Ryman Hospitality Properties Inc (RHP) 2006 Q2 法說會逐字稿

Welcome to the Gaylord Entertainment Company's second quarter 2006 earnings conference call. Hosting the call today from Gaylord Entertainment is Mr. Colin Reed, Chairman and Chief Executive Officer, and Mr. David Kloeppel, Chief Financial Officer. They're also joined by Mr. Keith Foster, Vice President of Treasury, Investor Relations and Planning and Mr. Carter Todd, Senior Vice President and General Council. This call will be available for digital replay. The number is 973-341-3080, and the pin number is 7622907.

At this time, all participants have been place on listen-only mode, and the floor will open for your questions following the presentation. It's 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 Council and Senior Vice President for Gaylord Entertainment Company. Thank you for joining us today and our second quarter 2006 earnings call.

You should be aware that this conference call may contain forward-looking statements within the meaning of the Private Security 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 facts may be deemed to be forward-looking statements. Without limited the foregoing, words such as; believes, anticipates, plan, except 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 other, set forth in Gaylord Entertainment's filing with the Securities and Exchange Commission and in our second quarter 2006 earning release and, consequently, actual operations and results may differ materially from the results discussed or projected in the forward looking statement. Gaylord Entertainment undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

I'd 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 with the most directly comparable GAAP financial measures has been provided as an exhibit to our earnings release and is also available on our website underneath the Investor Relations section.

At this time I'd like to turn the call over to our Chief Executive Office and Chairman, Colin Reed.

Thanks Carter, and good morning, everyone. Welcome to our second quarter conference call. Over the next few minutes, I'll provide some top-line commentary on each of our businesses, and then Dave Kloeppel, our Chief Financial Officer will discuss the detailed operating and financial performance of the company and then provide guidance. And then at that point in time, we'll open up the call for questions.

Coming off a solid first-quarter start of the year, our second quarter results continue to how that Gaylord Entertainment is executing well and more importantly performing well in their core hotel business and that our hotel brand equity is becoming more and more valuable. This quarter's record same-store advanced bookings and improvements in customer satisfaction are just another in a series of proof points that meeting planners and convention and association groups see Gaylord as a critical resource in solving their organizations' large meeting needs.

Like most of you listening to this call, I've been reading about and thinking about the consequences of rising costs [including] oil, as well as increasing interest rates and their impact on the consumer behavior, and, more importantly, what this means for our company. Now, as I've explained on numerous occasions, our business model for our hotel business is very different from the majority of folks who operate in the hospitality segment. Indeed, most hospitality companies really are reliant on the mood of the consumer, particularly those companies that are focused on the overnight traveler.

At our hotel business, the vast majority of our customers book large blocks of rooms literally years in advance and, as we've pointed out many times before, with signed contracts. Of course, the overnight traveler helps our business as well and helps fill in the gaps between our large conventions. But this consumer plays a disproportionably small role in our success. So as I look out at the next several years, I'm very comforted by the fact that in no time in our past history has our book of advance business been so strong, our relationship with our customers been so strong and our growth opportunities so exciting.

Now, as Dave will point out in a few minutes we have honed our hotel business guidance for 2006. And please remember, we do not guide quarter-by-quarter. And as you'll hear from Dave, we have guided up both advanced bookings and for CCF. This is due to the fact that we are confident that the back half of this year will be stronger than we envisioned six months ago caused by our strong booking patterns and margin management.

Now, let me step back a second and recap what this new guidance means. From an analyzed occupancy prospective, it will mean we grew occupancy from 71% in 2004 to about 74% in 2005 to about 78% in 2006. From a CCF prospective, we grew CCF approximately 31% in 2005 over 2004, and we will grow CCF somewhere between 17% to 20% in 2006 over 2005. And as I said to you before, because of our momentum, the future years look very bright.

I am often asked, 'What could go wrong?' and hear statements like, 'Well, surely the explosions in city convention center space across the country is a problem.' But the reality is, it's not because our customers -- the folks who book conventions in the 600 to 2,000 rooms of peak -- overwhelmingly prefer our all-under-one-roof model over the city center convention space and the need to house their delegates in surrounding hotels. Yes, the future for the hotel business looks really attractive.

Over this last quarter we made some exciting headway on securing the future growth of our company regarding our under construction project in Washington and the project that we are pursuing in Chula Vista, a suburb of San Diego. This progress is extraordinarily important because both of these markets are top-ten convention markets in this country that today attract many customers that we do not presently do business with.

One critical element of our strategy is we acquire customers when we enter new markets, which we then encourage to make multi-year bookings, and we take their bookings to our entire network. The really good news is that our customers are not only booking at just one of our properties but taking advantage of our multiple locations. And as some of you may have read, in Washington, we were very excited about the fact that Prince George's County has approved a $50 million economic incentive for the previously discussed 500-room expansion.

