Ryman Hospitality Properties Inc (RHP) 2007 Q2 法說會逐字稿

Welcome to the Gaylord Entertainment Company second-quarter 2007 earnings conference call. Hosting the call today from Gaylord Entertainment are Mr. Colin Reed, Chairman and Chief Executive Officer and Mr. David Kloeppel, Chief Financial Officer. They are also joined by Mr. Mark Fioravanti, Senior Vice President and Treasurer 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 9015857. At this time, all participants have been placed on listen-only mode and the floor will be open for your questions following the presentation. It is now my pleasure to turn the floor over to Mr. Carter Todd. Sir, you may begin.

Thank you. Good morning. My name is Carter Todd and I'm the General Counsel and Senior Vice President for Gaylord Entertainment Company. Thank you for joining us today on our second-quarter 2007 earnings call.

You should be aware that this conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements, among others, regarding Gaylord Entertainment's expected future financial performance.

For this purpose, any statements made during this call that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, words such as believes, anticipates, plans, expects and similar expressions are intended to identify forward-looking statements.

You are hereby cautioned that these statements may be affected by the important factors among others set forth in Gaylord Entertainment's filings with the Securities and Exchange Commission and in our second-quarter 2007 earnings release and consequently, actual operations and results may differ materially from the results discussed or projected in the forward-looking statements. Gaylord Entertainment undertakes no obligation to update publicly any forward-looking statements whether as the result of new information, future events or otherwise.

I would also like to remind you that in our call today, we will discuss certain non-GAAP financial measures and a reconciliation of those non-GAAP financial measures to the most directly comparable GAAP financial measures has been provided as an exhibit to our earnings release and is also available on our website under the Investor Relations section.

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

Thanks, Carter and good morning, everyone. I am happy to welcome you to our second-quarter 2007 conference call. This morning, I will provide you with an overview of our business and then Dave Kloeppel, our Chief Financial Officer, will review specifics of the financials and provide guidance. We will then conclude the call by answering any questions that you may have.

At the beginning of the year, we predicted that 2007 was going to be an extremely active and productive year, providing a strong platform for a breakout 2008. Well, with the first six months of the year closed, I can say it certainly has been busy, but more importantly, we have been productive executing on our key growth objectives and unlocking additional value from what has become a significant brand in the hospitality business.

Now on to some of the highlights from the quarter, which was quite impressive. First, I am encouraged by our ability to continue to attract high-value, high-margin customers, which is a direct result of their very strong relationships with meeting planners.

Revenue in our Hotel segment increased over last quarter by more than 7% due to our ability to command rates commensurate with our unique offerings. This is demonstrated by growth in ADR across our properties, which increased by almost 6% year over year.

Importantly, flow-through this quarter was strong as we increased our focus on controlling costs resulting in CCF growth in our Hotel segment of nearly 17%. This quarter, overall same-store production was 413,000 room nights with same-store bookings at the national totaling just over 100,000 definite room nights.

It is also quite clear that customers aren't only booking one hotel, but rather taking advantage of our multiple locations, highlighting the attractiveness of our all under one roof proposition for convention customers and meeting planners. As you have heard me say quarter after quarter, advanced bookings represent a critical leading indicator of future performance. And Gaylord's accomplishments on this front are very encouraging.

As we said before, we target approximately 1.4 million room nights per year across our existing operating properties, which allows us to deliver 80 percentage occupancy points on a consistent basis. Advanced same-store bookings growth of 8.6% this quarter places us well to achieve and exceed that objective.

Occupancy levels for the quarter across the entire network surpassed the 80% mark for the first time in our brand's history. As I have said several years ago, our goal is to get an 80% systemwide annualized occupancy. The 80% mark is key and this last quarter's results illustrate this is not just a pipe dream and we are truly well on our way to achieving this objective.

Because more and more of these guests are premium groups, higher paying quality customers, we must keep our services fresh and keep our facilities fun and exciting to support the higher ADR levels and the substantial outside of the room spending we are now experiencing across our system.

Some of you who are new to our story may ask why is 80% occupancy points so important to you guys? The answer is simply this. As our occupancy grows so does our CCF margin and by our calculations, 80% occupancy should yield a consistent 30% CCF margin, providing of course our rate structure stays intact. As Dave will describe in his section, this was the case in the second quarter.

