Ryman Hospitality Properties Inc (RHP) 2005 Q2 法說會逐字稿

Good morning and welcome to Gaylord Entertainment Company's Second Quarter Earnings Conference Call. Hosting the call today from Gaylord Entertainment is Mr. Colin Reed, Chairman and Chief Executive Officer along with David Kloeppel, Chief Financial Officer and Keith Arthur, Vice President Investor Relations and Treasury. This call will be available for digital replay. The number is 973-341-3080 and the pin number is 6244270. At this time all participants have been placed on a listen-only mode and the floor will be open for questions following the presentation. It is now my pleasure to turn the floor over to Carter Todd General Counsel of Gaylord Entertainment.

Good morning. My name is Carter Todd and I'm the General Counsel and Senior Vice President for Gaylord Entertainment Company. Thank you for joining us today on our second quarter 2005 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 of financial performance. For this purpose any statements made during this call that are not statements of historical facts may be deemed to be forward-looking statements. Without limiting the fore going, words such as believes, anticipates, plans, expect 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 second quarter 2005 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, which has been provided as an exhibit to our earnings release and its also available on our website under the Investor Relations section.

At this time, I would like to turn the call over to our Chairman and Chief Executive Officer Colin Reed.

Thanks Todd, and good morning everyone and welcome to our second quarter conference call. The second quarter was a very good quarter for us. our hospitality business continues to build momentum with new and existing customers. As evidenced by our total RevPAR growth. Our brand is very strong and this can be seen in both the operating success of our properties, particularly at the Gaylord Texan and in advanced bookings at the Gaylord National, which showed great promise. Looking at the other major segments of our business, ResortQuest. Our operating results do not yet reflect the progress we are making in building the brand. As we invest in our brand on many fronts including the rollout of our new website, our goal is to establish ResortQuest, as a nationally recognized brand in an industry with no other singe dominant player. We will build this brand by using the same methods we employed at Gaylord Hotels.

Now, on the call today as Carter mentioned I will review each of our business segments, and then Dave Kloeppel, our Chief Financial Officer, will discuss the operating and financial performance of the Company, provide guidance, and then as usual we'll open up the call for questions.

Our dominant business, Gaylord Hotel, again drove our quarterly results producing 40.6 million in Consolidated Cash Flow. Our Hospitality RevPAR improved nicely, coming in at $115.30 while our total revenue per available room of 266.08 was up 15.1%. Our success at driving growth in our hospitality segment, is directly derived from our clear understanding of the needs and interests of our high value loyal customers, the principle group, which we encouraged to visit our hotels through selected customer targeting. As we've said many times on these calls, all customers are not created equally and our knowledge of our customer's behavior i.e., frequency and spending power, coupled with the knowledge around precisely why the convention is being held, helps us to more effectively target and service the specific needs of our high valued, loyal customer.

It is our strong belief, that this capability will drive greater brand loyalty, which in turn will drive high occupancy, RevPAR, total RevPAR, and of course profitability. And that's the reason that total RevPAR growth is outpacing RevPAR growth, is because we are in the process of shifting room nights away from groups that are not inclined to spend as much outside of the room.

At the property level, Gaylord Palms posted a solid performance this quarter in both total RevPAR and consolidated cash flow. Total RevPAR was up 14.3%, of $345.76 from $302.56 for the reason I have just articulated. Occupancy was fractionally -- was down fractionally to 76.5% from 77.3% the prior year quarter. Our ability to drive customers to our dining and entertainment offerings more than offset a slight decrease in occupancy.

We generated RevPAR of a $132.60, 5.5% higher than last year due to higher ADR. The shift to more high value customers was responsible for an increase in food and beverage spending which boosted total RevPAR in the second quarter. And Gaylord Opryland also had a healthy increase in total RevPAR up 6.2% to $226.38, with RevPAR at 108.69 slightly down from last year.

As we mentioned last quarter, we are executing a room renovation at Gaylord Opryland, which we began on May 1, of this year. We've taken 120 rooms offline, which should be back in service in October. But over the next two years we'll be executing a broad room refurbishment program that will have an impact particularly in the off-seasonal times. We'll share more information on this as the specific time is finalized.