We believe that the agreement is beneficial to both Gaylord and the county and will help us meet the strong demand on that we've already seen for this property. As we've said before, the National has been receiving an outstanding reception from our meeting plans and customers who eagerly await its opening at the beginning of the second quarter of 2008. By the way, the 500-room expansion will open sometime in the third quarter of 2008.

Now turning to Chula Vista -- our letter of intent was approved by the unified force of San Diego board of commissioners and the city of Chula Vista, outlining the initial plans for a 1,500 to 2,000 room resort and convention center hotel on the Chula Vista Bay front. This is the first major milestone in an effort to bring out industry-leading Gaylord Hotels brand to the West Coast, but we recognize that a lot more work has to be done to make our planned resort and convention center hotel a reality. In fact, we do not expect to be under construction until after the National opens.

Now let me preempt another frequently asked question. So where does the capital come from? First and foremost, we already have on undrawn bank lines with over half a billion dollars in restricted and unrestricted cash with $80-ish million. And we will not require any modifications to our capital structure for at least 12 months in order to fund our Washington project. [We'll come] to that in the other projects we currently are contemplating. The question of financing, of course, has stimulated the usual wave of visiting bankers, all telling us that various capital raising alternatives are available. Most specifically -- equity.

But the reality is this is not on our horizon, particularly the issue of equity. It's my view that if we require additional capital over the next 12 months, we should raise this capital by shedding additional non-core assets or partnering with investors who share our strategic objectives as regards to hotel development. I am sure this comment will draw questions as to what are strategic assets and what are not. But at this stage, we are not prepared to get into those specifics.

Let's turn to one other important piece of news before [technical difficulty]. As you all know by now, we call our employees stars and fundamentally believe that our stars are the main component to the success of our hotel's brand. Guest satisfaction is fundamental in driving repeat business from that convention and transient guest and to the building of long-lasting relationships. Our stars are the most important resource to drive guest satisfaction as they exceed customer expectations each day and deliver the highest standards in service excellence.

The independent guest satisfaction survey, which we have designed specific to our business, is conducted and compiled by Merits Research. Our performance this last quarter was a resounding success with two of our hotels achieving record-high levels of guest satisfaction.

Guest satisfaction ratings at Opryland was the property's highest ever, breaking the previous record which, incidentally, was achieved in the first quarter of 2006. At the Texan, guest satisfaction scores were the highest since its market debut as customers overwhelmingly endorsed our signature offerings. The Palms' overall guest satisfaction score was its second highest quarterly score to date, illustrating that all of our properties in tune, performing together at exceedingly high levels. We're very pleased by these results and believe they reveal a very healthy hotel brand.

Now, let me just talk a little bit about the top line financials in our hospitality business. Gaylord Hotels performed well this quarter as revenues for the hospitality group grew by 6.4% to a $157.2 million on the strength in the outside-of-the-room spending and ADR [growth]. CCF increased 8.1% to $41 million due to strong performances by Opryland and the Palms. DCF margins were 28%, an increase of 48 basis points as a result of strong revenue increases from outside-of-the-room spending, which resulted in a slightly lower flow through of revenues to the bottom line.

Our core high-quality group customers and leisure customers continued their strong demand for our industry-leading convention properties, spending more and more on our food and beverage and entertainment offerings.

As I mentioned earlier, Gaylord Hotels experienced record same-store advanced bookings of 381,000 room nights or a 28.9% increase over the prior year's quarter, revealing a brand that is exceeding bookings expectations. Overall bookings productions, which includes quarterly bookings for the National was 455,000, an increase of 17%. Cumulative advanced bookings for the National now stand at 646,000 room nights, a significant achievement for a property that will not open its doors until the beginning of the second quarter 2008.

Additionally, many of our association and group customers as well as perspective customers have been eagerly anticipating the 500 room expansion and subsequent increase in room nights available. These room nights will place into our inventory in early August. Now, with the recent approval of the economic incentives from Prince Georgia County, we expect our bookings pipe line to remain strong.

Now, let me turn to ResortQuest, our vacation property management business. ResortQuest was as expected and in line with our guidance from last quarter. As you likely know, many vacationers are avoiding Florida due to the lingering fears about hurricane and inclement weather. Because of this, bookings were soft during the quarter, primarily due to light demand for properties in northwest Florida. Also impacted by the weakness in Florida was our brokerage business which has suffered from the declining real estate sales.

Excluding the Florida market, ResortQuest's year-over-year performance would have been pretty strong as a result of strong ADR and revenue improvements in our Hawaiian market and other markets such as Whistler Canada. On a positive note, we are seeing increased growth in website traffic and positive customer feedback from the site's increased functionality.