As we have outlined for you in the past, expansion of our existing properties beginning with Gaylord Opryland and the addition of higher quality outside the room offerings and other attractions, it is key to our ability to accommodate this increased demand.

That said, we have made meaningful progress in our efforts to make these out of the room offerings a more significant component of the Gaylord experience. As a result, total RevPAR for the Hotel segment jumped nearly 10% this quarter to over $310.

However, even with all of the investment in our properties, none of our success in delivering the unparalleled customer service and attention that has become a hallmark of the Gaylord brand would be possible without the tremendous efforts and energies of our staff.

As you know, we call our employees STARS and they represent Gaylord's most important resource. You will hear me talk about our STARS every quarter and I do so to remind you and our management that these wonderful people provide the vehicle by which Gaylord's performance is ultimately driven.

To ensure that Gaylord offers the industry-leading guest experience, we pay careful attention to guest satisfaction scores. I am pleased that this quarter's results again demonstrate that our efforts are working as we continue to see increased customer satisfaction through our system.

In terms of our new development, at the Gaylord National, we surpassed one million room nights booked, quite a milestone to achieve with 10 months to go before it is opening. This achievement is meaningful as it reflects our customers' confidence in and excitement for this property and for our business generally. We remain on schedule to open Gaylord National next April, which could not come soon enough for the meeting planners and convention customers.

Now as far as our West Coast expansion goes, as you may know, we have been in negotiations with the city of Chula Vista, the Port Authority of Greater San Diego and with union representatives in the San Diego area for more than a year with the ultimate objective of building a world-class facility on the San Diego Bay front in the city of Chula Vista.

Now while we are able to expand and grow the Gaylord brand, we are mindful of the importance of taking on projects that will provide strong returns over the long term. It is fair to say that negotiations with the city and the Port were progressing in a collaborative and professional spirit, but alas we ran into a major roadblock with the San Diego unions.

Now contrary to the rhetoric that you may have read or heard regarding the stalemate, the issue is unions are insistent that we only build the project with union labor. Given the fact that 80% of the contractors in the market are nonunion, this would have severely limited the bidding process, thus increasing costs. We informed each of the parties that if we were unable to reach a fair compromise on these issues with organized labor, the economic feasibility of the project will be compromised and we would have to withdraw. The unions were not prepared to compromise in any way and thus we informed both the city and the Port in early July of their decision not to go forward.

Now over the last month, our Company has been overwhelmed by the outreach of the community, voicing support and offering help to get our deal done with or without the union. Recently, the national leadership of the AFL-CIO reached out to us to urge us to make a counterproposal to the local unions, which we did earlier this week. In part, stimulated by the support we have received from the community. As you may have read, the union yesterday rejected our proposal out of hand adding a few colorful misleading comments about our company.

So the question for us is what do we do next, if anything. The citizens, small and large business, local government and the Port Authority have earned our Company's respect and over the next couple of weeks, we will study many of the suggestions made to us and make our position on this development very clear with you, our investors, and the stakeholders in San Diego.

In the meantime, we remain confident that expanded distribution will be a key element of the Gaylord success and continue to evaluate many opportunities in a number of markets to acquire or build new properties. Our early success in Washington, DC area gives us great confidence that our model can and will work in additional markets.

Now I would like to touch on quickly a couple of the strategies we have in place to strengthen future growth. First, we continue to focus on our core brand, the hotel business. During the quarter, we closed on both Bass Pro and ResortQuest sales, which were critical steps in our efforts to divest non-core assets.

We raised more than $366 million collectively from these sales and this capital will be invested in the development and expansion of our convention hotels and of course settle our tax bill on the Viacom forward sale, the previous management that our company entered into years ago.

As a quick sidebar, I cannot tell you how happy Dave Kloeppel and I are that this contract has finally expired and we will be relieved at last of explaining to investors and analysts this hugely confusing arrangement. Also, I am sure those of you that are long-term followers of our equity were relieved that you won't have to listen to our painful descriptions of this contract.

Now let's shift to the fun stuff. In terms of our efforts to grow distribution of the Gaylord brand, we believe that the current group demand we are generating will support additional hotel properties and expansions of our existing properties.

