Ryman Hospitality Properties Inc (RHP) 2006 Q3 法說會逐字稿

Welcome to the Gaylord Entertainment Company's third quarter 2006 earning 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. Key Foster, Vice President of Treasury and Investor Relations, and Mr. Carter Todd, Senior Vice President and General Counsel. This call will be available for digital replay. The number is (973)341-3080, and the pin number is 7970162. At this time all participants are in a listen-only mode, and the floor will open for questions following the presentation. [OPERATOR INSTRUCTIONS]. It is now my pleasure to turn the call over to Mr. Carter Todd. Sir, you may begin.

Good morning. My name is Carter Todd, and I'm the General Counsel and Senior Vice President for Gaylord Entertainment company. Thank you for joining us today on our third quarter 2006 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 expected future financial performance. For this purpose, any statements made during this call that are not statements of historical facts may be deemed to be forward-looking statements. Without limiting the foregoing, words such as believes, anticipates, plans, expects and similar expressions are intended to identify forward-looking statements. You are hereby cautioned that these statements may be affected by the important factors among others set forth in Gaylord Entertainment's filings with the Securities and Exchange Commission, and in our third quarter 2006 earnings release. As such actual operations and results may differ materially from results that are 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 nonGAAP financial measures, and a reconciliation of those nonGAAP financial measures to the most directly comparable GAAP financial measures has been provided as an exhibit to our earnings release, and is also available on our web site 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, Carter. Good morning everyone, and welcome to our third quarter conference call. Now over the next few minutes, I'll provide some topline 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 provide guidance. And then as usual, we will open up the calls for questions.

Coming off a solid first half of the year, our third quarter results really illustrate how well our hotel strategy is working. It was a very good quarter for our hotels group. Over the past few years, we've been very clear about our strategy and how we are going about executing this strategy. In all ways, Gaylord Entertainment is defined by our hotel business. It is the engine that drives our revenues, our earnings, and, of course, our future. And we couldn't be more delighted with the progress we've made in this area.

Our results for the third quarter and for the nine-month period of 2006 are proof that our work is paying off. We are hearing on all front from investors, meeting planners, employees, and customers that our differentiated model, our obsessive focus on employee satisfaction, customer service, and our relentless pursuit of the highest quality product offerings are helping us pull away from many other market participants. One of the central elements behind our success is the strength of our relationship with the meeting planners who are the key drivers of our business. Since this management team joined the company five years ago, we spent a good deal of time and resources fostering greater customer loyalty, and solidifying our relationship with this group of meeting planners. We talk to them. We understand their needs, and we are build program that are customized to deliver solutions. And we do it at multiple locations year after year.

As a result, our rotational bookings metric has steadily trended upwards, and advanced bookings continue to drive an almost 80% network-wide annualized occupancy. While the local population in the markets where our hotels are based has come to enjoy our distinctive offerings, our sales team is constantly focused on the high-valued customers, the principal group which we encourage to do visit our hotels. We cater to this group. We do everything we can to ensure that their visit is a successful one, and that they will return to one of our properties in the future.

As we move into new markets, our brand and strategy are becoming the catalyst for growth. As an example, when we first came to Dallas, there was nothing remotely similar in the market, which while the top 20 convention market was not exactly setting the house on fire in terms of growth. Now with the opening of the Gaylord Texan, beyond setting new standards for bookings and growth, we also single-handedly lifted the entire market, increasing demand for tourism in the area. The Texan is a great example of how our hotels have become huge catalysts for growth for local municipalities, as we bolster the tax base, increase employment, and bring in more tourism dollars. Local government leaders in Kissimmee, Grapevine, Prince George's County and Chula Vista have all said very positive thing about our company. And we are excite to partner with local government to help fulfill their needs. Our expansion efforts in Prince George's County and continued positive negotiations in Chula Vista are a great example of this.

I want to elaborate a little further on the comment I just made about our system operating at almost 80% annualized occupancy. It seems like yesterday that Opryland was operating at mid 50s percent occupancy in January of '02, and investors were asking me what can the then-named Gaylord Opryland Texas get to in a difficult Dallas market? Now some of you may remember we said that, we said back in 2002 that if we booked between 1.3 and 1.4 million room nights per year for future years, and then deliver the usual 20% of our occupancy in transient and leisure business in the year for the year, then our system could eventually get to 80% occupancy. Well, as we have consistently reported, our bookings have been strong, and our consolidated occupancies are a couple points shy of 80% this year. But because of that pipeline of bookings, we expect to be at or around 80% for next year.

