Ryman Hospitality Properties Inc (RHP) 2009 Q2 法說會逐字稿

Welcome to the Gaylord Entertainment second quarter 2009 earnings conference call. Hosting the call today from Gaylord Entertainment are Mr. Colin Reed, Chairman and Chief Executive Officer, Mr. David Kloeppel, President, Mr. Mark Fioravanti, Chief Financial Officer and Mr. Carter Todd, Executive Vice President and General Counsel. This call will be available for digital replay. The number is 800-642-1687 and the conference ID number is 19788993. At this time, all participants have been placed in a 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, and good morning. My name is Carter Todd, and I'm the General Counsel for Gaylord Entertainment Company. Thank you for joining us today on our second quarter 2009 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 2009 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 Chairman and Chief Executive Officer, Colin Reed.

Thank you, Carter. Good morning and welcome everyone, and thank you for joining us today to discuss Gaylord Entertainment's second quarter 2009 financial results. As usual, I will begin our call with a strategic overview of our business and what we are seeing in our industry. Then our President and new Chief Operating Officer, Dave Kloeppel will provide color on what we are doing from an operational perspective in this environment, and then our new Chief Financial Officer, Mark Fioravanti will conclude by providing some more detail on our financial results for the quarter and particularly, how our properties performed. Then as always, we will open up the phones to questions and look forward to that.

Now, let me start off by saying that I am pleased with our results this quarter, especially when you consider a market environment that continues to challenge virtually every sector of the economy. Our group centric business model characterized by the attrition and cancellation fees we collect once again worked well this quarter. These fees, coupled with our aggressive management of costs, again enabled us to deliver solid same store CCF margins of 28.3% which includes the impact of $400,000 one time severance costs. Last quarter, we told you that we were beginning to see signs of stabilization in our business, and we continue to see evidence of this trend. While cancellations in the second quarter remain elevated relative to historical levels, there was substantial improvement versus the first quarter of 2009. Now, while elevated over historical levels, attrition levels are beginning to show early signs of recovery versus the first quarter. And we will be watching them closely over the coming months to determine if this is in fact an enduring trend.

Nevertheless, attrition and cancellation fees enabled us to partially offset the impact of these elevated levels, and we collected $8.2 million in fees in the second quarter. These fees provided a measure of protection to our bottom line. That is an advantage for our group centric model. Of course, we would clearly prefer to have guests staying at our unique properties in order for them to participate in our outside of the room offerings. On average, 60% of our revenue is generated outside of the room and in an environment where corporate budgets are being slashed, the resulting increases in attrition and cancellation levels do represent a loss revenue opportunity for our business. Our business mix has played a critical roll in our ability to deliver decent levels of CCF so far this year. It has been suggested to us on several occasions in the past by certain industry analysts that we should hold off on booking association business that tends to have longer lead time and book more corporate business. The hypothesis is that corporate business could be higher rated and we would thus drive higher levels of profitability. Now in good times, there's some validity to this thought. But alas, not all times are good. This year illustrates the peril of being overly committed to group corporate business.

So far this year, we've received approximately 96,000 room nights of cancellation. What's interesting is over 90% of those room nights are from the corporate sector. This was evidenced in the drop in the outside of the room spend in the second quarter that corresponded to a 45% decline in corporate room nights when compared to the second quarter of 2008. Fortunately, on an annualized basis, our group mix is not overly dependent on the corporate sector, but is instead represented by a broad mix of association, government, and other groups, enabling our group business to be somewhat resilient in this environment. We continue to receive feedback from meeting planners indicating that they remain cautious, but many planners are beginning to consider new meetings. Subsequently, while pricing continues to be challenging for the short term booking window, we believe that once occupancy begins to recover, rate will recover as well. Accordingly, we continue to hold back certain inventory to 2011 and beyond in an effort to mitigate the impact of the current pricing pressure on future rates.

As regards our profitability, we continue to see the results of the aggressive cost management initiatives that we have been employing since late 2008. These reductions have enabled solid margin performance across our brand throughout the first half of 2009. We will continue to look for opportunities to streamline our operations as we are managing our business as if this recession will stay with us for some time.