Given our success with large groups, we are confident that we can capitalize on our great relationships with the meeting planners to garner greater marketshare, whether in the small group segment via acquisitions in strategic locations or developing more properties similar to our existing program and also by expanding those assets that today we own and operate.

Now let's talk about the expansions in more detail -- (technical difficulty) --.

Ladies and gentlemen, please hold the line as the conference will resume momentarily. Once again, we do ask you for your patience and plead hold on the line until the conference resumes. Thank you.

Gentlemen, you may resume your conference.

Thank you. For those folks of you who are still on the phone, we apologize. We had a technical crash in our boardroom of our systems there and so we have moved to another operation -- another office. So let me pick up where I was. I was talking about our expansions and what we are going to be doing at Gaylord Opryland specifically.

At Gaylord Opryland, we are planning a new 400-ish room standalone hotel contiguous to the existing hotel, as well as an additional 400,000 square feet of meeting space. The Gaylord Opryland expansion will serve as a model for other possible expansions and enhancements across the network.

Now because of the enormous economic benefits that this expansion will create for the state of Tennessee and the city of Nashville, state and metro governments have agreed to support our sizable investment with certain tax incentives to the tune of about $80 million and we are in the final stages of solidifying the agreement with metro government and hope to have all governmental and our Board approval completed by the end of August.

In regards to the Texas project, as previously mentioned, we are considering expansion of this asset and are in advanced discussions with both the city of Grapevine and the Corps of Engineers whose support we need to grow this property further. We hope to bring these agreements to conclusion over the next several months and they will be -- that will be -- those two will be very exciting expansions.

Finally, we are continuing to supplement the existing properties to attract transient guests and we will have more to say on this as our plans come together. Now focusing on the transient guest, it is critical for us to fill the one and two day gaps that we get between these large group meeting -- these large group meetings.

I want to conclude by answering a question that I am asked a lot which is why is Gaylord different from the other companies in the hotel industry? I know this -- we get a little monotonous talking about this, but I want to do it once again. As we have said on numerous occasions, our business model is very different from the majority of players with whom we compete against.

First, as you likely well know by now, the vast majority of Gaylord's customers book large blocks of rooms literally years in advance lending unparalleled visibility and stability by signing contracts, enabling us to plan and develop growth strategies for the long term. We do this without having to worry about the volatility typical to hotels catering to the overnight guests.

In addition, our unyielding dedication to customer service and are all under one roof model has produced an extremely loyal customer base that not only stays at one property, but rotates through our networks. These characteristics also give us confidence that our strategy to expand our reach to other markets will succeed.

Now, look, what I am going to do is turn the phone over to David Kloeppel to talk about our financial results for the quarter and then we will deal with questions and again, I apologize for that technical difficulty. It is unfortunate.

Thanks, Colin. Let me hit quickly on the key operating drivers of the business and on the quarter's performance and then we will talk a bit about financial outlook. As Colin noted in his comments, our hotel business continues to perform well and generally as we expected when we entered the year.

We knew quarter corridor would be one of the strongest -- one of the strongest of the year and we delivered on those expectations with a 13.8% increase in CCF, an increase in hospitality revenue of over 7% and occupancy above 80%, as well as strong total RevPAR and ADR growth.

Group business in our properties and our advanced bookings indicate this sector -- the group sector -- continues to be quite strong. We believe our continued good performance stems from our best-in-business customer service and our unique differentiated out of the room offerings and our fantastic relationship with meeting planners who, as Colin said, are finding it difficult to offer clients an equivalent alternative. Based on our advanced bookings and rotational statistics, we are confident that we can sustain this success into the future.

Now let me review each of the specific financials at each of the properties and I will start with Gaylord Opryland. Opryland had a strong quarter. Revenue increased 6.7% to $71.4 million in the second quarter of '07 compared to the prior year. The growth in revenue in the second quarter was driven by higher occupancy levels, which reached 84.7%, a 580 basis point increase over last year's second quarter. It also experienced increased ADR, which came in 6.6% above last year. As a result, RevPAR showed 14.5% growth over the prior year quarter.

CCF increased 17.3% to $21.3 million also due to the higher occupancy levels, as well as higher-margin business from a better mix of corporate and association customers visiting the property. Additionally, CCF margin benefited from higher occupancy levels and a focus on cost control increasing 270 basis points to 29.8%. The improved group mix, which drove higher consumption outside the room, contributed to total RevPAR growth of 12% to $285.95.