Now the purpose of telling you this is because I believe we are at a very important point in our company's history. Operating at 80% occupancy effectively means that for many weeks of the year, particularly in the convention season, we are operating pretty much at capacity. Now let me just give you a snippet of information. So far this year, for the period ended June of 2006, we have turned down approximately 2.5 million room nights because we just don't have the capacity to take those room nights. And remember, when we move to a new market, we pick up new customers whose desire it is to frequent our existing locations. Now the problem with this scenario is it's tough for us to accommodate all of the new and existing business we have access to, which is a nice problem to have, and it's given us the opportunity to consider expanding all of our businesses in the future. And on this subject, as our plans materialize, we will have more to say in the months ahead.

In this context, let me talk about Gaylord Opryland. This is a property that had reached a mid-life crisis six or so years ago. The 3,000-ish room hotel was badly in need of a face lift, but more important, a renewed sense of purpose and commitment. If any of you on the phone have had the chance to visit Gaylord Opryland in the last year, you will have seen in stark relief what I'm talking about. The current success can be attributed to a number of things. Room renovations, great food and beverage offerings, cultivating a service-oriented culture, and offering the best in entertainment. Today, Opryland is now running on an annualized basis at just over 80% occupancy, and our customers have been telling us about their growing affinity for the property.

Initially, this work put additional pressure on margins, but now that we have established this property as the essence of what the Gaylord brand represents, a world-class customer experience, our margin expansion has been significant, and our customers have noticed. Recently, we were notified by Meeting and Conventions Magazine that for the fifth year in the row, Gaylord Opryland was given the Gold Key Elite Award for being one of the top five convention resorts in the world.

Now results for our hotels business came in as we expected, and illustrate that all lines of our business are progressing and generating strong cash flow. As we seek to capture a greater share of wallet, we are continually upgrading entertainment and food and beverage options. The advantage of our model is that our customers see our properties not just as a bed to sleep in, but as a place to enjoy the environment while they do business, which greatly increases the overall yield of our properties.

Another example of our customer-focus strategy is the Glass Cactus, a 39,000 square foot nightclub which we recently opened in September on the banks of Lake Grapevine. The Glass Cactus is unlike any other nightclub in the region, and we expect it will be a significant driver to total RevPAR in the quarters to come. Now let me provide you with some specific numbers, and Dave will get into more of the detail.

Hospitality revenues were up 16% to $142.3 million, based on high occupancy and strong outside-of-the-room spending. Consolidated cash flow increased almost 40%, in fact 39.2%, to 30.2 million, based on the ongoing strength of Opryland and the Palms. At the Texan, while revenues were higher, CCF declined moderately due to increased expenses related to higher property taxes and costs associated with the opening of the Glass Cactus. CCF margins for the hotel business improved 353 basis points, let me repeat that; 353 basis points to 21.2% on the significant increase in overall revenue.

Banquet revenues for the quarter were particularly strong, which was a driver of our good results in outside-the-room spending. Bookings have remained strong for the first three quarters, and we are expecting another good year as the largest share of advanced bookings typically comes in the fourth quarter. Bookings remain in line with our elevated guidance last quarter, and we are helping to pave the way for another great year of occupancy in 2007.

As we have mentioned before, we continue to be impressed by the Gaylord National's reception in the Washington, D.C. market, set to debut on the banks of the Potomac in Prince George's County, Maryland. The National couldn't be coming at a better time. The nation's capitol has been growing at a rapid rate, and the demand for large convention space continues to grow. The National is scheduled to open its doors in the beginning of the second quarter of 2008, with the 500 room expansion opening some time in the third quarter of 2008.

Negotiations at Chula Vista, a suburb outside San Diego, continue, and we are excited about the opportunity to bring in a convention-branded hotel to the West Coast, where our customers continue to ask for a Gaylord hotel.

Given how strong results over the last three quarters, we are on target to meet our hospitality guidance for the year. Looking ahead to 2007, our hotel business looks equally strong, and we expect our systems occupancy to be approximately 80%. Now we spend a lot of time tracking customer satisfaction as another key metric of our business. Customer satisfaction is a critical measure because it helps predict our prospects for future bookings, and allows us to measure the value we deliver to our customers. This quarter was another strong quarter in terms of guest satisfaction, especially at the Texan and the Palms. Overall, I am pleased that we are able to increase customer satisfaction, notwithstanding increases in the volume of business we are processing. We intend to continue to get even better at this, and thus retain and attract even more customers to our businesses.

