately 70 to $72 million for Gaylord National and the approximately $25 million that we spent on ResortQuest acquisitions in January of this month of this year. Now I would like to turn the call back over to Colin.

Thanks Dave. 2004 was really the third full year anniversary of the new management team at this Company, and I think we have accomplished a lot of over the 3 years. We sort of resuscitated the business. We think we built a real strategy that is sustainable for each of our brands and we now have what we consider to be 3 brands of consequence that have emerged. We grew consolidated cash flow '04 over '03 by over 40 percent. And I think if you do the math on our guidance for '05 over '04, we will be growing consolidated cash flow again by over 40 percent, and we are pretty proud this. There are still some impediments in the business that we have to fix, but by and large, this Company is off and running at we are very excited. So, Allen, let's turn over the call to questions, and let's see what people have to say.

Thank you. The floor is now open for questions. (OPERATOR INSTRUCTIONS). Will Marks with JMP Securities.

Good morning, guys. It's actually Clinton (indiscernible) for Will Marks. I have 2 questions. I was wondering if you could elaborate a little further on what type of flowthrough you guys are looking for on your same store 7 to 9 percent increase in RevPAR? The second question is, it looks like the Texas property has been ramping up nicely with margins going from 12 percent last quarter to almost 20 percent this quarter. I was wondering if you could comment on what that is looking like going forward and how your stabilization is looking?

Sure, Clinton, this is Dave Kloeppel. On your first question in terms of Hospitality segment RevPAR growth, I mean in terms of flowthrough, I think based on the guidance that we gave, the flowthrough on a same-store basis kind of works out to about 40 to 50 percent flowthrough, using that range of guidance that we had provided in the release. Your second question was in terms of Texan margins have increased last year; how are they kind of looking going forward. I think it is fair to say that we expect margins to continue to increase through 2005, as we have arrested a lot of the overstaffing and some of the other spend that one normally puts in place when you open a new property. We did approximately a 20 percent margin for the fourth quarter of 2004, and we expect our margins for '05 to be at around those levels for the full-year period.

Great, thank you.

Samir Jain of Jeffries.

Thanks. It looks like the units at ResortQuest were down sequentially. As well, you mentioned they were down year-over-year. Can you just tell me why that is and if it is like a onetime event, or I should be thinking about adding units as well as taking some off going forward?

Samir, good morning to you; Colin. There were some conscious decisions by some -- in some areas, some location managers, to eliminate some lower-quality units. And I know, for instance, in Hilton Head that was the case because we had some units that weren't up to snuff, so to speak, and we actually brought new units in. We have not brought in as many as we had sort of eliminated. The ones we have have much higher earnings potential. But what I would like to do rather than sort of wing the answer to the question is to get with the ResortQuest management and get back to you and give you a more comprehensive answer to that.

Okay. No, that's great. I don't know if you can answer this, but I am thinking '06 might be the year that everything really comes together for ResortQuest. And I just wanted to know if there is any sort of guidance you can give us as to how we should think about what the flowthrough of the incremental revenues could translate to in terms of the growth there in EBITDA. Let's say you get up to 30,000 units or something. I just want to know what the earnings power of that business segment is. Is there anything you can give us?

I think you touched on the way we sort of see the business, and let me sort of give you an example why we concur with the statement that you have made. ResortQuest -- I'm going to give you a reasonably long answer here; I am sorry about this -- but ResortQuest for 6 to 7 years has been very frustrating to its owner group when it was a sort of separate stand-alone public company, and to some extent to us over the last 12 months, because everybody can see the strategy, everybody can see the tremendous potential here. And everyone is -- most folks that have been involved in it are still being very frustrated why it hasn't happened. The simple reason why it has never happened is because the business has never had the infrastructure to let it operate as a brand. This technology that we will build will enable us, for instance, to have a centralized reservation capability that today is not in place.

We have regional reservation offices and reservation folks in every one of the locations, 29 operating locations, taking reservations. The reason for it this there is not a central reservoir of data available online real-time that can allow a centralized reservation capability to function. The opportunity to eliminate a lot of cost and improve efficiency will happen when you have that type of technology. Similarly, the ability to plug every piece of inventory into the GDS's of the world, the global distribution systems that deliver customers, okay? There is not a brand in this industry that can do that. This business, we will be rolling this technology out in the third quarter. We are very comfortable that we can accomplish this within the third quarter and then roll it out. It's going to take us probably 3 to 4 months to go through from one location to another.