Also, in the last quarter, we completed work on our two 20,000 foot luxury Relache Spa at Opryland, which efficiently opened earlier this month, and which we believe will significantly enhance the destination appeal of our Nashville property and further drive our total revenues. As you all know, we opened Gaylord Texan in early April of 2004. Now after being slightly more than one year being in operation, I can confidently say that the Texan's opening and subsequent operation has been a great success. Our customer satisfaction levels are the highest in our Company and this is resonating with the meetings industry. In May of this year, AAA bestowed its Four-Diamond status on the facility and recently the Dallas Business Journal ranked the Texan as the number one business to work for based outside of the metropolis. So, what does all this mean from a shareholder value perspective? Well, first and foremost, as measured by Smith Travel, the Texan had an exceptional quarter. Smith Travel compares that hotel's performance to seven others in Dallas, Houston, and the San Antonio markets. In this peer group would be The Hilton Americas in Houston, The Mario San Antonio (indiscernible) and The Wyndham Anatole in Dallas, to name just three. While according to Smith Travel, our hotel for the quarter was second of 18 occupancy, first of 18 ADR and first of 18 RevPAR for the quarter with a whopping RevPAR index of 147%.

From a financial perspective, the Texan generated RevPAR of $121.84 and total RevPAR of $305.34 in the second quarter on occupancy of 75.7%. Now said another way, every dollar the Texan generated inside the room, it generated another $1.5 outside of the room. From a consolidating cash flow perspective the hotel generated almost 11 million in CCF. And overall the first five quarters of operation have shown constant improvement on all of our operating metrics. It's our opinion that the success of the Texan bodes very, very well for the opening of the Gaylord National in Washington and the ultimate success of the Gaylord Hotels brand.

Now speaking of our Gaylord National project, this last quarter saw stock construction work in earnest. 2008 is not far away, but I'm pleased to say that our booking pace continues to please me. In fact, during this last quarter we booked another 93,000 room nights for our Washington project. We now have over 228,000 room nights on the books. It is great news for this hotel and this has been accomplished in something like a seven-month period of time.

Bookings from an overall Company perspective increased 296,000 room nights in the second quarter bringing the 2005 year-to-date same store net definite room nights to 460,000. Investors who have listened to our calls before will remember that we pay attention to bookings and particular attention to the tentative and prospects currently in our pipeline as a predictor of the strength of the future.

At the end of the second quarter, the pipeline of bookings we are working was very, very encouraging. To put it in perspective, at the end of March of '04, and this is on a same store basis, we were processing 3.6 million room nights in the tentative and prospect status whereas at the same time in '05 we were processing 4.2 million room nights. Therefore, we maintain a bookings guidance given in the first quarter between 1.3 and 1.4 million room nights for 2005. However as many of our investors remember high occupancy figures were not a lone guaranteed future strength because our profitability is most directly influenced by the quality of our future customers and their spending patterns outside of the room.

We are seeing the increased visibility in our business due to in part a high value group customers and our success at rotating these customers to our various properties. The success of each of three branded properties has enabled us to offer different properties for the association and business groups. There are of course have primary customers and who require large meeting spaces. As our Hotel business continues to mature, we expect margins, cash flows, visibility and customer satisfaction levels to increase. Additionally, our brand is becoming more and more distinguished and defined, as we better attract our core customers and leverage their loyalty to the brand by encouraging their rotations among our properties, over the long term. The performance of our hospitality segment has made each consecutive property easier to open and shows that our customers are already actively seeking out and selecting our brands regardless of its location or competition. We eventually envision our hospitality segment comprising of a network of 7 to 10 world-class meetings-oriented resorts around the country among which our core customers can rotate year after year.

Now, I learned a long time ago in hospitality business, that if your brand is constantly reacting to the industrial segment leader and you are more product-focused and service-focused, you are more than likely destined for mediocrity. At Gaylord Hotels, our goal is to make our competition irrelevant by being the best in the minds of our workforce and customers. And what excites me is that all the metrics we study tell us this is happening and the future looks very bright indeed.

Now let me turn to our ResortQuest brand. Over the last year or so, we have tried to describe to you in detail, precisely what we have in store for ResortQuest. We have repeatedly told you that we like the industry a lot, because we believe folks will continue to vacation in this country in ever increasing numbers. And we believe more and more second homes will be developed that require the professional management. What we're about right now and have been over the last year is the building of the solid foundation from which the industry's leading brand, i.e., ResortQuest will emerge to dominate this growing industry. It is almost impossible to compare the business this last quarter to the same quarter in 2004. It was our brand building activities that have made the Company very different. To be more precise, since last year, we've added professional brand building capabilities in many areas, such as, planning and research. As an example, we now understand how the industry prices on all fronts, market-by-market. We built a development organization that's presently focused on the opportunities that are available in each existing and growing markets, both for management acquisition and the condo development projects.