Now turning to ResortQuest, our vacation rental property management business came in pretty much as expected and consistent with our guidance from last quarter. Travelers, however, remain wary of northwest Florida. Despite a mild hurricane season, travelers seem hesitant to return to the Gulf Coast, which has added to the soft real estate in vacation rental market, but I am confident that they will, indeed, at some point return. Increased ADR in Hawaii positively impacted the brands improvement in RevPAR. Our web site continues to improve brand awareness and drive customer visits, and we believe this has ongoing potential for all of our markets.

Quickly, on to our attractions business, the Grand Old Opry -- let me just rephrase that. Talking about the attractions business and the Grand Old Opry, I should have said, they all performed as expected, and Dave will give you some more detail on those areas of the business.

Before Dave gets into the specific financials, I would like to reiterate that our strategic goals remain on target. All of our key measures are tracking well. Total RevPAR kept the consolidated cash flow, advanced bookings, customer satisfaction, and employee satisfaction are all meeting or beating our lofty expectations. We remain confident that we will continue to produce these results, and are quite positive that our new project in Washington, D.C. and post-project in San Diego will be significant earnings contributors for the years to come. With that, I will turn the call over to Dave to take us through the financials.

Thank you, Collin. Let me spend a few minutes discussing the major drivers of our financial results for each of our businesses during the quarter, and then I will provide some comments on guidance going forward. As Collin noted in his comments, our hospitality segment continue to showed strength, exemplified by the metrics we watch most closely, such as EPS, RevPAR and Total RevPAR. Importantly, the resorts in our three current principal markets are tracking well against plan and continue to generate strong total yields, demonstrated by Total RevPAR, outpacing RevPAR once again this quarter.

We are confident that there is no hotel brand out there that offers a similar level of all-encompassing service, or such an vast array of differentiated and unique outside-the-room offerings. In response to our work and development here, we've had tremendous success in the area of customer loyalty. Further, our relationships with meeting planners are some of the strongest in the business, which we believe will enable us to maintain and grow our advanced bookings across our network. As awareness and recognition of our unique offering continues to grow, demand only becomes greater, allowing to us yield our hotels to the highest total revenue group for each available date. We are confident that we can bring the same level of success at each new property as we grow our network. Certainly, the expansion plans and bookings success at the National is early evidence of that.

Now getting into the specific metric at our properties, Opryland had a terrific quarter. Consolidated cash flow increased 70.9% to 15.4 million on the strength of occupancy which improved 10.2 percentage points. That's not 10.2%, that's 10.2 percentage points, to 82.1%, a significant gain over the prior year quarter. Revenue increased 22.8% to 65.1 million. Higher occupancy was mainly responsible for our RevPAR increase of 13.6% to $114.53. Additionally, consolidated cash flow margins showed very strong improvement, increasing 668 basis points to 23.7%, aided only marginally by having more rooms inserviced in the third quarter of 2006 versus the third quarter of 2005. I think what the third quarter really points out in our hotels business is the kind of operating margin that one can drive when you go from 70% occupancy to 80% occupancy on a stabilized basis.

Occupancy gains were also a primary driver of outside-the-room spending. Total RevPAR increased 19.4% on the basis of strong demand for Opryland's variety of entertainment and dining offerings. ADR slipped marginally by one half of 1% as the company targeted convention customers that spend more on outside-the-room revenues and have the highest overall yield. In the third quarter, we took 8,941 rooms out of service due to our ongoing room renovation program, and for the balance of the year, we expect to take 9,400 rooms out of service -- room nights out of service, excuse me. These additional rooms in service had an insignificant impact on increased consolidated cash flow for the quarter. As we work towards completing the rooms renovation, we anticipate taking an additional 48,300 room nights out of service in 2007.

Now for the Palms. The Palms had a very good quarter in line with our expectation. Revenues increased 20.3% to 37.5 million, driven primarily by occupancy and an increase in banquet revenue. As a result, consolidated cash flow grew by 62.2% to 7.4 million and CCF margins increased by 511 basis points due to the operating leverage in the business that results from higher overall occupancy levels. RevPAR grew 16.8% on occupancy strength despite a 1.9% decrease in ADR. Again, we targeted groups with higher overall spending characteristics which is reflected in the total RevPAR increase of 20.3%.