Than will then enable us to plug this business into the rest of the world. So '06 is the year we think that this business will really for the first time in its 7 or 8 years in existence will be able to operate like a brand. We are not going to get into the prediction in terms of unit count or flowthrough at this stage, because the acquisition strategy we are sort of working on right now. But as I think I have said publicly, my personal goal is to bring the unit count to this business nearer to 40,000 units in a three-year period of time from '04. As that happens, we believe that this business will see pretty good earnings traction.

Can I just confirm something? You said mid to high single-digit RevPAR growth for '06 and '07 as well? Did you say that was the goal? I think you said on the call '05, '06, '07?

In the hotel businesses, you mean, Samir?

Yes, within the hotel business.

Yes, Samir. We have been saying that consistently now, David, for what, 12 months, 18 months?

18 or 24, yes.

So the same '05 versus '04, I can kind of use that as a benchmark looking forward, just within the hotel businesses?

Yes, I think that is fair, Samir.

Thanks a lot.

Nap Overton of Morgan Keegan.

Good morning. A couple of questions here. First, on the Texas property there's two there; the state of progress on the parking garage there that you need, and also the nightclub there at the point of the peninsula that it is on.

Nat, Colin; good morning to you. In terms of the parking garage, I have it on good authority from our design and construction folks that we will have a good part of this garage open and operating prior to the Fourth of July weekend, and all of the parking garage will be completed by middle of the third quarter. We are blowing and going as we speak. The garage is one of these precast assemble units which is being built off-site and being assembled obviously on-site, and we are excited about that because we have created a lot more customers at weekends than we have parking spaces for. It's a nice problem to have.

In terms of the nightclub, what Dave and I have talked to our management about down there, we have been busily bidding the thing and finishing the detail of it. And frankly, we have been dancing a little bit, Dave and I, in terms of finally giving the management of the hotel the green light go on this. The reason for it is we wanted to get these costs now well and truly in line, and be very comfortable that this management team is so focused on delivering the level of profitability that we expect them to deliver in '05. And I suspect we will be talking about the nightclub here in the next 2 to 3 months and move forward on that.

We're very excited about it, but we can't have this nightclub opening without this facility in totality operating the way we want it to be because it would just distract the management of this business. This hotel has done a wonderful job in its customer satisfaction delivery and the reception that we're getting from customers is tremendous. But we want to make sure that we make this level of profitability that we have internally set for '05 in '05, and we want these guys focused on that.

Okay. Secondly, any comments you have on two things with Bass Pro. One, people constantly ask about the propensity for that company to potentially go public. I doubt there is any change, but I need to ask. Secondly, there was some discussion of Johnny Morris Associates buying down your equity interest from the 26 percent level to closer to 20 percent. Is that ongoing or what is the status of that, or do you have any comments?

Well, I am not sure we publicly talked about -- we have talked about Johnny -- on the latter, we've said -- I think indicated -- that the Morris interest would like to own more of this business, but here is the dilemma for us. This business has 25, 26 stores open. It is going to open another 7 this year. It has announced, including that 7, I think it is 19 stores. I had an investor call me yesterday on a piece of real estate for a hotel on the West Coast and was saying, boy, I would love to be able to put a Bass Pro next to this, or I have a big development out on the West Coast there. This is a brand that has enormous traction right now, and so there are no plans as far as I know for an IPO of this business. Obviously, when there are, you will hear about that.

But this is a business that continues to grow and we like it, and we obviously would prefer to own more of the business than less of the business as this business ramps up here over the next one to two years, because we think that we will provide -- we will create a lot of value for our shareholders by retaining this investment, given the growth profile of this business.

Okay. Then here last set of questions, one in particular. Below the guidance that you provide for 127 to 140 million in consolidated cash flow, there is a footnote about accounting for options expense. Do I understand that correctly to mean that the 127 to 140 million, if you include it the way you're going to report it with options expensed, that that would be in a range of about 121 to 133 with that change? And then secondly, just wondered if you could make any general comments about you've got the National project going about -- or scheduled to come on in 2008 -- about future markets and what you're doing right now to identify and secure locations for additional future projects?

You take the option response.

The new FASB pronouncement, FASB 123R, requires expensing of stock options beginning July 1st of this year. So the impact of stock option expensing on our P&L will be on a pre-tax basis about $3 million for 2005. Because it's a full year effect in 2006, we provided what the full year of impact for 2006 expects to be. So I think that answers your first question.