We've upgraded our operational leadership pretty much right across the country. And we overhauled our marketing function and have executed broader brand marketing in certain regional markets. Perhaps the most dramatic of development is occurring in the technology area. We are all -- we are well on our way to building a world class website that customers and homeowners will find very appealing. And our enterprise property management system will link every office together to enable enterprise yield management, real-time connectivity to the global distribution systems of the world. These capabilities do not exist today amongst any of ResortQuest's small regional competitors. Over this last year, we have been reluctant to open the gates to growth, because we wanted to make absolutely sure the foundations of the brand well and truly impact before we aggressively absorb new supply. But we are getting there and I am very excited about the future.

Three years ago, we told you that we were building a hotel business that will have sustainability to it. To date we have delivered on the tough stuff, like employee relationships, customer satisfaction, building a pipeline of advanced reservations and planning and executing the next phase of growth, all of which makes the future of our hotel business very rosy. As with our hotel business, at ResortQuest we are currently tackling the tough stuff and I believe sustainable value creations is within our grasp. For the last quarter, I would describe the ResortQuest operation results as in the ballpark. S revenues increased by 8.9% to 62.3 million, driven in large part by two small opportunistic acquisitions we executed earlier this year. But as all of you know, the ResortQuest business has historically been seasonal in nature, i.e. it makes money in the mountains in the winter and at that the beach in the summer. Thus the revenue growth incurred due to acquisition was effectively out of season, where revenue was offset by cost. This was reflected in our CCF, where the second quarter we achieved $1.6 million compared to $4.9 million in 2004. Dave will share more information on the financials in a minute.

Now let me focus on mother nature for a second, particularly hurricanes. Last summer, Florida had what we thought was an unprecedented hurricane season being hit by four hurricanes, including Ivan and one tropical storm. Since that time, the damage caused by these storms to our units on the operation had to large a extent been rectified. But we still had 150 units out of service as of the end of the second quarter. It would seem the description of unprecedented is carried into 2005 as well. In June, the Gulf coast got hit with tropical storm Elaine that caused a small number of cancellations in this last quarter. And on top of this, North West Florida hit with a second hurricane to strike in the month of July in 105 years. In certainly, between 1900 and 2005, i.e. 105 years North West Florida and Alabama have been hit by 15 major hurricanes, with surprisingly two of the 15 having occurred in the last of 11 months. At this stage, damage is being assessed, plans for remediation are being put in place and cancellations are being directed to other non-impacted beach markets. But it is clear, that this event will impact our third quarter consolidated cash flows. This will also impact our overall annual guidance and Dave will discuss this in a minute.

It's my belief, when events like Ivan and Dennis occur being focused and being the big dog in the industry affords opportunity. Many of the local operators are no doubt feeling the pinch and here we have an opportunity to demonstrate to owners of units, that at times like this, it pays to be with the industry leader. As a result, we will be clearly communicating this selectively during direct contact with non-ResortQuest owners in the next few months. Clearly, these types of hurricane events are unsettling for investors as well as for the managers of the business as are tornadoes, earthquakes, snowstorms and the like of other areas of the country. However in future years as we grow distribution, no single market will represent the business. As many of you know on June 1, Gaylord Entertainment completed its purchase of the Aston Waikiki Beach Hotel in Honolulu, for $107 million. Simultaneously, we completed the sale of 80.1% interest in the hotel to a private real estate fund managed by Deutsche Bank Real Estate Opportunities Group. ResortQuest will continue to manage the property under a new 20-year management agreement. We announced this transaction on our first quarter call and we are excited about continuing to offer this popular hotel for our ResortQuest customers.

And now, on to our Attraction's business. This is an exciting time for the Grand Ole Opry as we enter our 80th anniversary season. So much of the history of American music and culture is tied to the Grand Ole Opry. So this anniversary is really a celebration of the American music. Reminitions of the Opry's visit to New York's Carnegie Hall in 1947, the Opry will be returning to New York's Carnegie Hall nearly 60 years later to help celebrate its 80th year anniversary. For this special season, we are also taking Grand Ole Opry's signature blend of authentic American music directly to our fans through a summer tour that includes famous performance hosts such as the (indiscernible). And evening with the Grand Ole Opry, national tour began on May 28th at the Grand palace in Branson, Missouri and will continue into 2006. Additionally, our agreement with Cracker Barell continues to go very well. We've successfully made available Grand Ole Opry archival music to millions of Cracker Barell guests in over 500 restaurants in 41 states.