These results indicate that occupancy levels of above 80% on a stabilized basis lead to very strong CCF, very strong CCF production and CCF margin improvement. You should note that in the second quarter of this year, the operating statistics at Opryland reflect 12,574 rooms out of service out of available inventory as compared to only 180 out of service a year ago. As we have previously discussed, to complete our room renovation program at Opryland, we anticipate approximately 48,000 room nights out of service in all of 2007.

The results of the Palms were in line with our expectations. The hotel posted a 2.3% revenue increase to $46.1 million in the second quarter of '07. That compares to $45.1 million in the same quarter last year. This difference was due primarily to an increase in ADR of 2.6% to $180.08 compared to $175.53 last year.

CCF remained generally flat at $14.2 million compared to the prior year and CCF margin was about 30.8%. The margin was due primarily to a 5.8 percentage point decrease in occupancy, which was offset by an increase in ADRs that I already referenced.

I think it is worth reminding everyone that in our business, occasional ebbs and flows in occupancy from quarter to quarter can and should be expected and no property will always have linear quarterly growth. The Palms for instance should experience a stronger second half of the year compared to the second half of '06 than it experienced in the first half. The lumpiness and long-term booking window that we experience with our customers makes planning quarterly comparisons difficult. Therefore, it is not what we focus on.

Instead, we focus on driving the highest possible yield for our properties for a given year. And on that note, if you dig into the Palms results for the quarter, you will see a very healthy business with increased pricing in the rooms and in our food and beverage areas.

Returning to my review of the Palms financial performance. Compared to the $147.10 in the second quarter of '06, this quarter's RevPAR decreased to $141.23. However, total RevPAR growth of 2.3% to $360.58 was the result of our efforts to attract higher-quality customers who spend more on outside the room offerings and attractions. In the quarter, we achieved double-digit price increases in our F&B areas driving significant marginal yield to the property.

Now moving to the Texan, which boasted very strong results, for the second quarter, revenue increase to $48.4 million or a 12.9% increase compared to the prior year. This increase was primarily driven by a 340 basis point increase in occupancy to 73.4%, as well as a strong 7.7% increase in ADR. CCF increased 41.9% to $15.3 million compared to $10.8 million in the prior year and that resulted in a 640 basis point increase in the CCF margin.

Strong CCF performance was the result of higher RevPAR and exceptional banquet flow-through. RevPAR in the second quarter increased by 13% to $131.29. The Texan had an impressive quarter in terms of total RevPAR, which increased 12.9% to $352.24. This was driven by increased banquet and [outlet] covers and a fully operational Glass Cactus that was received very well by our guests in the summertime and contributed quite nicely to our outside the room spending at the Texan.

In terms of our operating attractions segment, revenue of $20.9 million in the second quarter represents a 5.6% increase compared to the prior year.

And now let me just quickly transition to guidance before I turn the call back over to Colin for Q&A. Our hotel brand remains robust with advanced bookings driving occupancy levels that will continue to enable us to post strong CCF and RevPAR numbers. These advanced bookings are trending at a record pace year to date and as such, we have increased our 2007 full-year guidance by 50,000 room nights from 1.35 million to 1. -- excuse me -- from 1.3 million to 1.4 million room nights to 1.35 million to 1.45 million room nights.

However, while our group business remains quite strong, the recent issues that we have all seen experienced in the capital markets related to the subprime and leveraged lending practices have created perhaps a current economic environment that we believe creates some risk for our seasonal holiday transient business. The potential reduction in local foot traffic at our properties around the holiday season and consequently the potential negative impact to outside the room spending has caused us to revise our 2007 total RevPAR guidance from a growth of 7% to 9% down to a growth of 6% to 8%.

That said, our CCF and RevPAR guidance for the full year of 2007 remains unchanged and we are very excited about the prospects for 2008 and beyond. Let me turn the call back over to Colin for any concluding remarks and questions.

Okay, David, thank you. Elsa, we are happy to open up the lines now for any questions if we have anyone left on after the little hiatus there in the middle.

(OPERATOR INSTRUCTIONS). Nap Overton, Morgan Keegan.

Good morning. With the developments on Chula Vista this quarter, it raised the question considerably of -- so what are they doing with other sites and where are they with other potential development projects? I know you don't want to disclose details, could you give us some color on your efforts there?