Colin, do you want to take the new markets or do you want me to?

No, I'll give it a shot, and if you want to add to it, that is great. Nat, one of the things that -- and it is hard for me to say -- just answer the question this way. Yes, we're looking at the next iteration, and we have folks looking at the West Coast; we want to be on the West Coast. So I can answer it that way, but it would be remiss of me if I did not say the reason we feel that this is important is because as every day goes by, we become a lot more confident about our overall hospitality convention sector strategy. When you look at these 24,000, we've talked about this before, there's 24,000 of these large groups between 600 and 2,000 people in the country.

These folks rotate -- 80 percent of them rotate market-to-market, and when you see the rotational bookings in '04 as a percent to your total bookings, you will see -- the conclusion that we have drawn is that our customers like what we're doing and want to stay with us from market-to-market. So we are seeing that in Washington. We're seeing a lot of customers come to us and want to be plugged into the Washington project that are existing customers that rotate naturally out of the markets we're already in. So a West Coast presence, we would be able to pick up customers, rotate them back to our existing business. It's very exciting for us.

So we're looking at that. We are obviously not going to do a deal that we cannot pay for, and that will be within the guidelines of what we have guided our bondholder, our bonds in terms of leverage ratio, but we're looking at this. And we have also talked before about maybe at some point in time circulating our capital out of one of our assets into new assets. So there is a lot of balls in the air right now, but the real thing that I think should be exciting for our shareholders is that we believe this strategy is absolutely working, and that is giving us options.

Thank you.

Smedes Rose of J.P. Morgan.

This is Smedes. I was wondering in your forecast for ResortQuest for the year about how many units you're assuming on average for the year to get to that number?

On the top of my head, I think it is about 20,000, 21,000 on average. That excludes units under management, not including the non-exclusive units.

Smedes, we will get back to you. We've got it in a plan. We will get back to you.

Because you're at about 20,000 now, I think, right, if you just take what you just reported and then add the (indiscernible)?

Right, right.

So if you add more through the year, there could be upside to that estimate.

Yes. If that is the question, this estimate we have guided you on assumes really no further acquisitions. And if we do acquisitions, we will update that guidance.

The other two questions I had, what is the budget for the D.C. property?

Total budget is 565, but then we get back a $95 million bond from Prince George's County.

Okay.

Smedes, I am getting hand signals here. Includes -- we've got to remember that includes preopening and capitalized interest, fully loaded.

All right. Then minus the 95?

Correct.

You can choose to keep those or sell them, right?

Yes.

Can you just quantify how much you cut out of the Dallas property in costs, sort of on an annualized basis?

Boy, from the time we started to now, it is really -- a lot of this has been done through attrition. What typically happens when you open a big hotel with 2000 employees, you get a lot of new folks that have not been in the hospitality industry before come to work for you, and you do it through attrition. We haven't effectively fired 100 people. We just don't do it that way. We have done it through attrition, but it would be hard to speculate from the amount -- from the time we started to --.

Okay, I thought you said -- I'm sorry, I must have misunderstood. I thought you said in the fourth quarter there was a specific kind of cost reduction.

No, Smedes. That has really been an effort that we have been undertaking with the management team to fine-tune labor standards and fine-tune purchasing policies.

It's really more the management of overtime and stuff like that, Smedes.

Okay.

I think, just to give you an example of what's occurred, if you look at for instance the rooms department margin, the rooms department margin in the second quarter of '04 in our first quarter of operations was 75 percent; in the fourth quarter it was 77.5 percent. So that is the kind of operating leverage we have built into the business by better managing our labor standards.

I just have a couple more little ones. Would you expect any insurance proceeds from the Florida hurricanes or anything?

We will be filing a business interruption claim and go through that dance one normally goes through with the insurer. It will probably take right a few months to prosecute, but we expect -- we believe we have got a very appropriate claim, and we will be prosecuting that.

None of our guidance includes any amounts for receipts of such claims.

Okay. The final thing, on your -- you talked about an Opryland holiday show that was kind of misfired. I was just curious, what was that?