As I mentioned we have seen some solid progress from markets such as Hawaii, where demand remains strong, and recognition of the quality of the brand continues to grow. Because of this, during the quarter ResortQuest added another property, the ResortQuest at Hawaii Beach at [Munkaida] -- I hope I pronounced that correctly -- bringing ResortQuest total of Hawaii properties to 28 hotels.

Our [technical difficulty] business and the Grand Ole Opry all performed as we expected, and Dave will fill you in on the important highlights. Now, what I'd like to do is turn this all over to Dave who will provide more details on the quarter.

Thank you, Colin. Let me spend a few minutes describing the major drivers of our financial results for each of our businesses during the quarter.

We've made significant progress toward achieving our long-term goals as we continue to grow our distinctive brand in a very unique business model. Before I repeat the financial results, I'd like to point out three key characteristics of our business which differentiate us from anyone else in the hospitality sector.

First, there's been a great deal of discussion in the market place recently about the economic health of the consumer, and Colin referenced this earlier in his discussion. The fact is, as Colin said, our model is very different, relying on contracted group business to drive the results. Put numbers to it -- approximately 17% of our occupied room nights in the second quarter and only 14% year-to-date are consumer driven room nights. This profiles a radical departure from most of our competitors, and it insulates our shareholders from the traditional volatility in the hospitality market.

Second, we focused on high-value loyal customers who have a high outside-the-room spend level and who rotate their groups across our properties year-by-year. Our success here is evidenced by a rotational booking metric of 43.1% on a trailing 12-month basis and total RevPAR of $283.22, up 4.9% over the same quarter last year.

The third point is that we sell our property as a portfolio, where we look at occupancy performance as well as other revenue area such as food and beverage and entertainment revenues, and we look at it across the entire portfolio.

This assessment of the total value of a customer can result in a changing association versus corporate group mix as was the case this quarter. A changing customer mix can often result in a corresponding revenue shift related to inside-the-room spend versus outside-the-room spend. This is what occurred this quarter as the Texan and Opryland experience a shift to corporate business from association business while, at the Palms, the shift in group mix was reversed.

The effect of these types of changes drives significant shift in our revenue mix and, consequently, in our margins. I'll further describe the impact of this change in mix in my overview of each property.

We continue to make progress in yielding our properties by identifying, booking and rotating the best customers and believe that we will be able to bring the same level of success to other markets as we build out our network of convention hotels.

Now, I'll speak to the specific financial metrics in our properties. First of all, Opryland. Consolidated cash flow increased 13.8% to $18.1 million on the strength of total RevPAR, which improved 9.3% to $255.23, a significant increase over the prior year quarter and proof that our focus on higher-value groups and our investment in additional offerings such as the Relache Spa are eliciting a strong response from our customers.

At Opryland, the ongoing popularity of our dining and entertainment options, as well as a shift in customer mix from associations to corporations, resulted in a higher total RevPAR, which included a 35% increase in other revenue and a 15% increase in food and beverage revenue.

While we're certainly pleased with these results, higher outside-the-room spending, which is lower margin than in-the-room spend, does impact our CCF margins, which increased in the quarter by 25 basis points to 27.1%. Occupancy decreased by 43 basis points to 78.9% as a result of 2,300 rooms being placed back into our booking inventory after previously having been taken out for room renovations.

An ADR increase of 1.6% partially offset the occupancy decline which helped drive the 1.1% increase in RevPAR to $113.28. It should be noted that as reported by [Smith-Struther] Research, Opryland ranked number one in RevPAR for the quarter versus its competitive set with a RevPAR index of a 115.4. Following two quarters of consistently robust performance, we expect Opryland to continue its performance for the remainder of the year as it quickly reclaims its centerpiece status in our hospitality network.

The second quarter of 2005, we took 7,940 rooms out of room nights out of Opryland's inventory due to our ongoing room renovations. The room renovation program resumed in July of 2006 and will continue into the fourth quarter of 2006. The program will include 431 rooms this year, for approximately 18,600 room nights. We also expect to take approximately 53,000 room nights out of service during the course of 2007 to complete the room renovation program.

Moving to the Palms, the Palms had a solid quarter growing PCS by 7.8% to $14.4 million due to occupancy growth. Revenues increased 1.9% to $45.1 million and improved flow-through resulted in a CCF margin increase of a 175 basis points. This quarter's RevPAR increased 10.9% quarter-over-quarter, boosted by a 7.3% increase in occupancy and a 1.3% in ADR. Total RevPAR at the Palms was affected by a 9% decrease in food and beverage revenue resulting from a change index from corporate to association groups.

Associations tend to spend less on banquet spend then corporations, and that's what occurred in the second quarter of this year. Large group and transient demand were strong resulting in total RevPAR improvement of 1.9% to $352.32. The Palm's high-quality convention customers are very solid, and we expect the property's good performance in the first half to strengthen through the remainder of 2006.