Yes, Nap, good morning. Colin. We try not to go into too much detail about where, but I would say to you that we are currently looking at I would say aggressively five to six different developments that we have been looking at now for three, four, five months and we continue to get more and more folks coming to us that add to the bucket. We have got a lot of very interesting things that we are working on that we really don't want to talk about prematurely because we don't want to tip off the competitive dogs and that is where we are. But we have got a lot of stuff cooking.

The issue for our Company is not going to be how many development deals we have; it is how we effectively finance it for the best returns for our shareholders. That is the challenge that we have been working on.

Okay. And then just one other thing or maybe two other things here. Was there anything in particular in the attraction CCF increase this quarter or was that just a quarterly anomaly.

No, it's not a quarterly anomaly. What has happened is with one of our attractions, the Wildhorse, we actually have a -- we brought new management into the Wildhorse that really understands this business and has done a remarkable job in turning around this asset. We expect this business to continue to grow. All parts of our attractions businesses this quarter performed very well and we don't see that trajectory -- we don't see the quarter's results as an anomaly; we see the business continuing to -- continuing to grow. So don't look at it as an anomaly.

Okay. And then finally, your consolidated cash flow margin has improved steadily over the past several years. Where do you expect it to stabilize?

The issue -- I am not going to get into the prediction -- into the soothsayer role here because there are so many dynamic things going on in our business. We have upgraded -- we are upgrading food and beverage operations. We are putting a nightclub into Gaylord Opryland. We are looking at expansions in these hotels. We are continuing to massage the quality of the customer and all of these are going to have substantial impact we believe positive impact on the CCF of our business.

So what I have said to our management and what I've said to our investor group, our first goal is what we call internally our 80/30 new goal, 80% occupancy and 30% cash flow margins. Do we have the ability to raise it further? Absolutely. It is all a function of the quality of the customer and all of these attractive things we put into these facilities to captivate the customer and get more of a share of wallet. So I think you will continue to see our CCF margins go north.

Thank you.

Thank you.

David Katz, CIBC World Markets.

Hi, good morning. I obviously have been on and off a little bit this morning, but can you give us a little bit of an update on the sort of smaller box strategy that we talked about back at investor day?

Yes, David, good morning. It's Colin. We too have been going on and off unfortunately. We are looking at a number of locations. As I sort of mentioned to Nap a few seconds ago, we are working through the model. We have concluded all the meeting planning research and we are as excited about it today as we were when we met in Washington a couple of months ago. And we will be updating and talking to our Board about it next week at our scheduled board meeting and laying out our long-range plan to our Board and publicly, we will have more to say on this over the next two to three months.

Okay. Thanks very much.

Will Marks, JMP Securities.

Thank you. Good morning, Colin. A few questions here on Texas. You mentioned expansion. I gather you mean rooms and approximately how many? Are you looking at the same type of expansion at the National when you decide to grow that?

Yes, Will, good morning. The issue that we have at the Texan is a little different to the issue we had at National in the sense that the surrounding real estate is owned predominantly by the Corps of Engineers that has sublet quite a bit of that land to the city of Grapevine and we have been in lots of discussions with these folks about expanding.

The city has been encouraging us to expand because what is going on in Grapevine is more hotels are getting built contiguous to our hotel. The amount of demand that we are generating into that market is causing other hotel businesses to build. So what we have been looking at through some very detailed analysis is potentially putting upwards of 250,000 to 300,000 net feet of meeting space and upwards of 500 hotel rooms in that market. We believe the demand warrants it. We believe the returns are going to be very good. We also want to potentially build in that market an expanded pool complex to really accommodate the leisure demand that we are building in that market.

That hotel has been a big surprise. You have studied our Company now for five, six years and that hotel has been a very big surprise as that brand has taken traction. It is performing substantially ahead of where we thought it was going to perform and it would seem that the customer demand for this location and facility continues to build. So we want to take advantage of that.

Okay, great. On another note, you mentioned -- or in your press release, you referred to all the dispositions that you have made, ResortQuest and Bass Pro, and $366 million that you have raised, should we assume in our '08 numbers any kind of tax on that?

Yes, Dave, do you want to talk about that?