It was a -- I better not be too critical about this, but it was a Christmas show that looked pretty much like the same Christmas show that you see in Dollywood and Branson, and it didn't have the sex appeal and sizzle that we would have liked. And we now have -- we're now renegotiating to bring the Rockettes back to town for '05 and maybe '06. That issue will be well and truly behind us. It was one of those things that our management wanted to take on and do. In hindsight -- Smedes, it wasn't disastrous; it really wasn't disastrous. We put 40,000 people through that show. We would have like to have put 60,000 to 70,000 people through that show. The previous year with the Rockettes, I think the number was 110,000 that we had through that show. We had room nights because of that, and it was just one of those things that didn't meet expectations. You know, you try 10 things, and hopefully 8 work.

All right. Thanks a lot, guys.

Brett Balkoff (ph) of Performance Capital.

I've got two questions and then Brian has one, I think. We have a tremendous amount of brand equity in the Opryland name and assets, and we've got a lot on our plate. Any thoughts to strategically changing down the road? Is that -- let's say a Viacom of the world cut loose and sell it to an entertainment company and let them kind of take the equity out of there? I mean, strategically going forward, how that fits in with the company?

You mean the Grand Ole Opry and all those assets behind it? Brett, I don't know, I have such an extraordinary emotional connection to this wonderful institution because you just can't replicate it. It is like the Taj Mahal. It is something that has been part of America for 80 years, and all the stuff that we have that we own, if somebody came along tomorrow and offered us a huge amount of money for this business, we would absolutely consider it because we do what we believe is in the best interest of our shareholders. That is why we are here. That is not lip service. I think you know that is the way I run our businesses and Mike has, and this board we have has.

The fact of the matter is we believe this business has tremendous growth in it, and we're going to continue to operate to the best of our ability and continue to grow it to the best of our ability. But we believe it to be unique and to be extraordinarily valuable. But if somebody came a knocking, we would have to consider it.

Right. Another question on the customer service side. Starwood and Marriott, I guess Starwood with the heavenly beds are really focusing or trying to differentiate their brand on the little things, the pillows, blankets, the comforts of the room. Are you guys doing anything in that regard?

Appreciate the question. You know my background from the Holiday days 20, 30 years ago, I remember Holiday Inns was a unique product for a period of time, with kids going free and double beds and swimming pools. And then it got copied and no longer was it sustainable. You see frequent-flier programs in the airline businesses emerge. They get copied. They're no longer sustainable. You're seeing frequent-flier programs in the hotel business. They get copied; they're no longer sustainable. And you basically -- in my mind, I don't think you can build in the hospitality business a sustainable strategy based purely on product. Embassy was a wonderful product when it first came out. There are other suite products today. And we see this emergence of things like heavenly beds and new types of showers that are starting to show up as a way to try and differentiate, but at the end of the day, stuff that is good is going to get copied.

What we have tried to do is to do it the hard way. That is through a combination of world-class products. You don't hear us talk about that, though, with the same level of tone and pitch as we talk about our people. Because at the end of the day when you talk to customers about what brings them back time and time again, they take for granted the product, but they expect the difference is how they are treated. The lessons that I get from our customers saying, wonderful job, aren't about the beds, aren't about the atriums, aren't about the convention facilities. They are about Mary and Jack and John, and that is why it is so important as a hospitality business to employ a world-class workforce that really feels that the company is like a family.

And when you have a bifurcated ownership structure that most of the big hotel companies do through REITs and through overseas owners who have all got different objectives, it is hard to have continuity in the service status. And that is why I think the big hotel businesses focus on that stuff, because they find it very hard to uniformly deliver world-class service. That is what we do, and that is why our customers come back to us, and that is why we believe our growth rates will be superior.

I have a question. It's Brian. As some of your properties stabilize and you have opportunities to get capital out of them, over the next 3, 5 years, what would sort of be on your acquisition wish list, in terms of like where you would likely spend that capital? And what are sort of the parameters that ResortQuest might be able to do, and is there anything else that comes to mind?

Well, through the research -- Brian, good morning. The research that we have done in our hospitality business has been so extensive. We went out -- just to remind everybody, went out and talked to 3000 meeting planners about a year and a half ago, and understood where, why, how they go where they go, where they would like to go, which markets they want to go. We know which are the top 20 attractive markets for us. I will tell you that it's not exactly the top 10 -- it is not in the sequential order of the top 10 markets that you see out across the country today. Where our customers would like to go may be slightly different to where they're going presently.