Now, I'll provide some detail on our results at the Texan. For the quarter the Texan experienced an occupancy decline of 5.7%, against very strong results in the prior year. The occupancy decrease was largely brought about by lower association bookings for the quarter, which negatively affected gross par by 4.6% versus the same quarter last year. This lower occupancy was offset by a 3.1% increase in ADR and a 6.6% increase in outside-the-room spend due to the shift from association groups to corporate groups.

The resulting 10.5% increase in revenue for occupied rooms helped to boost revenues by 2.1% to $42.9 million dollars. That impacted CCF with an improvement of 20 basis points to $10.8 million dollars, while CCF margin decreased by 48 basis points.

Further, the booking pipeline of the Texan remains very strong for the remainder of 2006, and we expect the property's strong year-to-date performance to continue for the remainder of the year.

On the development front, now that the additional $50 million dollars in economic incentives has been approved by Prince George's County, we are moving ahead with the expansion of Gaylord National to 2,000 rooms. Construction cost estimates continue to hold at the levels we described in our earlier calls, and to date, we've spent a $131.3 million dollars on the project.

We expect to spend an additional $654 to $704 million dollars to complete the project and recall that upon opening, Prince George's County will issue to Gaylord a $145 million dollars in bonds backed by tax revenue generated on our site. We will hold these notes on our balance sheet as notes receivable. Funding for the remaining capital spent on National will come from an internally generated cash flow, debt incurrence and asset sales.

Moving on to ResortQuest. ResortQuest performance came in as we expected, and as Colin mentioned ResortQuest customers have been hesitant to book vacations in the Gulf Coast, particularly the areas in Northwest Florida which were damaged by hurricanes.

Revenues from continuing operations were $58 million dollars, flat for the prior year quarter. ResortQuest RevPAR was $88.12, a 5.4% increase over the second quarter of 2005. [Inaudible] GAAP was $1.7 million dollars for the quarter compared to $2.3 million in the second quarter of 2005. Weakness in northwest Florida is affecting performances for the entire eastern region, but despite this, the ResortQuest brand remains strong in top vacation markets such as Hawaii, where we continue to increase our presence.

June of 2006, ResortQuest entered into a joint venture with three global opportunities firms, a division of Georgia Bank and a joint venture purchased with Courtyard Hawaii at [Waikoloa] Beach -- I hope I said that right. ResortQuest also entered into a long-term management agreement to operate the 311-room property which has been renamed the ResortQuest [Makawa] at Waikoloa Beach.

Gaylord Entertainment will retain a 19.9% equity interest in the joint venture, with a total investment in the hotel of approximately $3.8 million. Our Operating Attractions segment performed as expected, yielding revenues of $19.8 million, an increase of 6.1%. The Opry experienced a decline in CCF of about 8.5% to $2.9 million as a result of increased projects and show expenses during this peak season. The Opry has come off a great year in 2005, and our brand awareness continues to drive new merchandising relationships and increase the value of our partnership.

Moving on to Bass Pro, equity income from that investment was $3.2 million per quarter. Bass Pro shops are the category killer in the outdoors sporting goods industry, and we're obviously very excited about the performance of our investment in this dynamic brand.

Moving on to guidance. Our hotels business continues to grow CCF and total RevPAR as a result of our brand's ability to attract the more valuable customers who take advantage of our entire portfolio of products. Based on expected improvement in profitability and favorable booking trends, we are revising our Gaylord Hotels CCF guidance to $166 to $171 million, which implies a 17% to 20% growth rate over last year's results. We remain confident that we will be able to deliver on our previously announced guidance of total RevPAR growth of 8% to 10% and RevPAR growth of 8% to 10% and revenues of $924 to $961 million.

Our booking pipeline remains solid for the rest of 2006, and advanced booking at the Gaylord National have reached 646,000 room nights. For a property that will not open its doors until the beginning of the second quarter of 2008, it's a true validation to the strength of our hotels brand. Based on our record advanced bookings this quarter and a solid booking pipeline, we're raising our same-store advanced bookings guidance from $1.3 to $1.4 million room nights to $1.4 to $1.5 million room nights.

We're also reaffirming our ResortQuest guidance for the year as business performance remains inline with the reduced expectations with that last quarter. While Hawaii remains a highlight, we expect this brand to post performance as online bookings improve and as the traveler confidence in the Florida market improves.

Finally, capital expenditures for the full year are expected to be approximately $320 to $325 million, including the previously mentioned ResortQuest acquisition and approximately $205 to $210 million in total for the Gaylord National.

Now, I'd like to turn the call back over to Colin.

Okay, Dave, thanks a lot -- a lot of details there. And Denise would like to now open the floor for questions.

Thank you. [OPERATOR INSTRUCTIONS]

Thank you. We have our first question coming from [Nat Overton of Morgan Keegan]. Please go ahead.