Now moving on to the Texan, the Texan's results really came in as expected with modest gains over the prior year quarter. The Texan's results were impact by an increase in expenses, in part due to property tax consulting fees, and costs associated with the opening of the new Glass Cactus nightclub, which opened on September 20. We expect increased revenues from this entertainment venue to drive outside-the-room spending in the quarters to come. For the third quarter, revenues increased 3.1% to 37.5 million, while consolidated cash flows decreased 9.2% to 6.8 million. The decrease in CCF led to a CCF margin compression of about 247 basis points to 18.2%. Occupancy and ADR improved by 1.5% and 2.4% respectively, which drove a RevPAR increase of 4.5%. Occupancy and ADR growth also positively impacted Total RevPAR, which increased by about 3.1%.

Now moving on to our new developments, the National and Prince George's County continue to progress nicely. Today, we spent 179.3 million, and we expect an additional capital expenditure of up to 656 million to complete the project. Construction costs in the market continue to be somewhat unstable, as demand for labor from government construction and a new stadium project puts pressure on wages. We are, however, aggressively managing the cost of the project to maintain our previously discussed budget figures. As we said before, Prince George's County will issue $145 million in bonds, backed by tax revenues generated on our site, which we will keep on our balance sheet as notes receivable.

As Collin mentioned, we are making great progress in Chula Vista. Our loyal meeting planners and customers are excited about the possibility of extending our hotels network to include the West Coast. In terms of next steps there, we anticipate negotiations with the Port of San Diego and the City of Chula Vista to continue late into the second quarter of 2007. In addition, the project is subject to regulatory and land use approvals, including the California Coastal Commission. If all moves according to schedule, we would expect approval by late 2007 or early 2008, and we are at this time engaging an architect to begin preliminary design work on that project.

Moving on to ResortQuest. ResortQuest performance came in as we expected as well. Collin mentioned the hesitation of travelers to book vacations in northwest Florida which was hardest hit by her contains in the past several years. Softness in northwest Florida have affected the southeastern performance as a whole. Revenues from continuing operations were 68.1 million, an increase of 4.1% from the prior year quarter. And revenue and CCF results were positively impacted by the receipt of $4.9 million in connection with the company's settlements of its business interruption insurance claim related to hurricanes Ivan, Dennis, and Charley. CCF increased to 13 million from 9.2 million in the prior year quarter as a result of the business interruption proceeds. Occupancy declined 0.8 percentage points for the quarter, while ADR increased 3.8%, driven by strong increases from markets such as Hawaii and Park City. ADR increases were the primary driver of a RevPAR increase of 2.4% to $111.07. Finally, our web site continues to be a promising channel to drive customer demand for ResortQuest.

On the operating attraction segment, performed quiet nicely with revenues increasing 8.8%. The Opry's continuing focus on signature shows and high profile artists resulted in increased attendance in our performance venues, and helped consolidated cash flow increased by 54.2% to $4.6 million. We continue to realize positive results from the Opry's increased brand awareness, which is enabling us to create additional merchandising opportunities and partnerships.

Equity income from our investment in Bass Pro Group was $3.6 million for the quarter. Year-to-date, we have recognized 9.4 million in Bass Pro net income. Bass Pro shops are the category killer in the outdoor sporting goods industry, and we certainly remain enthusiastic about our investment in this dynamic brands.

Now let me provide you with some comments on guidance. For 2006, our hotels brand remains strong with advanced bookings driving occupancy to nearly 80% for the year. ResortQuest and Opry and attractions business continues to perform as expected and in line with our previously stated guidance. Due to our companies strong performance the last several quarters, we will maintain our existing guidance for 2006. 2006 capital expenditures for the full year are expected to be approximately $295 to $300 million, which includes approximately 190 to 195 million for the Gaylord National.

As we look ahead to 2007 and 2008, we are very, very excited about our prospects. Group bookings for 2007 are quite strong, and look even stronger for 2008. 2007 will be a significant year of transition, as we bring to substantial completion a nearly $1 billion capital program we began in 2005. This program includes the construction of Gaylord National to be open April 1, 2008, the renovation of over 2,000 hotel rooms at Gaylord Opryland, of which we will do nearly 1,200 next year, the renovation and reconcepting of Gaylord Opryland's food court and food and beverage outlets, which will begin in 2007, and the construction and opening of the Glass Cactus. By early 2008, we will be operating an 8,000-room hotel brand, in which all the properties have been built or completely restored in the past six years. We believe it's certainly a brand that will be unmatched by our competition.

Now for specific guidance on 2007 and beyond, we are going to provide that later in the fourth quarter, and for now, I would like to turn the call back over to Collin.