It is important to note the one area where we will not compromise is guest satisfaction. Our business is built on fostering loyalty and confidence in our brand among meeting planners and guests. This is what compels them to return to us in good times and bad. So while we will continue to identify new opportunities to improve efficiency and reduce costs, we will not make the mistake of doing so at the expense of service and guest experience that defines our brand. Dave will talk more about guest satisfaction as well as advance bookings, but what I want to say is we are pleased with the volume of the last group bookings that we accomplished in the second quarter. I believe these bookings were a direct result of our commitment to excellence for our brand.

In addition to cost management, another initiative that is yielding results is the redeployment of our sales and marketing resources. Dave will get into more detail on this in a moment, but the decision to market more heavily to transient customers improved online bookings and focused more on 2009 and 2010 that successfully translated into bookings for upcoming periods. Despite elevated levels of attrition and cancellation, our efforts have enabled us to maintain the on the bookings occupancy with which we entered 2009. We expect to see an even greater benefit going forward.

I would like to take a moment to discuss the performance of our newest property, the Gaylord National in Washington DC. The National delivered solid CCF performance of $20.6 million in the second quarter, the quarter which is historically the best for the DC market as a whole. We are encouraged with the progress of the larger National Harbor development and the recent announcement that Disney will be developing a family themed resort hotel is a prime example of the positive momentum behind National Harbor. Looking forward, we believe that there is a strong future for Gaylord Hotels, and we are very encouraged by how this young brand has responded thus far in these unprecedented economic times. This resilience is a testament to the benefits of our unique model and the hard work and dedication of our wonderful STARS. While we continue to see signs of stabilization, we fully expect the hospitality market to remain somewhat unpredictable for the foreseeable future, and we will continue to closely monitor attrition and cancellation trends as well as customer behavior regarding advance bookings. As you would expect, we are paying close attention to the fourth quarter, which is heavily dependent on trends in business driven by our holiday progress. Early indicators are in line with prior expectation and as a result, we are maintaining our current guidance for the year. Now with that, I will turn things over to Dave for some color on our operations. Dave?

Thanks, Colin. Our unique business model and level of profitability protection it provides us has certainly been a bright spot in an otherwise dreary market environment. While we believe that the differentiated components of our business will help carry us through what will likely be some additional challenges, we remain focused on identifying more ways to proactively improve our business. From an operational perspective, we are focused on four key areas, guest satisfaction, star satisfaction -- remember we call our employees STARS -- sales drivers and margin management. I will now spend a few minutes providing you with a sense for why these are critical to our business and how we are driving improvements through each.

As we have stated before on a number of occasions, guest satisfaction is an essential measure for us. Why? Because building loyalty and confidence in the Gaylord brand is how we insure that meeting planners and groups come back to our properties time and time again. Customer satisfaction scores are a critical component to our business, so we monitor the results carefully and are always looking for ways to improve upon them.

We gauge our guest satisfaction by percentage of "top box scores" which is a very strict interpretation of satisfaction levels and reflects only those guests who are loyal advocates of ours. This quarter, our guest satisfaction scores were consistent with previous quarters and we are pleased we were able to maintain these very high guest satisfaction levels in a difficult environment, and we continue to identify ways to improve them. Our customer satisfaction results this quarter, and every other quarter for that matter, correlate in many ways to the efforts of our individual STARS. STARS, you will recall is a name for our employees, and because we believe our STARS are an essential aspect of driving customer satisfaction, we continue to invest in the core programs that drive star engagement. High star engagement drives costs down as well. It drives star turnover rates down and increases referrals for new employees, thus driving down training and recruiting costs. So as you can see, investing in our STARS is a critical element for customer satisfaction and therefore revenues and for controlling costs.

Next I am going to talk about sales drivers. Another major initiative we undertook with a shift toward short-term bookings to replace those lost cancellations by attrition. As Colin mentioned, because of our visibility into future occupancy periods, we made this decision ahead of the sector-wide change in the demand climate. To drive this shift through our sales team on operational level, we adjusted sales manager incentives to include the 2009 revenue booked component in order to focus the entire team on the in the year needs. Our second quarter in the year leads increased 28 percentage points compared to the first quarter, which is a direct result of our focus in this area. Looking closer at occupancy on the books, this focus on short-term lead generation has become a significant factor in driving bookings. Although we do not have quite as much on the books for 2009 as we would like, the sales and marketing shift has helped us prevent from losing any ground. At this point, we have about 52 points of group business on the books for the remainder of the year. And furthermore, in the second quarter alone, we booked almost 500,000 room nights in gross advanced bookings for all feature years, which was only down about 9.8% when compared to gross group bookings booked in the second quarter of 2008. The sales team did a terrific job in the quarter.