Good morning.

Good morning, Nat.

A couple of things. I know that the details are not -- certainly far from being in place for Tula Vista but is it a reasonable expectation that those total construction costs could fall in a range of $8 to $900 million?

What we've done right now, Nat, is -- obviously we've had detailed estimators -- independent estimators -- on the West Coast helping us think through that on the understanding the construction cost for that market. I think you're in the ballpark there, Nat. So, the answer to that is yes. But we've baked into those numbers pretty aggressive escalations over the next three to five years assuming the world continues to operate like we've seen in the last one or two years.

Okay. And then, on --

The real good news is, Nat, is that we've seen similar escalations in the ADR's of the [inaudible] of the market.

We should also note, too, that the incentive structure that we've negotiated with the Port Authority in the city of Chula Vista differs from the one that we had negotiated with Prince George's County in that in the case of Chula Vista, the incentive would be a public bond issuance where the proceeds would go to fund the construction of the product. So as opposed to Prince George's County, where we received the bonds at the end, and we hold the bonds, in this case, we'll actually receive capital to offset our construction cost through the construction process.

Okay, all right. And then on Opryland rooms being out of service -- I believe that the numbers of rooms, nights out of service double next year versus as compared to 2006. And with that in mind, do you think that the other properties can overcome that hurdle next year so that we could expect the hospitality segment consolidated cash flow to increase overall next year?

We will be getting into guidance in and around that November period, as we do every year. But one thing I would say to you -- and I'm going to probably give you too much detail here -- the reason we're increasing the number of rooms that are out for next year to get our Opryland done is because the demand for rooms in Opryland gets stronger and stronger and stronger, and we've got to get this done. Because if we delay it in '07, we face a bigger problem in '08 with the amount of business that we are seeing folks want to book with us. So we're doing it for that reason. Also, we believe that we will be able to secure decent pricing increases because these rooms are very, very good.

I think it's too early to speculate on '07 over '06, but as we sit here today, we're very confident that '07 will look very good and will be up over '06 overall for the hotel business.

Okay. And then one last question, and I'll be quiet. On ResortQuest, ever since that company was put together, long before you bought it, there's been an issue with rooms under management, being some bleed-off of rooms under management, pretty consistently quarter-to-quarter, and it has continued. Could you provide any color on what the issue is there that a pretty significant number of rooms just drop off out of the base each quarter, it seems.

Yes, one of the things we did in this last quarter was we excited the Nantucket market, and that's one of the reasons that impacted that. And the reason we excited the Nantucket market is simply that market has been a challenge for this business for the last eight years. We don't have exclusive listings in that market, and we had a situation there with the owners that ResortQuest originally the business from that have been sort of legacy owners staying in the business. So we just decided that Nantucket could never fit into the brand, and that's the reason we sold that business.

And just to follow up there, is it -- it's been a very long-term issue with that business model. I was just wondering whether there was a longer-term, bigger -- I understand Nantucket, but a bigger issue with the business model related to that.

We could spend hours debating that. One of the issues that have occurred in, particularly, the Florida markets is there's been such an enormous increase in supply in the Florida markets in second homes. And the contracts that are typically signed within ResortQuest are annual contracts with the homeowner to manage their property. And as this enormous supply comes into the market, there isn't a corresponding change in demand in that market, and homeowners have moved around in the Florida market.

Now, in other markets, we haven't seen that, but that's just been a characteristic of that market.

Okay, thank you.

Thank you.

We have our next question coming from Will Marks of JMP. Please go ahead.

Great, thanks. Hello, Colin. Hello, David. Question on a couple things. One would be -- Bass, did you mention guidance still $9 to $11 million? Or is that in the note, and I just missed it?

We didn't -- it's not in the notes, Will, but our expectations for the business haven't changed from earlier in the year. So that was $9 to $11.

Okay, great. And then, on the Texan -- I heard your comments. I don't know if I fully grasped why it was weak compared to last year or basically flat?

Yes, I mean, here's the reason. It's the perennial debate that we have. It's large blocks of business get booked three, four years ago. And this quarter, the Texan was effectively set back in 2002 and 2003. And that was the issue as it relates to this quarter.

But as David sort of talked about in his remarks, the backend of this year looks very strong for the Texan, and we're expecting the Texan to continue to bring its business above the levels that we aspired for it to be at 12 months ago.

If you recall, when we went out onto the road to talk about the Gaylord Family stock, one of the comments that we made frequently is that we hoped the Texan would get to $45 million of CCF in the third year of operation, and we're pretty confident that this hotel is going to be pushing $50 this year. And this hotel has a tremendous pipeline of bookings, both for the rest of this year into next year, continues to book tremendously well.