Thanks, Dave. Rather than me repeat what we have all said here, what David has said and what I said, let's open the call up for questions and hear what folks have to say.

Thank you. [OPERATOR INSTRUCTIONS]. Your first question comes from Jeffrey Donnelly of Wachovia Securities. Please go ahead.

Good morning, guys. A couple of questions, and Colin, I apologize if you touched on some of this in your prepared remarks. I didn't get in until a little bit later than I thought. A few questions. Concerning the decline in net bookings, it struck me as odd that the Gaylord National represents such a large share of your overall net bookings. Can you explain what the change has been there? And why there has been such a decline in the other hotels?

Jeff, you're looking at one small component which we discuss every quarter, which is this sort of net bookings. The way you should think about our business is we have this bucket of demand that all the customers come knocking on our door saying, hey, we'd like to book business. We have these preliminary bookings, tentative bookings, and actual bookings. This bucket of demand continues to get stronger. Quarter after quarter, it's getting stronger and stronger. I'm glad you said you arrived late and I didn't send to you sleep, but had you been here, you would have heard me also say that through the first six months of this year, we have turned down over, and we map it, we are about three months in arrears of mapping this, we've turned down 2.5 million room nights in the first six months of this year that we couldn't accommodate. So the bucket of demand is continuing to get stronger and stronger and stronger, and that's the thing that we really focus on and we really love. And then the bucket of supply, the amount of rooms that are not full and are rooms that are available to be booked continues to get smaller because our occupancies continue to grow. When we were booking two, three years ago, we were operating 60, 65% full rooms. Now next year, we are going to be operating at 80% occupancy. And so the supply side is sort of, is not as big, but that's a good problem to have because we are filling it. So we are going to have quarters like this quarter which are a little quirky, but I will tell you, we are not changing our guidance for the year. Our guidance of 1.4 to 1.5 million room nights we believe we are going to absolutely make for the year because of the amount of preliminary and tentatives we're currently working on, and we are very, very excited about the volume of business that we are dealing with right now.

Jeff, just to follow on to Colin's comments, if you look at the year-to-date period, we are about 2% ahead of last year's first nine months. If you recall, last year we booked nearly 1.5 million room nights, which is the best bookings performance our hotel company has ever seen. The bookings cycle is somewhat unpredictable, and we had been running substantially ahead in the first half of the year, the third quarter was a little bit softer than the third quarter last year, but we are still running ahead of last year's record level, and feel very comfortable with our guidance of 1.4 to 1.5 million room nights.

And the bucket of business that we are working with right now to convert in this fourth quarter is bigger than it was this time last year. So we're very, very confident about the demand side of our business.

That's helpful. This next question might actually fall into the same category, but I think you said your rotational bookings were just under 41%. My recollection, though, is in recent years it had been sort of in the low 40s trending upwards to around 50%., and it just seems like that's pulled back a little bit. Is my recollection correct there?

A little bit, but what's happening is that because of the halo of our brand, we are acquiring new customers that are coming into Washington, coming into Opryland, and they will want to try us and test us for one convention, and then book on a rotational basis. The problem is a company like us that's very transparent in our bookings, because we share all this information, it creates questions from time to time. But the good news is we are getting more business into our company, and some of this stuff is very high-rated business, and we are taking it, and it's for one single location. But our bookings this year are, again, not to be repetitive, will be between 1.4 and 1.5 million. We expect it to be very much that, and our rotational bookings will be at least 40% of that, and what changes in that is our desire to selectively take large chunks of single property high-rated business, and that's -- it's the finesse of the business.

Is there any way to turn that metric around and instead say of the people who you do book on a rotational basis, what share of their business you are getting?

That's a difficult one to measure and report because on average, meeting planners book 18 to 20 meetings in total, and they tend to not share where their other bookings are going unless we are getting them, obviously. I think the point that Colin made is the correct one, which is as you look at the bookings year-to-date, and particularly as we got into the third quarter, we booked a lot of acquisitions business, which is new customers to us. And acquisition customers are far less likely to book a rotational stay, which means the first time they stay with us, they agree to not only go to one property, but to go to two or three properties. Those customers are much less likely to the book rotational bookings than people who've booked with us in the past.

And then one last question, then I'll yield the floor. First was just have you gained any impact or do you expect any from the new Rosen Shingle Creek project? And then you guys recently filed an 8(K) pertaining, I think, to the construction agreement at Gaylord National. Dave, does that involve a change in your expected pricing there?