Yes, Will, good morning. When you put together really the three transactions that occurred in the quarter, the settlement of the Viacom transaction, the ResortQuest sale and the Bass Pro sale, the total tax bill from those three transactions should be in the neighborhood of $90 million.

Okay, so -- I'm sorry -- the Viacom has not taken place yet, right?

Well, the Viacom matured in May and the tax payments are due later this year.

Okay. But there has been no -- okay -- so you haven't paid -- there is no hit to cash yet?

Correct.

Okay. So the total -- okay -- so $90 million. That's fine. Okay. Some other questions here quickly on -- in terms of the acquisition strategy question that you just answered, would these be mostly joint ventures or can we generalize with that statement?

No, you can't generalize on it. It really depends where it is and who currently owns it and you can't generalize. It will be project-spec -- I think it will be project-specific for the short term until we have this broader capital bucket that we talked about at our investor day.

Okay. And then on the National, you gave the total spending to date. Are we still on budget, approximately $870 million and can you maybe give us an idea of how that will be spent through next year?

Yes, we haven't had any additional bust to the number that we last referenced, which you were correct in what you said, $870 million. In terms of the cash flow, Dave, we've spent, what, about 500 on it so far.

We spent about 500 so far. We will spend about another between 200 and 250 this year and the remainder will occur in the first and second quarter of next year.

That hotel continues to excite us because of the demand for room nights and we haven't even opened up the transient bucket yet. We haven't opened up the local corporate bucket yet for bookings and we have a $1 million on the books and we have a lot of tentativeness and a lot of prospects and we are very excited about that hotel.

Okay, thank you. I have one final question, maybe a little more qualitative, but on the Palms and I know you were trying to make sure we didn't have too much concern there after roughly a flat quarter. I noticed that the first half of the year, the CCF is fairly flat there. I am curious if there is any issue there with competition. I know there is additional competition with the Hilton coming in at some point and possibly others. So maybe you can just address the landscape there.

Dave, talk about the advanced bookings in the Palms because, again, as David [headphoned] to you or was actually quite explicit about the lumpiness of our business, the forward bookings of the Palms are very exciting. What is going on there is pretty good even with a competitive landscape -- potential competitive landscape change that is so different from the other markets that we are in. But David, give Will some color on that please.

Will, year to date, we have booked at the Palms about 180,000 room nights and that compares to 115,000 room nights as of same time last year and it is the highest number of room nights we have booked in the first half of a year since we began tracking bookings for the Palms back in 2002.

And David, at good rates too.

And at very solid rates. We have talked about with you before our yield management system and how we manage rate integrity and so all those 180,000 room nights have to hit those yield targets that we expect for whatever day they are booking. So the competitive environment in Orlando continues to change the world. [Synergistic] just opened or just about to open an expansion that is a very large piece of flex space and then there is the Bonnet Creek. Bonnet Creek and the Shingle Creek opened last year, but really none of that has had an impact on us. The Shingle Creek property opened the middle of last year and we've had really no in effect on our advanced bookings and no effect on our results that appear to be related to Shingle Creek.

As far as the advanced bookings go for '08, '09, '10, we are sitting here today and we are continuing to build on what we believe our record bookings for '08, '09 and '10 for the Palms. So all that new supply that has been talked about has so far not affected our workforce because we haven't lost any employees to those properties that may have opened and it hasn't affected our ability to drive group business.

And as I mentioned in the quarter, we made decisions along the way to be more aggressive on price both in the rooms and outside the rooms at the Palms. We ended up driving nearly 20% price increase on the outside of the rooms spent at the Palms and that is by attracting better groups into the house.

As we have talked about time and time again, our business is quite lumpy and looking at kind of quarter-by-quarter comparisons are always pretty difficult with our big hotels. So the Palms is looking like it is going to have a better second half than it had first half in terms of comparisons and we really don't have any concerns over where the Palms is headed. We think it is going to be quite strong going forward.

Great. That's perfect. Thank you very much.

Thanks, Will.

David Katz, CIBC World Markets.

Hi, me again. And again, sorry if we have already gotten to this because I've been on and off, but with the financing environment where it is, one of the issues that has been on the board for a long time is the notion of bringing in JV partners for either existing properties or new ones. Has any of this -- any of the events of the last couple of weeks changed your thinking on that and I will speak for myself. We have always sort of looked at the prospect of drawing some capital out of the mature properties as a positive dynamic or a positive catalyst for the story. So whatever updates you can give us on that would be helpful.