And it's just -- our business is not like the rest of the hotel business. We get these great big blocks of business, and one big block of business in one month can affect the performance of the hotel substantially. But we're very, very happy with the dynamics at this hotel. This has got great customer satisfaction levels, great book of advance business. And this hotel will perform very well for the back half of that year, will provide very high levels of cash flow and will show growth next year.

Okay. No, that's great. And moving on to the Palms. We've seen some weakness from certain large Florida assets, expected weakness during hurricane season. Is that -- I assume there's some of that in your numbers? Are you seeing any issues there at the Palms?

Again, we expect the back end -- because of the book of business we have for the second half of the year at the Palms, we expect the Palms to be operating at very good levels of growth. It would be wrong of me to break it out because we don't do that. But what we have basically said for the company is that we're going to do somewhere between 8% and 10% same-store RevPAR growth.

And if you recall, in the first quarter, as a company, we did 14.4. We did about 2.3 in the second. You're questioning -- is there weakness in Florida? Is there weakness in Texas? Which brings the year to about 8.5, but we are still confident that we're going to be in the 8 to 10 for the year, which implies the back end of the year is going to be in the aggregate as strong as the front half of the year. And we believe that the Palms is going to operate very well for the backend of the year, as will the Texan.

And one --

Great, okay. And --

One of the other things that will -- let me just add one other piece of information. Because of the - there's a question that's commonly asked here, continually asked about, well, maybe there's some new supply coming in that Orlando market and the Orlando market is a little week. In the first half of this year, we booked over 185,000 room nights for the Palms for future years. Last year we booked 115,000 rooms. We had well over a 60% growth year-over-year in room nights booked, and it's because of the high levels of customer satisfaction and customers wanting to come back to this business. And we're very optimistic about this hotel next year, the year after and the year after.

Okay, great. A couple other housekeeping questions. David, can you just repeat -- you said $320 to $325 million of CapEx?

Yes, that's correct.

Okay, with 205 -- sorry, go ahead.

That's for the whole year. About $200 million of that, $205 to $210 is National, [inaudible] National.

And the total spending, you said, that National, since beginning construction, is $135?

$131.

$131, sorry. Okay. And then the only other question I had, sorry, was on -- one second here -- on the land that they -- not the press release but the comments by a reporter on adjacent land in Nashville, any -- do you want to make any comment on that, what intentions were, if at all?

Not at this stage. Look, we've got some very valuable real estate, about 108, 10 acres sitting across, cattycorner from our hotel on Riley Parkway, which you probably may not know is in the process of being completely redone. A very valuable piece of real estate. We've had a few folks come to us and say, 'Hey, we'd like to talk to you about potential entertainment offerings on that land.' And, frankly, we're all ears. We're listening. Anything that is good for driving tourism to Nashville and driving tourism into our 3,000 hotel rooms that sit over the road, that will operate at about 80% occupancy this year, tremendous high levels of occupancy for a market like this, we're all ears. And so, when there's something to report, Will, we'll talk to you about it.

Perfect. Okay, thanks guys.

Thank you. Our next question comes from David Katz of CIBC World Markets. Please go ahead.

Good morning, gentlemen.

David, good morning.

David Katz. Hi. Two questions. One, I guess most of them might have been asked, but I just want to make sure I heard correctly. When we talked about the Texan and the Palms and some of the out-of-room spending mix, it sounded like, Colin, was your expectation the back half of this year is that that mix may shift back to a sort of more profitable customer base. And I guess my thinking is along the lines of that visibility that we have into what the back half of this year and next year looks like.

Yes, in short answer, the answer is yes. Remember, we talked about a year, two years ago, that we're able to now gauge this sort of theoretically work with every large customer based upon the profile of that customer. And, obviously, the way we are booking these days, we have a very scientific approach called -- we call it internally -- called [Redmax]. And it's a way to assess every single large customer's worth to us, and we're able to predict it. And we're able to understand what these groups will spend when they're in house.

So the backend of this year looks more consistent with the first quarter in terms of revenue. But as we move forward into next year and the year after this science that we've applied will only benefit our company more so.

All right. And I have one more that may be a little bit ambitious. But if you could help me think about Washington, D.C. And I obviously have some forecast of some expectations, and when I look at the room rates at which you're booking presently, is it fair to look at it from the perspective of if I took, let's say, an upper upscale room rate, ADR, from today and grew it at some reasonable rate until the property opens, right, and then -- should I be assuming that when you book rooms today, you're doing so at a discount of that number? Is that a fair way to think about it?

We don't look at it that way. What we do is we look at 2008, every single day in 2008, and we've rated every single day into is it a strong convention booking period or not. And we price based upon expected demand day by day. And so you can't sort of look at these blended ADRs for upper upscale and say that's the rate. There's a lot more science that goes into this than that. And the other thing that we do is we will vary the room rate marginally based upon, again, the outside of the room theoretical work of a customer. It's a bit like gaming. That's the way we go about it. It's vastly different from the way our competitors go about it.