The filing on the Gaylord National was simply as we're continuing to fully bid the project, we add those bids to the GNP, to the construction contract we have with the general contractor, and we added a significant amount of fully bid parts to the project over the last quarter that we increased the GNP substantially and to the point that we felt we needed to file an amended 8(K). So no change in the overall construction price of the project. Just the way we are managing the project.

As far as the Rosen is concerned, I think our bookings in the third quarter for the past was one of the highest third quarter's we had. And the amount of tentatives and preliminaries that we are dealing with right now is the strongest it's ever been, so the answer to the question is no.

And group bookings for the Palms for '07 are up substantially over group bookings for the Palm for '06 at the same time a year ago. So we're really not seeing any impact, and in terms of employee attrition, I think we had two or three employs try to go over to the Shingle Creek, and we had two or three of those employees come back. It really is a very limited impact.

Thank you, guys.

Thanks, Jeff.

Thank you. Your next question comes from Will Marks of JMP Securities. Please go ahead.

Thank you. Good morning, Colin and Dave. I wanted to ask you first, as we look out to '07, I'm not asking for guidance because I know I wouldn't get it, but if there's been a little lumpiness this year, should we expect -- is there any way to start thinking about next year now in terms of by quarter if there's going to be some lumpiness?

I don't know, Will. Our business, it follows pretty consistent patterns. Our first quarter is normally pretty good. Our second quarter is very good. Our third quarter tends to be okay. As you saw this year, our third quarter is substantially up on third quarter last year. I think our third quarter next year is looking pretty good. And our fourth quarter this year will probably, in occupancy terms, probably be the highest. And it will be that way next year, too, because of the advanced bookings. Look, we are operating somewhere between 75% occupancy and 80%, 82% occupancy -- 83% next year in each quarter. It's just the lumpiness has historically been caused a little bit by ResortQuest, but at our hotel business, I think one of the good things with our hotel business is that we're starting to push customers into periods of time that historically they wouldn't have gone to because they want to stay with us, and we are pretty much full in some -- in the prime convention periods of time. So I'm waffling. We'll give you more information in about four weeks on the guidance for next year, maybe give you some color, a little bit more color on how you think about the quote lumpiness impression.

Sure. Okay. How about on your three open properties? Any information you can give us on RevPAR index?

RevPAR index year-to-date? Tell me what period you're looking for.

Sure. Year-to-date would be great.

Most places it's good news.

Yeah, year-to-date we run about an11% premium, 111% premium in occupancy at Opryland, Total RevPAR premium of 13.5%. The Palms is a 10% premium on RevPAR; most of it made up by occupancy once again. The Texan runs a 32% premium. And that's kind of half made up between occupancy and ADR.

And remember, Opryland was operating a couple years back under the water line. And remember, we don't -- the competitive hotel set is Atlanta, and historically speaking, New Orleans.

Great. Okay. Great. And then on the Glass Cactus, can you just remind me again, I know you've given the cost figure there and what expected return on investment is?

I don't think we've probable talked about return on investment only in the context of we expect it to be north of our hurdle, which is 12% unleveraged on the tax return, and it will be. But it's very hard to measure the Cactus because we are getting a lot of conventions who want to do buyouts on this thing. They want to come to the hotel and literally buy the whole nightclub out because it's in a magnificent setting sitting right on the lake, and it's pretty large. We can accommodate 1500 people in there. So the IRR I talked about doesn't have any sort of factor in it for inducing conventions to our place. It's purely the revenue that the Cactus generates and the profitability it generates as it relates to the cost of the construction.

Okay. Just one final question, specifics on -- you mentioned National spending year-to-date of, I believe, 190 to 195, or total expected. That was the total expected in '06, right?

Yes.

And can you just remind me what you had spent previous to this year, and what the future or how much you need to spend to complete the property before collecting your distribution from the government?

Yeah, in total to-date we've spent $179.3 million, and we have remaining about $655 million.

Great. Okay, that's all for me. Thank you.

Okay.

Thanks, Will.

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

Good morning. Nice quarter. A couple of questions. Firstly, if you could help me think about what the impact of Katrina last year, or the hurricane season does to your comps going into the back half of the year. Does it make them harder or easier?

It really didn't have any impact on the hotels business for 2005. Last year's fourth quarter, as you may recall, was extremely strong, primarily at Opryland. I think as a brand, we did a 12.5% RevPAR growth last year, and about a 22% Total RevPAR growth. So we don't expect to repeat that performance again. But we do expect to show a good top performance in the fourth quarter.