Do you want to take the financing environment?

Sure. David, our view of what has occurred in the financing environment over the past several weeks and days is that it has some impact on our access to capital, but it is somewhat limited. Most of -- from everything we are hearing, most of what is affecting the financing environment is much more highly leveraged transactions on paper than we have -- than we would be trying to pursue and as we think about kind of long-term capital availability for ourselves, based on what we have on the books right now in terms of our pipeline with the expansions Colin referenced and with Chula Vista assuming that it goes forward.

Or one other.

Or one other hotel to build, we can do all that stuff on our own balance sheet with pretty reasonable leverage levels through 2010, 2011. The question for us is as we continue to pursue big opportunities and ways to grow the business whether those be acquisitions of hotels in new markets or new large developments in other markets outside of the ones we have talked about, then the question is how do you plan to finance those activities and we still continue to think there is a pretty robust market for JV capital out there.

We are not going to be a buyer of an asset or a JV partner who is looking to put 80% or 85% loan to value on a property. So the troubles that have affected the kind of peak mezzanine markets shouldn't have much of an impact on us.

And the other thing, David, that -- you use the word in your question that I think is the key to all of this. You said taking capital off the table on these "mature" assets. Well, we are looking at expanding every single asset we own because of the demand for business that we are generating. If we had gone and sold the Texan a year ago or two years ago, we would have left hundreds of millions of dollars of capital appreciation on the table.

And what we have been consistently saying here is when we have -- when we have the need to reinvest this capital into very compelling deals and we believe these projects are nearing maturation then that is the appropriate time to do it. But the risk I suppose is if the multiples in the hotel industry shrink and contract back to the 10, 11 level, my considered opinion is I don't think you are going to see that because there is not a lot of new supply being built at the high-end.

There is a lot of limited offerings being built in this country, but that is not with whom we compete and our businesses continue to get stronger and stronger and stronger and I don't see the multiple of our business shrinking. And as we have said to you guys, the investment community -- in the investment community, we believe our hypothesis over the next 12 to 24 months is going to convince the investment community that our business is very different to the typical four-star hotel business because of the predictability and our multiple should be more in line with the office industry, that it should be the transient hotel business. So this is a ball we juggle and we will obviously rotate our capital when there is very compelling reasons to do that, when our properties are maturing and we have great deals to invest in.

Thanks very much.

Jeff Donnelly, Wachovia Securities.

Dave, I actually wanted you to clarify the comment you had made about the impact of subprime on consumers and thus transient demand. Are you focusing I guess just on what I will call the daytrippers who come to pay to walk around sort of the ice sculpture exhibits and things that you guys do around holiday time or are you actually looking at the decline in room demand and the out of rooms spend at the properties?

We are concerned more with the out of rooms spend than with people coming to the hotel and that is why the RevPAR guidance was not adjusted -- only the total RevPAR. The issue we're concerned with is the traveler who comes to Orlando from Atlanta who is going there for three days, are they going to spend $300 outside the room every day or are they going to spend $250 outside the room every day.

So it's that piece plus is the local daytripper or are the local social parties that occur during the holiday season that we gather a lot of that we end up generating a lot of revenue from in the holiday period, are those going to be as festive and as as big and extravagant as they have been in years past?

I know we are in a different time of the year, but leisure travel just generally speaking in the country is pretty strong in the summer months. Are you guys seeing any signs of this now because a lot of your peers, although they have reduced their RevPAR guidance for the year, it really hasn't been on that particular justification.

Yes, this is Colin. Let me be a little -- let me be very clear about this. This is the time of year when we sit down with our operators and produce our long-range plan for this year, next year, year after, year after. And we have gone through this process and we just -- we have had a little bit of a dialog about what potentially could happen as per our operators towards the latter part of this year around the leisure segment.

We are not seeing it in our business today, but there is this debate and there are hypotheses that our people have put forward to say we just have to be cognizant of this. So we don't see any change in the room night side of our business. We see our room night demand getting stronger and stronger and so this modification in total RevPAR -- my personal view is I am not altogether sure that we are going to see impact of subprime markets in our Christmas periods, but we are being cautious here. That is the issue and that is what we have done, but our business is very strong right now.