But I tell you what -- I think what we have to do here, because we obviously get a bunch of questions like this -- Dave and I were talking about this, David, last week. One of the things I think we're going to be doing in the, I would think, October/November timeframe is bring together both sell side and buy side analysts and having a conference where we'll talk more so about expectations around this product and the way our company -- more detail in terms of the strategy. I think it's about time we did that here. And I think, if you can bear with us for another two or three months, we'll open the curtains a little bit and let you a little bit more into that Washington project.

That'll be helpful. But at the end of the day, I guess the thrust of my question was -- is there some measure of money that's left on the table, so to speak, when rooms -- and obviously the bookings at National are superb -- is there some money that's left on the table in doing so?

Yes, David, if you look at our properties and the competitive test that we measure our self against in Orlando -- we measure against the big Orlando hotels. In Texas, we measure against all the Texas hotels. And in Nashville, we measure against Atlanta and New Orleans; although, New Orleans is kind of out of service right now. We run a RevPAR premium to our competitive set in all three of our hotels. And on average, it runs about a 15% or so premium of cost of three hotels at various [inaudible] markets.

So our approach is to maximize the total revenue of the property, which tends to mean that we're going to try to drive occupancy before we're going to drive rates. That said, we tend to run our -- an equivalent fair share on rates and sometimes a bit of a premium, and we almost always run a fairly significant occupancy premium to our peers.

David, the other thing I'd like to make an observation on, and I don't want you to think I'm being defensive here. But a couple of years ago, when we were having debates with the sell and the buy side about all these forward bookings, the world looked a little different, and everyone sort of said this is wonderful, you're making all these bookings, securing the future of the company.

Then all of the sudden, the economy comes back in the last 12 months, and corporate America's coming back to work. And then there's this rhetoric about, well, if you're making all these forward bookings, you're leaving money on the table because you can price more aggressively and get more out of it. Now, I'm reading, well, maybe the consumer is going on a sabbatical. And the hospitality business probably won't look as good next year or the year after.

What we're trying to do as a company is we're not in the gambling business. We're in the business of securing very good strong growth in our company, year-over-year over-year. And we're going to continue to make these forward bookings two, three, four, five years out because that's the way these customers book. If we don't book today for five years time and thinking that maybe five years time, we'll be able to take that room availability and get a better price, it doesn't work that way with these large customers. So we're going to continue to do it this way. We've put science into this to extract more value and to make sure we do business with the right customer.

But I think our business model is not gambling with the mood of the consumer. Our business model is about securing sequential growth year-over-year over-year and doing it very well.

Thanks guy.

You're welcome.

Thank you. Our next question comes from [Patrick Scholls] of JP Morgan. Please go ahead, sir.

Hi, good morning. Just a quick question on reconciling the change in the number of rooms out of service. It looked like in last quarter's press release it was 25,000. Now it's 18,000. Subsequently, you've raised the CCF number for the back half of the year and hospitality by three million. How much of that three million is coming from a lower number of rooms being renovated? Or is that -- and how much of it is from a better bookings outlook?

Patrick, it's Dave. It's really, almost entirely, from the better bookings outlook. What we've experienced in the year-to-date and what we're seeing for the back half is we've been a bit more effective at driving profitability to the bottom line that we had anticipated, number one. And number two, as we look at the back half of the year and the bookings that we have, we have a lot of strength in, really, all three of our markets. So we just got more and more comfortable with where we think the business is going for the back half.

Okay, that's good. And secondly, with the 7,000 room change, can we assume that those are just going to be delayed until 2007?

Yes.

Okay, very good. Thank you.

Thank you. Our next question is coming from George Smith of Davenport. Please go ahead.

Hi. I had to hop off for a little bit, and I apologize if this was discussed already. But San Diego and financing options there -- I assume non-core assets are a target. How easy are those assets to part with? And next, is the notion of rotating capital still -- out of current properties -- still on the table?

David, Colin Reed. The answer is, when you were out of the room, we talked about that our capital spend on Chula Vista won't kick in for at least 18 months. And the answer -- when we need that capital, obviously Washington will be open and our cash flows will continue to grow and will be strong. And bottom line is we will be using asset sales through that period of time and rotating -- I'm sorry, George -- and we'll be looking at -- still looking at the program of selectively selling some of the big assets and using that capital. So --

We also discussed, George, that that public incentive financing that we're getting from the city of Chula Vista and the Port Authority is structured differently than the one we got that's in Prince George's County, wherein it will be an actual cash offset to our construction costs in the early parts of our construction. So that obviously helps manage the balance sheet as well through the construction period.

And that total amount was --?

$130 million.

That's it. Thanks.

Thank you.

Thanks, George.