Now, let me take a break here and turn it over to Dave who will walk you through the financials.

Thanks, Colin. I am going to spend a few minutes describing the major drivers of our financial results for each business unit and for the second quarter, and then I will provide guidance. As Colin described in his comments, this quarter was very strong, across each of the Gaylord businesses, and demonstrates the distinct differences between our hotels and the competition.

The second quarter was another great quarter, and mirrors our strong start for 2005. The strong financial performance from the hospitality segment and the continued strength in group pickup and transient business at our hotels should position us to further drive revenues for the balance of the year. Our investors should pay close attention to three characteristics of our business model. First, our groups book far advance locking them into contracts that provide us visibility and consistent earnings. Second, we are highly attuned to our high-valued loyal customers, who have high outside the room spending characteristics, and prefer locational booking patterns. Third, more than selling a room, we sell our entire property, including all of our food and entertainment offers. This means that fluctuations in occupancy and average daily rates take a back seat for total RevPar, which is the total yield of the property, this is driven by both inside and outside the room spending.

In the second quarter of 2005, hospitality segment revenue was $147.7 million, an increase of 15.4% from last year's second quarter. The segment produced a 15.1% total RevPar increase for the quarter, and this growth was fueled by both inside and outside the room revenues. In fact, of the $34.86 increase in total RevPar year-over-year, 71% of that increase came from outside the rooms, and our S&D outlets, banquet operations, and spas. This outside the room spend obviously had a substantial profit consequence and accelerated our revenue growth rate, and is a key differentiating factor between us and our competition.

When we are in group meeting seasons, we are able to drive significant amounts of our revenues through the bottom line. Consolidated cash flow for the segment was $40.6 million for the second quarter of '05, compared to $30.3 million for the second quarter of '04. CCS flow through on those incremental revenues that we earned in the second quarter of '05 was 52.4%, which is particularly notable, considering that a majority of our revenue growth came from SNV and other areas, which tend to be lower margin areas than our rooms department. Hospitality consolidated cash flow margins increased 380 basis points from 23.7% in the second quarter of '04 to 27.5% in the second quarter of '05.

In Colins' comments, he highlighted two initiatives that we have underway that (indiscernible), the opening of the Relash Spa, and the kick-off of the rooms renovation program. I want to emphasize the importance of these steps in the context of our business strategy. As you know, one of the key elements of our strategy is to create destination experiences for our guests and to capitalize on this through value-based pricing. We believe that these two initiatives, rooms renovation program and the Spa addition, will allow us to better position our reliance with the sister properties, the Texson, the Palms, and the National.

As Colin mentioned, there is still much work to do sequencing the rooms program and completing our capital plan of the land, but that said, we expect this initiative to have a favorable impact on pricing and profit in the coming years, more to come, as we more fully develop our plans. Another important statistic that reflects the health of our business is the portion of our advanced bookings that are rotational in nature. When our management team came for the Company in 2001, about 22% of our group room nights were rotational bookings. And as you know, our progress on this front has been significant and I am pleased to report that our rotational statistics for the second quarter of '05 was an impressive 47%, that required an endorsement of the power of the Gaylord brands, and today the growth of that statistic is really only limited by our distribution.

Also, on the booking front Colin indicated that we had booked an additional 93,000 room nights for the Gaylord National property, bringing total booking for that property to 228,000 room nights. This production keeps us significantly ahead of either the Palms or the Texson, relative to their opening dates. And again this is reflective of the traction that we have generated and are having with our current customers. Now on the ResortQuest, the second quarter occupancy for ResortQuest decreased 2.6 percentage points to 49.3%, and ADR increased to $162.47, up from $149.59 in the second quarter of 2004. This result in occupied room nights increasing from approximately 695,600 to 717,000 and RevPAR increasing to $80.04 for the second quarter of '05, a 3.1% increase over the same period in '04. Once again excluding (indiscernible) type of service due to the hurricanes.

Revenue and Consolidated Cash Flow were impacted this years timing of the Easter holiday, which move from the second quarter in '04 to the first quarter in '05. This impacted the timing of CCF between the first and second quarters. In addition, we increased our marketing expense significantly, in the second quarter of '05, compared to the same time last year, as we continue to invest in brand building initiatives. Colin mentioned the industry changing technology programs we have underway at ResortQuest, and we expect to roll out the new website in November of this year, and the new enterprise property management system by the end of the second quarter of '06. To give a sense of order of magnitude, we will expand approximately $14 million in capital on these programs, which we expect will produce a handsome return for us overtime.