Okay. And then with respect to when I look at your, I guess, ADR performance this quarter, and then I listen to Colin's comments, and I guess all of your comments on sort of where demand levels are, should we be expecting down the road to see you all start to push rate a little bit harder, just given the demand that we are seeing today? Because I think if you sort of take a snapshot of the moment in time, and strong demand should equal pushing rates a little bit harder, but presumably you are operating on business that was booked a couple of years ago? Is that the right way to think about that?

Yes, it is the right way to think about it, as there's two components to that. A lot of the business that we are dealing with in '06 is business that we booked in '02 and '03. And frankly, there's a lot of business in '06, if we would have known what the environment in '06 actually was going to look like back in '02 and '03, we probably wouldn't have booked it. But that's just the way life is. And so right now, we have this very comprehensive, internal system that we operate, which we call RevMax, that maximizes every date, every day's rate, and we are looking at a different quality of hotel today. I mean our product is awesome. Our service levels are awesome. Customers want to come there. In Opryland, we will have invested a lot of money doing all of our room refurbs and our food and beverage operations. And David was basically alluding to that. And that equals, we believe, more demand and at better prices. So we expect to see pricing coming through in '07, '08 and '09.

Very good. And lastly, on the Texan, just order of magnitude-wise, and I apologize if somebody asked this and I missed it or you commented on it, but in terms of the sort of margin impact that we saw year-over-year, how much of that was -- was it property tax, consulting fees versus just, I guess, start up costs on the Glass Cactus? How would you sort of split that apart? I guess I'm trying to decide if I should be a property tax consultant on the side.

David, if you look at it, the Texan produced about a million or so dollars of incremental revenue, and you would have expected to see about 400,000 of so of that flow under the bottom line under a normal operating environment. We actually saw about $700,000 decrease in CCF. It was about $1 million of unusual stuff in there, or performance that perhaps wasn't expected by the street. The answer to your question is when you look at the total cost of those items, we had to increase security costs, increased training costs and those kind of things for the Texan, and then we had property tax consulting fees and one or two others that were unusual. Those two items combined, and I would rather not break them out because they are really not material in the grand scheme of things, those two items combined bring you back almost entirely to what would be a normal operating margin.

So in other words, if I looked at last year's margin and projected that into this year, and took the difference between what you reported and that, that would sort of get me to my answer, wouldn't it?

Correct.

Perfect. Thanks very much.

Thanks, David.

Thank you. [OPERATOR INSTRUCTIONS]. Your next question comes from Nap Overton OF Morgan Keegan. Please go ahead.

Good morning. Colin, did I hear you inferring that we could expect to hear something about potential expansions or room additions or projects at your existing properties?

I would think that over the next 12 months, there's a fairly likely prospect that we will have something to say about that, Nap, and again, the reason is that we're operating at extremely high levels of occupancy as a system. We have extremely high levels of demand coming into the business. We're turning down a lot of business, and building an extra few hundred rooms to accommodate this demand and some meeting space is a relatively efficient way to drive very high returns for shareholders. Because you are not having to replicate food and beverages operations and stuff like that. So we are looking at it. We've had several communities come to us and say, hey, we would love to talk to you about encouraging you guys to do this. So we are in the talking phase. Those communities that want to do it with us we will talk to, and those that don't, we won't, and we will have more to say on this. But, Nap, one thing's for sure, whatever we propose to do will be done to generate real high returns for our shareholders.

Okay. And then on the Chula Vista town land comments you made, you said you expected that if things go according to plan by late 2007 or early 2008 to have approval there, would that be on land, and, just been thinking about it for 2010 or 2011 opening?

Our plan is late 2010 or early 2011. It just depends on how early we get commission approval, and how quickly we can sequence the construction project.

Okay.

I know this is majoring in the obvious, Nap, but when we're dealing with these government agencies like this, we try not to set them deadlines because they don't tend to want to work the deadlines, and so we are trying to be reasonably cautious in terms of the time line here.

Okay. All right. And just again dancing around 2007, as much as a year or two ago, you had indicated you were pretty confident in high single-digit RevPAR growth through 2007. With that kind of as a backdrop, I guess the other large factor to consider in 2007 is just the displacement from the heavy renovations that will be going on at Opryland. Would that be correct?