[OPERATOR INSTRUCTIONS]

We have our next guest ion coming from Michael Millman of Soleil Securities. Please go ahead.

Thank you. That's Soleil, like sun. Broad -- big picture question -- understanding that your leisure-travel clients in mid-teens. Nonetheless, with the load factors where they are, do you see that cutting off some of the sides of the conventions, that corporations will just find it too difficult to get everyone to where they hope to go?

If the -- I'm not sure I understand the question, Michael. But let me try and give you an answer on what I think it may be. What I hear you saying is because we're still in the sort of mid-teens on leisure, does that impact our ability to house conventions. Is that the question?

No, that was just a preamble, which I guess confused. No, my question was that the load factors are so extreme, are they going to affect corporate travel? I mean, they're obviously affecting leisure travel, but will they affect corporate travel as well?

Oh, okay, you're talking airline load factors.

Yes.

Okay. Yes, good question. In some markets, yes. In some markets, no. One of the good things that's happened with, I think, in Dallas is this whole debate with the Wright Amendment that it's going to make it a lot easier for Southwest to bring planes in from contiguous states. That's going to be a benefit. I think that that's going to help pricing into DFW.

In Nashville, such a large part of our customer base in Nashville is drive-in. This is a regional convention town. We get a bunch coming in by airplane, but it's a regional drive-in market. A lot of folks come in by airplane.

As regards -- Orlando. Obviously, Orlando is a fly-in market. That, obviously, if load factors continue to get stronger and stronger and stronger, my view is same thing'll happen that market as happened in Las Vegas. You'll see more airlines flying in -- more airlines flying in, but it will happen at later in the day and earlier in the morning.

So I'm not -- I don't think airline supply is going to be an inhibiting factor on the convention consumer.

Okay, thank you.

Thank you. Maybe into Las Vegas but not into the markets we're in, I think.

So you have not seen any reduction in some of the size of the conventions.

No, you see, what we -- we obviously do a very bad job in communicating our strategy because our goal -- we don't look at the 20 to 25,000 citywide. That's not what we do. We're in the 600 to 2,000 at peak. And what we tend to do is sign a contract to fill our hotel at a given point in time for three, four days. And sometimes the conventions don't bring in quite as many, and we get an attrition claim to that convention. But it's very difficult for us to determine whether that's airline pricing or just economy or just this convention is not as attractive as it was two years ago. But that's how we go about our business.

And our book of business for next year and the year after and the year after is stronger today than it was a year ago and was two years ago. And that's very good for our company.

And is it stronger than it was three months ago?

Well, we -- you obviously had to jump off, but if you looked at the second quarter bookings for our company, which is the indicator for us. This is the pulp. You can't look at our second quarter earnings and say this is a gauge of the future. For us, it's these bookings that are going to turn up two or three years for now. Our outpace of bookings in this second quarter was at an all-time record for the second quarter. So the answer is this business is very, very strong.

Now, I can't talk about what Marriott's doing and what these other folks that sort of dabble in this market do. I know what we're doing. And I think our customer satisfaction levels also play a role in that.

Thanks, great. I appreciate it. Thank you.

Thank you. Denise, one more question, please, because we're just running over time here.

Thank you. Our final question is coming from [Amy Wilk] of ING. Please go ahead.

Hi. I was wondering if you could tell us whether the costs that you've stated for the Gaylord National are inclusive or exclusive of the government subsidy and if you can kind of explain the mechanics of how that particular bond is going to get paid down.

Sure. Amy, this is Dave Kloeppel. The numbers we went through in the script, with $130 million having been spent and a remaining $650 or so million remaining is a gross number. The incentive is $145 million, and it's structured as two separate bond issuances. The first one, which has already been executed and is sitting in escrow pending our completion of the project. The second one that was just agreed to in the last couple of weeks that we will, again, issue in advance and stick into escrow waiting for completion.

The bond is secured by tax revenues generated on our site in terms of hotel occupancy taxes and real estate taxes. And the -- we will -- the bond will be issued to Gaylord and, obviously, we won't receive interest payments and principal payments. And we'll have the right to remarket that bond after a short period following opening of the hotel.

So is there a scheduled amortization? Or is it kind of one lump sum?

It's a scheduled amortization. It's a 30-year bond with a scheduled 30-year [inaudible].

Thank you.

Thank you. Seeing there are no further questions, I'd now like to turn the floor back to Mr. Colin Reed for any closing remarks.

Yes, thank you, Denise. And thank you everyone for joining us today. If there are any follow-up questions, please don't hesitate to call either David Kloeppel, our Chief Financial Officer, Keith Foster, the head of Investor Relations and yours truly. Thank you. You can get us here at Gaylord Entertainment. Thank you very much.

Thank you. This does conclude today's Gaylord Entertainment conference call. You may now disconnect your lines, and have a wonderful day.