Total unit under exclusive management increased to 18,798 for the second quarter of 2005. So, the quarter ResortOuest revenues were 62.3 million with an operating loss of $1.4 million. CCF at ResortQuest for the quarter was $1.6 million for the period. Opry and Attractions revenues were $18.7 million in the second quarter of 2005 compared to $16.8 million in the second quarter of '04. Operating income in the segment was 2.2 million in the second quarter compared to an operating loss of $395,000 in the second quarter of '04.

CCF for the Opry and Attractions segment was $3.2 million, a 51.1% increase from the 2.1 million earned last year. The increase in the segment is driven primarily by increases in attendance of the Grand Ole Opry. Corporate and other segment operating loss improved to a loss of $10.1 million compared to a loss of 11.6 million in the second quarter of '04. Corporate and other CCF was a negative $8.2 million in the second quarter of '05 compared to negative 9.4 in the same period last year.

Now, as far as speaking to Bass Pro for the quarter ended June 30, 2005, Gaylord's equity income from the investments with a loss of $1.7 million, Bass Pro currently operates 26 stores, and has stated that it plans to add 16 more over the coming two years, we also continue to execute on our strategy to monetize non-core assets, and in the second quarter of 2005, we sold a real estate parcel adjacent to the (indiscernible) auditorium in Nashville, which generated a gain of $2.1 million. You should be aware related to Bass Pro shops that in the second quarter of this year, Bass Pro amended previously issued historical financial statements, to reflect certain changes, which resulted primarily from a change in the manner in which Bass Pro accounts for at the long term leases.

Gaylord has reflected its share of the changes as a one-time adjustment and our results for the second quarter of 2005, which resulted in a reduction in our income from unconsolidatory subsidiaries of $1.7 million. As of June 30, 2005, the Company had long-term data outstanding including the current portion of $583.1 million, and totaled unrestricted and restricted cash in short term investments of $109.2 million. CapEx for the quarter was $24 million with 6 million attributable to the Gaylord International. And now moving on to guidance. Gaylord Hotel continues to benefit from increased occupancy of high valued customers, which generates significant outside the room revenues, and allows us to capitalize on the inheritance operating leverage in strength of our business. This gives us confidence that we remain on track to meet our hospitality segment guidance set forth in the first quarter earnings release. Total RevPAR growth of 9 to 11%, RevPAR growth of 7 to 9%, consolidated cash flow of 135 to 142 million, and advanced bookings for the year of 1.3 to 1.4 million room nights. In addition, we remained comfortable with our guidance in our Opry and Attractions segment and Corporate and Other segment, and are therefore, reaffirming guidance set forth earlier this year. We believe that the final stages of the ResortQuest turnaround will be executed over the coming 12 months, which should lead to significant growth opportunities for the long term for that business. In the immediate term however there are two factors that continue to affect the ResortQuest business. The first is planned, which is a continued investment to substantially improve ResortQuest foundation of technology, marketing, development and operations. And this is necessary to support the growth that we anticipate in the future and as Colin described earlier. The second was the unplanned landfall of Hurricane Dennis On July 10 of this month. Colin mentioned that this is a rare occurrence, only the second hurricane to hit the state of Florida in the month of July in 105 years. But unfortunately this is peak season for our Northwest Florida business. So, the impact of both operations and customer demand is significant. While it is still too early to know the full impact of the storm, preliminary indications are that approximately 600 units are out of service and we will continue to assess the storm's impact on inventory and operations, as well as timing for units to come back online and we will update investors as more detailed information becomes available. As a result of these effects we are reducing our ResortQuest guidance for consolidated cash flow to a range of 12 to $20 million, which leaves our total Company consolidated cash flow guidance at 124 to $137 million.

Also, as a result of the hurricanes, we are reducing the top and bottom bands of our consolidated revenue guidance by $10 million. CapEx for the full year is expected to be approximately 165 to $170 million, including the previously announced acquisitions at ResortQuest and approximately 72 to $74 million for Gaylord National.

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

Thanks, Dave. Why don't we open it up for questions?

Samir Jain, Jefferies.

A little bit more about ResortQuest, would you say the majority of -- do you see impact on CCF this past quarter was due to the marketing and less though the shift in Easter holiday, can you like break that out for us?

The decrease in profitability for the quarter is -- three effects, the acquisitions that we did in -- early this year we acquired some units in the East and some units in the West, so the revenue growth that occurred basically came with profitability that washed out to zero. It's off-season for both areas, but that -- it's kind of natural. The remaining impact is the Easter holiday and the increased marketing, which are basically split 50-50 that affect the profitability from the 4.9 down to the 1.6.