For 2010, while these volumes are down about 33% compared to a year ago, our new gross bookings are up about 24%, driven by a very significant increase in our conversion rate, it's about a 83% increase in conversion, as a result of our focus on securing that '09 and 2010 business. Overall, 2010 bookings are moving in the right direction, and with five months to go in 2009, we have about 41 points of occupancy on the book for 2010. Now, all of you are going to ask, how does this compare to the same time in 2008 for 2009? It is a rather complicated question to answer, so bare with me here. In 2008, around this same time, we had adjusted future inventory based on recent historical attrition experience. You will recall that in July of 2008, we had not yet experienced a significant increase in attrition and cancellation. At that time, we had 48 points of occupancy on the books, but ultimately, a large percentage of these room nights ended up attriting as the economy worsened. Fast toward 12 months to July of 2009. We have experienced substantially higher attrition levels recently and our sales block for 2010 reflects this is behavior. So what this means is that we have reduced 2010 expected group attendance to reflect the poor economic conditions. Therefore, we are able to sell today into those available patterns rather than waiting for the attrition to occur as occurred in 2009. If we were to revise our assumptions to reflect historical attrition levels instead of our more aggressive assumptions, 2010 group room nights on the books would reflect roughly 45 percentage points of occupancy and would lag historical averages by around 3 percentage points. And remember in early 2009, we did experience unprecedented levels of cancellations for 2009 due to the economic conditions and adverse comments made by the Obama administration. Net-net, we are comfortable with our business pace and inventory levels for 2010 and we continue to see positive trends building into 2010 demand patterns.

So I would like to now touch on what we have been doing to maintain our margins and profitability. In terms of attrition and cancellation fees, we are vigilantly working to anticipate attrition and are continuing to initiate dialogues with customers over those penalties. Collecting these fees without risking the relationships we have built with our customers is a key focus for us. And as a part of these efforts, we are involved in tracking attrition in advance of meeting dates to insure we are mitigating the financial impact from lost room nights or banqueted events.

Also, as we told you in the past, last year we embarked on a detailed review of our entire organization and developed a cost reduction plan tied to various levels of demand. Thus far, our efforts have yielded $45 million in cost savings and directly impacted our bottom line margin performance. As evidence, our CCF margins for our hotels for the second quarter of 2009 was 29.8% compared to 29.9% in the second quarter of 2008. And our efforts are ongoing as we continue to reassess our entire organization for additional savings. Now I am going to turn the call over to Mark for a look at the financials.

Thank you, Dave. As we have done in the past, I will discuss our financial performance during the quarter and then take you through some highlights from the results of each of our properties. I will then provide some additional color in term of what we are seeing for the rest of 2009.

On a consolidated basis, Gaylord Entertainment performed in line with our expectations delivering revenue for the quarter of $218.3 million and the solid CCF performance of $55.8 million. It is worth noting that CCF for the quarter includes $2.4 million of severance costs related to our cost cutting initiatives and that $3.6 million gain in connection with the tax increment financing arrangement related to the Ryman Auditorium. As Colin has discussed, the economic challenges experienced across the industry in the first quarter of this year continued into the second quarter. As evidenced by the RevPAR declines in the upscale lodging segment of 20.% as reported by Smith Travel Research. Gaylord Hotels, including the National, outperformed the upscale segment experiencing a RevPAR decline of 13.1% and a total RevPAR decline of 14.3% in the second quarter of 2009.

At our same-store hotels, RevPAR declined 19.8%, 100 basis points better than the upscale segment and same-store total RevPAR declined 19.6%. Our same-store hotels generated consolidated cash flow in the quarter of $39.1 million including severance costs of $400,000. Our CCF performance was driven by our continued success in the collection of attrition and cancellation fees coupled with the aggressive management of our costs. These efforts resulted in a 28.3% same-store CCF margin, a solid margin in a tough economy and a performance that only declined 420 basis points when compared to the second quarter of 2008. We saw same-store cancellations improve in the second quarter totaling only 28,820 room nights compared to 66,749 in the first quarter of 2009. Same-store attrition in the second quarter was 14%, which showed signs of improvement from 16.7% from the first quarter.