So our capital will be focused on the markets that our customers tell us they would like to go to. As we have structured the Washington deal, every one of the deals we'll do will generate a 12 percent plus unleveraged after-tax IRR, and that is how we will deploy surplus capital. In terms of ResortQuest, we believe that the acquisition strategy is a short-term issue for us. It is sort of a 12 to 24-month issue only, because as this brand takes traction and as this brand can prove to the homeowners that it can deliver its superior economic return to them, we believe that we can attract homeowners without going through the acquisition strategy. The reason we like the acquisition strategy in the short-term is because it gives us market concentration in certain markets, and it gives us magnificent share of voice in the feeders to those markets. But just to finish, the economics of how we will deploy capital in ResortQuest won't be -- they will be much higher rates of return. We sort of look at businesses on an after (ph) synergy basis, David, in the sort of 4 to 5 times, 4 to 6 times acquisition price to cash flow, or cash flow to acquisition price. And that is really how we will be deploying capital. But the good news is, with the rotational strategy of our hotel business, is that we can move into markets (indiscernible) supply to markets and make the deals that we do in markets very, very, very attractive.

Could you give us a sense of how much you might sort of be able to spend at ResortQuest on acquisitions over say 5 years? Is it potentially hundreds of millions of dollars or is it very small?

No, no, no. I don't think that. I have not -- don't think that. There aren't any big companies out there. The biggest company out there today, putting aside like the Intrawests of this world. But the biggest company is sort of in the 1 -- 2000-unit size. There aren't large businesses out there. I would suspect over the next two years, it will be -- I would say that it is going to be tough for us to spend more than 50 to $100 million over the next two years, but the benefits of that are enormous. We emerge as the big dog with supply. And remember the GDS's of this world have enormous pricing power in the hotel business, because they are communicating to 6, 8, 10 big hotel companies all with the same level of supply. If we have the majority -- if we are the only big dog with supply, then pricing power shifts with the GDS. So we like our position here.

If I could just ask one last question. On the lodging side, say in the big project wholesale lodging side, over the next 5 years how many sort of shovels in the ground might you undertake sort of in the 3 to 5 to $600 million (indiscernible) projects?

Brian, our current plans call for us to have one shovel in the ground at a time. We would like to be in a position --.

I was sort of talking cumulative.

What's that?

I was talking sort of cumulative over 5 years, but go ahead.

What we would like to position ourselves for is to open one of these new hotels every couple of years. These are big, big projects to manage, and we don't want to be doing too many at once because we think that is a sizable level of investment for us to manage with no cash flow coming out of them. So if we could identify the next location in the next year or so and get a shovel in the ground, maybe in '06, '07, that gets us positions open in '09 or '10, that's kind of an ideal timetable for us.

I don't want to drift on this question per se, but one of the things that you see across the nation is you see large convention facilities being built and a lot of municipalities wrestling with, oh, we need a large convention hotel. Some municipalities are even considering building them themselves. The issue for us is that we are now rapidly emerging as a business that operates world-class convention facilities, and we believe that municipalities will be much more attracted to our model than some of these other management contract organizations that are out there today. So that is the other sort of wrinkle here in the development front that could rapidly change but not stress our balance sheet.

Thanks a lot, guys. Sounds great. Congratulations.

Alan, I think we're maybe a minute or two over. So maybe one final question, and then we will wrap it up.

Andrew Wallach of Cumberland Associates.

Hi, guys. How are you?

Great, Andrew. How are you?

Great. I just wanted to ask you about the casino gaming situation in Maryland. I was wondering whether that is moving along as far as you can see it, and what impact that might have?

I had a $5 bet with Dave earlier that someone would ask that question. We're not in gaming.

Where is my commission?

We thought it would be the first question, though, not the last question.

I asked early on; you just didn't get to me.

We are just watching it. We're just watching it, Andrew.

Can you just enlighten us as to where it is, factually?

Well, we probably have as much information as the Washington Post does. So we really don't want to get into where it stands and what is going on, because it is so fluid, but we are obviously watching it very -- with high degree sort of focus here, because obviously it impacts our projects, and it has consequences for our shareholders. So we're watching it. Sorry.

Thank you. I would like to now turn the floor over to management for any closing comments.

No. All I would say is, again, thank you shareholders for joining us this morning, and if there any follow-up questions, you can speak with Dave or Key. I have, unfortunately, to go out of town for the next 24 hours, but thank you for joining us and we look forward to bringing you up-to-date as we unfold '05, and continue this journey of building value. Thank you.

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