And could you give us a little color on the marketing, exactly what is it, I mean is it a lot of radio ads, is it pamphlets at the other hotels, so give us some idea, what do you mean by marketing spend?

It's incorrect to say all of the expenditure that went through ResortQuest that was different from last year was marketing. We have a different development function in this business today. We have a different earning and analysis function in this business today. One of the things that we absolutely wanted to find out, needed to find out to position this business for the future is, what is occurring in every single market that we operate in from a pricing perspective. There isn't information like there was in the hotel business, where you have (indiscernible). So, we put resources in this last quarter to go out and literally look at every single competitive operation, every single market to understand the pricing model because we believe we have opportunities of pricing both to homeowners and to the customer. Now, in terms of the marketing spend in the business, the reality is that that 90% of customers, (indiscernible) find a way into the vacation rental business sort of exploring the way. We know that from the research that we have done where we talked to consumers about the way they actually book vacation properties. Our website that we inherited when we bought the business, and we knew it was pitiful when we bought it, and we are in a very aggressive mode to build this new website, which we will be rolling out here in the September to October timeframe. Very, very excited about this. It is something that we have invested a lot of money in, it is looking very, very --.

Can we also ask about Bass Pro. So, let me just understand this correctly. You said your share of the equity earnings was a loss of 1.7, but that also included the cost of 1.7 million. So, if I net those two out, Bass Pro was running at no profitability in the past quarter.

Yes, I mean that's what it is. The Bass Pro also is an extraordinarily seasonal business. The last quarter, first quarter in the hunting, fishing seasons. They make a huge amount of money, and we are expecting Bass Pro this year to make from an EBITDA perspective a very sizable amount. We haven't put out any guidance on what we expect Bass Pro to do, but we expect Bass Pro equity income for 2005 to be pretty good.

And then finally, there has been I guess quite a bit of press about the rumored bid (ph) property, specifically in a community in and around I guess San Diego. Can you give us the status on that. Last I heard it was -- I guess the community was considering RFPs for other proposals and is that sort of where it's right now and is there any other community you guys are looking at?

It's a bifurcated process. With that there are two topics to deal with here. The land in Chula Vista was owned by the port authorities of San Diego. It is the port authority that is giving consideration whether to sell source also doing RFP. We are hopeful we are going to be sell source here and the city of Chula Vista, we have been communicating with over the last three months. We believe they really do want Gaylord Hotel in this community and we will know I think with the port authority here in the next two to three weeks. They have a meeting in early August that they will determine whether they are going to sell source with us. But we like San Diego and more importantly a meeting plan at San Diego, and very excited about the prospects of upbuilding in that community.

So, Chula Vista is definitely the frontrunner right now.

Chula Vista is, but we also have another site in San Diego that we have been wooed on and we are communicating about, but right now we are seeing where the Port Authority ultimately goes here in the next week or so and we'll give you more information as and when those events unfold here.

And finally just one more question. Is there any update on that convention center in Florida?

The city has put that on the backburner, we believe for a period of time, but we are still working aggressively and actively to partner with our partners down there, Orlando and the Saunders (ph) Entry City and maybe going back to the community and putting another proposal before that. More to follow on that. We are still working on that.

[OPERATOR INSTRUCTIONS]. Napoleon Overton, Morgan Keegan.

Good morning, couple of things. First just to kind of back track on the ResortQuest issue. If we could see the whole PNO for ResortQuest in the second quarter, what portion of the shortfall or decline would you say came from overhead kind of items, marketing expense planning expense, so forth and so on as opposed to property operations in the quarter?

I think you can describe it as we did earlier, the Easter impact if you will. That would be property operations, that is about half of the decline and the corporate overhead piece is the other half of the decline.

Okay.

And those are the items that Colin described earlier.

And is it accurate to say that ResortQuest is proving more difficult in the short run than you originally anticipated, but your long term view or optimism about the outlook for the business is as strong as it was as or stronger than when you made the acquisition?