During the quarter, we collected $8.2 million in attrition and cancellation fees across the brand and to put this in perspective, the attrition and cancellation fees we collected in the second quarter represent about half of what we collected all of last year and are more than two times what we collected in the second quarter of 2008. As Dave already mentioned, our second quarter 2009 gross advance group bookings for all future years were only down 9.8% compared to the second quarter of 2008. However, our net advance group bookings were down 59.9% when compared to the same period last year. This represents an improvement over the first quarter of 2009 when net advance group bookings were down 73.4% year-over-year. The year-over-year decline in net bookings is a result of elevated cancellation and attrition levels as well as our efforts to more aggressively cut the future room blocks in order to sell into the likely available inventory well in advance.

Now let me walk you quickly through the performance of our individual properties starting with Opryland. Gaylord Opryland generated revenue of $55.3 million in the second quarter of 2009 compared to $73.5 million a year ago. A 13.9 point decline in occupancy was largely driven by group cancellations and attrition in the corporate segment. CCF decreased 41.2% to $13.6 million and was impacted by one time severance costs of $100,000. The resulting second quarter margin for Opryland was 24.5%.

Now looking at the Palms in Florida, in the second quarter, occupancy was down 10.9 points in the quarter as a result of group cancellations and attrition. Group ADR was up slightly with an increase of 2%, but transient ADR declined 14.6 due to the highly competitive Orlando market. Despite an $8.6 million decrease in revenue, aggressive cost management to property resulted in a solid CCF margin of 30.4%. The property delivered CCF that in line with expectations at $11.9 million compared to $16 million in the prior year quarter. CCF results at the Palms include $100,000 in severance costs. As for the Texan, revenue was $41.5 million in the second quarter, a decrease of 13.4% from $48 million in the prior year quarter. Despite a 10 point decrease in occupancy, aggressive cost management resulted in a strong CCF margin of 31.4%.

The property delivered CCF of $13 million compared to $15.9 million in the prior year quarter. CCF at the Texan was also impacted by severance costs of $200,000. Finally turning to the National, as Colin mentioned, the National delivered a solid second quarter. The property posted gains in all its primary metrics when compared to the second quarter of 2008. Occupancy for the quarter was 67.9%, an increase of 3.4 points and ADR was $213.84, up $1.74 when compared to the second quarter of 2008. RevPAR increased 6.1% to $145.25 and total RevPAR increased $0.87 to $343.99 over the second quarter of 2008. The National generated CCF of $20.6 million including $200,000 of one time severance costs, resulting in a solid 33% CCF margin. We are pleased with the National's progress thus for in 2009, but recognize that it will continue to face the headwinds of the current economic environment.

Now moving to the Opry and attractions segment, Opry and attractions performed in line with our expectations, producing $7 million of consolidated cash flow, aided in part by a $3.6 million payment received in connection with the tax increment financing arrangement related to the Ryman. In terms of our balance sheet, as of June 30, the company had long-term debt outstanding of $1.24 billion. Our liquidity position continues to be solid, and we have no loan maturities until 2012, and we continue to take steps to opportunistically delever our balance sheet. During the quarter, we used available cash in our revolver to purchase some additional 8% and 6.75% senior notes at very attractive yields. During the quarter, we purchased $28.3 million in face value and recorded a pretax gain of $8.2 million in the quarter. We continue to ration capital and put any actions related to future development or expansions on hold. We have no significant capital commitments other than maintenance and the wrap up of punch list items at the National. These punch list items were previously approved for and do not represent additional capital spending at the National.

Our focus going forward is to maximize free cash flow and we believe that the best thing to do with that cash is to continue to reduce indebtedness. As we look toward the rest of 2009, we expect the current market conditions to persist throughout the year and while we have seen some stabilization in our business, we continue to closely monitor attrition and cancellation levels to determine if the trends we experienced in the second quarter will continue. However, our performance this quarter also proves that our model, coupled with aggressive cost management, can produce solid margins and CCF results, even in a very difficult environment. As we move through the second half of 2009, we will continue to focus on generating in the year for the year revenue through smaller meetings and transient guests, the aggressive collection of attrition and cancellation fees, a continued streamlining of our cost structure and the prudent management of our balance sheet.

As Colin has already stated, we will continue to closely monitor the leading indicators of our transient oriented fourth quarter. Based on what we are currently seeing, we are comfortable with our current projections and are reaffirming our guidance for the full year. With that, I will turn it back over to Colin.

Okay, guys. Good job. Melissa, we will open up the call for questions, please.