And I apologize and similar to David, I was off and on earlier in the call if I might've missed comments you made on Chula Vista, but could you share with us maybe what the reaction was of I guess the national union leaders to the extent you spent any time with them? Do you think you are getting their support and understanding this time?

I think so because it was the national leadership that we talked to and negotiated with when we did our Washington project and we built our Washington project the way we anticipated building the project in Chula Vista. So when they called and said let's try and accommodate, let's see if there is a middle ground here, we were obviously receptive to exploring this in which we did.

But one of the things that we have not done here and we have done this on purpose is we have not -- we haven't sat down and castigated the local union leadership, but it seems that the national leadership allows the local Southern California guys to make the calls and so the local California guys they are very clear here. It is all or nothing. They will not support the project if they don't get 100% of the contracts, which is bizarre, but that is their position and the question for us is are we prepared to go forward and effectively do this without organized labor.

The new information to us today, which is different to where we were 30, 40 days ago, is the community is up in arms saying we will do whatever we can do to get all the permitting done and you don't have to worry about organized labor. We want this project in San Diego. And what we are in the process of doing right now is assessing the practicality of that, what it means to our Company both in time and money because we love this market. We think San Diego is a wonderful hotel market and we love this location and so we are going to work this through over the next couple of weeks and I suspect in two to three weeks from now, we will make some very clear public statements about what we are intending to do in this marketplace. But the outreach from the community frankly I have never seen anything like it. It has been overwhelming and we have to assess what that really means practically to our Company.

And politically speaking, this has been a site that I think Chula Vista has wanted developed in different capacities over the last 30 years and do you think that -- I don't expect you to reveal your strategy -- but do you think this is one where maybe the solution doesn't necessarily come from Gaylord or from the unions, but actually from the political leadership because I think the weapon if you will that the unions wield was the threat of environmental litigation against you guys. That can be cleared up. Can this be cleared, can this be settled effectively with a bigger subsidy?

I don't think -- I don't think -- no. That is not the issue for us. The union have been making these bizarre statements that this is our endgame. That is not our endgame. We have never raised that issue. You have my word on that and so does the community have my word on that. We have never raised that issue to my knowledge with local government.

The issue is does this community have the fortitude and the willpower to get all of the permitting process done, recognizing that a special interest group is going to be fighting them all the way and that is what we are trying to assess right now.

You are right. You have done your work as usual, Jeff. This is a location that has had its fits and starts for 30 years and I suppose over the last couple of months, we are getting to see why that has been the case and because it is not developer-friendly and -- but we will see -- we will see what transpires here and again, to all of our shareholders, we will only move forward on this location if we believe that A) we can get it done harmoniously and two, we generate very good returns for our shareholders.

And just two last questions. One is if you did abandon that project today, could you guesstimate for us maybe what sort of I guess earnings charge that you would take? And then going forward, do you think, Colin, that this disruption in San Diego impacts your ability to win bids in other cities?

No, quite the reverse. No, I don't think it does. We have had multiple developers come to us over the course of the last month and a half saying come work with us on this site in this city. We would love to do business with you guys. I don't think it affects -- I don't think it affects our ability to win bids because, look, the reality is we are not a company that is antiunion. I mean we -- 50% of the projects that we have contracted for there or thereabouts in Washington is to union contractors. We will have a union workforce in Washington. We had signed a union agreement for a workforce in San Diego. It is just the greed of a special-interest group here. We wanted to contract a lot of the contracts with local nonunionized -- nonunionized groups in this market. So I think our record is pretty clear and I don't think -- I think in fact if anything, it will improve our ability to win bids in other markets.

Elsa, I think one more question unless Jeff has one more question.

No, I was going to say you if you just happen to have an estimate of what the --.

Oh, yes, yes, yes. I think -- the number is going to be I suggest less than $2 million if we abandon it. It's not -- we haven't spent a ton of money here.

Thanks.1

There appears to be no further questions at this time. I will turn the floor back over to you for any further or final remarks.

Well, thank you, Elsa. Again, thank you, everyone, for joining us. I think it is a pretty good quarter. The Company has got the wind behind its back and the next one to two years are going to be very exciting and again, apologies for the technical glitch through the middle of this. We will make sure that doesn't happen again. Thanks, everyone, for joining us.

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