Yes, the honest answer to the question is, the answer would be yes, where we I think missed it just a little bit was on the people front. It has taken us a little longer to should I say cleanse the organization and get folks in this business that understand how to build brands and that's the first thing and the second thing is the decision that we took to basically implore the technology that we inherited, the property management system and the web site, we thought we could get away with the property management system, work that the old management and ResortQuest was doing, but when we really took it down to the skeleton, the code, understood how this thing was been designed, we said look this is crazy, we are building and earning this business for the next 15 years, we know this is a wonderful industry. You know, Nap, you have been a supporter of this industry in its prime for about 6 years, and it has never had the infrastructure, and what we have done here is we said look there's going to be short-term pain here, but we've got to get the right infrastructure in place, and that's what we are doing. And we're literally I think a couple of quarters away from having the enterprise property management system completed, I am very excited about it. We are about a quarter away from having the web site done, which we will be rolling out here in the October time frame, very excited about that. And we have the operational systems in place now. We know the businesses that we want to consolidate into ResortQuest, but we haven't being wanting to do that until we get the platform and the foundation in place. And to summarize this and answer your last part of the question, yes, I am very excited about the future. In fact, we've said it for the last two quarters. In fact, as we get into the issues around pricing and how second homes are just growing across the country, the condos are being converted, hotels being converted into condos, this business we believe has enormous growth opportunities to it but we've got to get the brain capabilities in place and that's what we are doing. We are not managing this business the way it has been managed in the last 5, 6 years on the quarter-by-quarter basis, we building this business for the future.

Okay. And one final question, probably primarily for Dave, I know you've decided not to provide specific quarterly guidance, but just to give you an opportunity to give some indication for the remainder of the year, is there any kind of indication you would like to give for the third and fourth quarters?

Yes, I would say that, you know, typically, Nap, the summer time is our softest period because of the strength of the conventional business, so and then the fourth quarters when we have our holiday promotions and Christmas shows and those kinds of things. So, you can usually expect a stronger fourth quarter than a third quarter.

Conventional business for the fourth quarter, Dave, it would be fair to say it's stacking up pretty well.

Exactly.

Great, thanks.

Thank you.

Our next question is coming from Jeff Donnelly of Wachovia.

Good morning guys, two questions. One is just a point of clarification on San Diego, is it fair to say that the point of San Diego right now is weighing whether or not they should basically skip the competitive process and move ahead exclusively with Gaylord in order to jumpstart that sort of complex development process?

Yes, what they have done, they being the sports authority has commissioned a consultant to understand the attributes of our Company, whether we are a Company because of their profound capabilities, I know that sounds a little self serving, Jeff, but they have asked this consultant to come back and communicate to them about our capabilities in this business as a precursor to exploring (indiscernible) with us. We believe what the consultant is going to say is what we believe about our Company, that we are the best in this industry, and we are hopeful the sport authority will share thoughts with us.

And they at this juncture put a range softer that might be at this point around what kind of contribution they may expect to make to your development?

They haven't, but we have told the city of (indiscernible) in an informal way what is going to take to attract a company of our capability into this market because of the ability that we have to build supply in just demand into this marketplace. So we haven't scared anybody of this yet.

You are creating questions for me, but should we expect there could be, I guess, more than may be what you got down in Orlando? Or commercially at the DC national?

We certainly have much more than we've got in Orlando, we didn't get very much there, that was before a time, Jeffrey, you would probably recall.

Let's answer the question if we could this way. Rather than getting into specifics, Jeff, we have said that we will not deal a project large hotel project if it doesn't deliver a 12% after-tax unleveraged return on investment and we won't do that (indiscernible) business to create value for our shareholders. And that's the sort of the starting point in this business, so we expect to be able to communicate and convince the community and the (indiscernible) authority to building one of these will bring so much value to the community that the partnership inducement (ph) that is required is more than worthy.

And I guess my original second question was just -- many of the large hotel companies out there are taking advantage of pricing in the capital marketing to sell assets. Is that something you guys consider, either selling your joint venture in any of the Gaylord assets at this point of your life cycle?

This is my view on this. We would do that at the point where we believe had growth in EBITDA is sort of somewhat slowing down first and far most because we said a year ago we believe that we are going to have a high-single digit RevPar growth not because the economy has turned around but because consumers are lining up to stay at our hotel and we've said we target about it and we think we can get to 80% occupancy here, we're sort of inconsistent about that in the next two to three years, we believe that to be the case. Now in terms of -- let's make the assumption we were at that level today. Would we consider taking some capital up the table in order to showing it back and then accelerate growth, the answer to that question, Jeff, but what we would not do is we would not do it with one investor and one business and another investor in another business, we would look for a partner who have had basically the same philosophy as we do about building a sustainable business in the hospitality business. What we don't want to do is end up in some of the complex you read about that our big competitors get into when they sell a hotel to one owner over here and other owner over here and because of the rotational strategy of that business. Our business is so different because we move the same customer from one location to another location to another location. We will be selective in pricing in one market because we are getting benefit of that customer in another market and so the structure of a potential sale of all or any of our assets we will have to take that phenomenon to consideration, you follow what I am saying?