Yes and yes. Yes, we are not -- one of the things that we've tried to be in this company with you, the investment community, is very consistent in describing the predictability of our business, and we said high single-digit RevPAR growth back in '04, '05, '06, '07, and we've accomplished that, and we expect to accomplish that in '07. The only wrinkle that we have in '07 is that we are doing far more rooms than we first thought simply because the demand for these higher quality rooms is off the charts, and that's why we are -- we will give you guidance in about four weeks, Nap, and we may break out the guidance between each of these hotels because of the room refurb. But we are very encouraged by what we are seeing in '07.

The group booking trends would certainly support the continued view were we not doing expansions that we expressed a couple years ago on our RevPAR growth. And the question really comes to displacement, and when you are taking 1,100 rooms out, or actually 1,200 rooms out over time, there will be some impact from that. We don't think it's going to be massive, it shouldn't cut RevPAR growth in half, certainly, but we do think it will have some impact on the RevPAR growth number.

One of the things we are trying to figure out, Nap, is we are doing a lot of rooms this year, too, even though the business operated at 80% occupancy, and we did a bunch of rooms last year, and we are actually getting very high yields on those rooms. So we are trying to figure out what the implication of that is, or they are for 2007. So that's why we need about another three, four weeks so we can layout this '07 prognosis to the analyst community.

Okay. Thanks very much.

Thank you.

Your last question comes from Jeffrey Donnelly of Wachovia Securities. Please go ahead.

Hi again, guys. Just a follow up on two items. Colin, I'm not sure if you will be able to comment on either, but one is on Bass Pro. I wonder if you can give us an update on what is going on in that division in terms of its unit growth, but also what the thinking is for your partner and you guys, and to maybe some day monetizing that interest? And the second question was I believe a few quarters ago, you guys were exploring some opportunities with land that you have near Gaylord Opryland, and I'm curious what the status was there?

Yeah, great. In terms of Bass Pro, they continue to open stores. They've opened, I think, three in about the last two, three weeks. All have been extremely successful openings, wall to wall crowds. Business continues to be very good. Their same-store sales -- remember, there is no public disclosure here on same-store sales, but I will tell if you look at what's going on with their sort of self-appointed competitors, the Cabelas of this world and the Gander Mountains of this world, the Bass Pro same-store sales is running north of their competitors. So this business continues to get stronger and stronger. It's a business that we think will continue to get stronger and stronger. But it's a business, under the right circumstances, we would like to take out capital here and redeploy it in our hotel business because we are going to be very focused on the growth of our hotel business because of the current state of it. So at the right time, we will try and extract ourselves from this investment at hopefully a very decent return for our shareholders. In terms of the partner's desire, he likes being in the private environment. He doesn't like the idea of Sarbanes-Oxley and all this other stuff that we live with. And so there's no change on that. But the good news is the business gets stronger and stronger.

In term of the land here, we are continuing to look at options on how we create more appeal for a destination for Nashville, and obviously for our business, how we do it, with whom we do it, and we are continuing to work on that. Both sides of the street because if you know our land, we almost have as much land on the hotel side of the street as we do on the other side of the street. We've got a lot of land here that we believe is very valuable but we want to create traffic flow for our big, big hotel here.

Are there other ways for you to draw, I guess, going back to Bass Pro, draw cash out of that investment, at what whatever point that is, whether it's several years from now, just an outright sale of your interest back to your partner, then?

I think I understand what you are saying. Is there an opportunity to do sort of a recap of the business? The answer to that question is, yes, but right now, they are basically expending, I don't know, probably 60, 70% of their cash flow on these new stores, and these new stores generate very high returns. And that's very, very appealing. But we have our finger on this pulse, and I would ask you to just give us sometime. We understand the value of this business, and we like the idea of accessing the capital we have tied up in this business to do some of the deals that we are looking at on the hotel side. One of the things that I think we said we were very clear about that David, it was either the last quarterly meeting or the meeting before, and that is that we don't like the idea of raising equity in the public markets because we believe our company is a very valuable business, and we aren't in the business of diluting our existing shareholders. And so we are looking at always to access capital to continue to get these very high returns on these hotels.

Thank you, guys.

Thank you. Operator, that's it, right?

Yes, sir, that's correct.

Okay. Well, look, thank you if anyone is still on, thank you for joining us this morning. If you have any questions, you can get in touch with our Chief Financial Officer, David Kloeppel, or our treasurer, Keith Foster, and you hopefully know where I am, too. Thank you for joining us, and we will be speaking to you towards the end of the year when we will address guidance. Thank you very much.

Thank you. This concludes today's Gaylord Entertainment conference call. You may now disconnect.