Yes.

Will Mark, JMP Securities.

Thank you. Hello Colin and Dave. Question on the guidance, the RevPar guidance that you gave, is that for all three hotels?

Yes.

Okay. I'm just kind of curious, it seems like in the past -- I know there was at one point you obviously gave guidance for the or specific guidance for growth status for the two hotels and I just want to make sure that the ARPU rent and the (indiscernible) are on track for the year

I would say yes, we think that are on track for the year, and the guidance that we have given for the 7% to 9% RevPAR growth has always been for all three hotels.

Secondly on Bass, is there anything you can give us -- first of all can you repeat what they did last year. I don't think you gave EBITDA but your share of the net income, and I guess I understand that we are not going to get any kind of guidance for this year.

We recognized 3.7 million of net income from them last year. That was our -- remember when our stakes stepped up part of the way through the year. So that doesn't represent 26% of net income for the entire year, it represents 19% for three quarters and 26% for one quarter. This year we are not providing the guidance for Bass Pro for net income for the year, what we have described is the store growth is occurring both this year and next year that's going to essentially double the portfolio in the next two years.

Well, I will tell you what we will do, because obviously that has over the last 12 months and is continuing to be of great interest to the shareholders because of its brand halo and the acceleration of growth. We will talk to our partner in Bass Pro and see if we can get a little bit more agreement on discloser here. It is a private company as you well know but the growth of this businesses is quite extraordinary and we like it and that's one of the reasons why we continue to want to hold this investment because we see it creating lot of value. So we will have a discussion with our partner here and see if we can provide a little more color in terms as EBITDA projections on a 12-month basis.

That will be very helpful, obviously it's a big part of the value in the Company, thank you. And a couple of other questions, on -- can you give us a dollar number of spending Washington DC, to date and in the quarter?

Spending to date is about $36, that includes the purchase of the land and the beginnings of the construction and design process. And then, your question was what for the balance of the year?

Actually for the second quarter?

Second quarter was about $6 million.

And what about balance of the year/

We will spend about another 40 for the rest of the year on Washington.

The activity is picking up right now.

Okay. And then on -- you mentioned short-term investments of $109 million in your press release, and you may have said something on the call, I missed it, what is that figure?

That's cash, restricted cash in short-term investments. Short-term investments are repo securities basically so they are essentially cash. So that's what that number represents. The restricted cash which is $77 million of that 109 is ResortQuest deposits, and so forth that are basically passed through our system in our typical booking cycle.

Okay, and any update on your tax liability from the TV station sale?

No, it's still there, it's still the same amount, we are looking forward to it going away in 2007.

Final quick question. On ResortQuest, you have given us the sense of this year, I mean for next year should we look at what this year was supposed to be and obviously I'm asking for '06 guidance, so whatever you can say along those lines.

Right now the answer is -- my view is what we said for this year and guidance for '06 will be -- I'm hopeful, its going to be a little north of where we guided this year because of the things that we see happening in the business. But we will be a lot more specific about that when we get to the third quarter in October. We have some optimism for this business for '06.

Great, thank you.

And Gabe, we should take one more call and then wrap it up, I think.

Our final question is coming from David Katz, CIBC World Markets.

I am going to make it easy, all of mine have been asked and answered, thanks.

Our final question is coming from Teddy's Drowse of Kalians.

Hi, its me Drowse, I just had few questions, your technology costs that you are running through, reserve costs, that is being capitalized or expensed?

The vast majority of them are capitalized, but there are some expenditures such as training and the like, that are expensed during this year.

And then for your Washington property, do you have construction guarantees in place on the costs or --?

We are in the process of bidding the project. As we have been doing all the detailed design -- documentation and detailed design work, we have been going through with a major -- the company that's going to build this thing for us, but we are in process of now doing all the detailed bidding of this and we will have a fixed price contract.

So, you are still -- it's about 500 million, I think, is your budget rate or --?

Yes, I think it's probably at 550, 560 all in with -- that's including pre-opening value bid and cap interest less than the incentives. So, the net to office, what would that be, about 450.

And who is the constructor?

It will be Preeny (ph).

I think that's it?

Yes, sir.

Thank you very much everyone for joining us today. And if there are any further calls please feel free to give Key (ph), Dave or me a call. And thanks for your interest. Thank you very much.

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