(Operator Instructions) Our first question comes from Chris Woronka with Deutsche Bank.

Hey, good morning, guys. I was hoping you could touch on a few of the factors that contributed to the performance at National this quarter. It was -- I thought it was pretty impressive, both on the RevPAR and margin front and maybe you can just share what's going on there and also how much -- how did cancellation or attrition fees impact National this quarter?

Okay, Chris. This is Colin. Dave, do you want to take the improvement in the operations there? And Mark, if you want to deal with the attrition costs, maybe you have that too, David.

Sure. Hey Chris, how are you? We were pleased with the way the National performed this quarter. The efforts that the team has put in place there are bearing fruit to drive appropriate levels of profitability out of that business. The second quarter in the DC market is the strongest quarter in the year and we had a good book of business on the books for the quarter. So -- and we also had a comparison to last year's second quarter which was a little bit of a messy second quarter given that we were opening -- there wasn't quite as tight a control over the expense levels. Any time you open a property you are going have -- spend a little more on staffing and a little bit more on food and beverage waste than you would have expected to when you are running at full speed. So, I think the National now is running at full speed. Phil Coffey, he's our general manager there and his team have done a tremendous job focusing on setting appropriate labor standards and managing the business as efficiently and as effectively as possible. I will -- I do want to make sure that we do reiterate that this was en expected performance and as you can see, we didn't change our guidance for the National. And so we have gotten now two good quarters behind us at the National, really the two strongest of the year, so I want the to caution you and the rest of the investors that you shouldn't expect that's we're going to take the first two quarters and double them and that's going to be the year's performance is going to be.

As we get into Q3 and Q4, we get into a much more transient oriented period of the year, especially into Q4, and this will be the first year with the National having its Christmas program, which will be similar to what we have at the other hotels. And those programs typically take some time to develop into good, strong demand generators. So net-net, great performance from the National, happy with the direction it is headed. I think our team is doing a great job, and that's about it. In terms of your question on how attrition and cancellation affected the property I will have to get back to you on that specifically. I don't have that with me handy. I don't recall that it was an enormously large impact, but I will get back to you.

Chris, Colin. Let me just add one last thing. We are certainly not as a management team taking a lap of honor on these results for the National. What is clearly squarely in their mind is that after the incentives that we received from Prince Georges County, we have $900 million invested in this hotel, and this hotel has a ways to go in order for us to get the appropriate rates of return that we so desire. And so over the next two, three, four years, we will be working aggressively to move this hotel into the levels of revenue and profitability that we anticipated when we invested money in this hotel two, three, four years ago in a little bit of a different economic environment. So, we are cautiously optimistic, and we are reasonably pleased with the results for this quarter. But we still have got a ways to go.

Great. That's helpful. One more if I could. As we think about the Mesa project, I certainly understand your comments about not wanting to commit any significant capital in the near term, but we also noted that now where shortly is probably the best time to start building, given obviously a multiyear build out. I guess the question is, as you talk capital partners, is there any -- have you acted any increased in this potentially move forward with this relative to where it might have been in April or May.

Let me touch on that. I want to come at that from a couple of perspectives. We -- one of the things we've tended to do and you wouldn't know this because you are on the other side of the wall, but we have a very good relationship with the banking syndicate that are in our package. We meet with them frequently, we talk to them about our business, we talk to them about the vibrancy of our business and have very good relationships with our banks. We have also spent a bunch of time externally talking to people that have interest in investing in this sector.

The big question for us as a company is what is going to happen to the already up and operating hotels that are being financed with CMBS stuff over the last two, three, four years that are all going to get -- need to be refinanced here in the next two to three, four years and whether there is an opportunity to gain control of supply in a way that is different to the way we'd have done it historically, which is to build, and that is something that is on our mind. It is something that we discuss with our board, and it is stuff that we spend a lot of effort on externally talking to people that have some appetite to (inaudible) in this environment. I remember all too well what went on after the S&L crisis in '92, '93. I keep talking to my colleagues here about the opportunities that were created in that period of time. What we are doing as a management team is focus on those types of opportunities, and I think that's probably all I should say on that subject.

Okay. Thanks. Very helpful.

Thanks, Chris.

Our next question comes from David Katz with Oppenheimer.

Good morning.

Morning.

I wanted to -- obviously, we are positively inclined on what we have seen out of the National so far, and I think some of it is a natural ramp up, some of it, I think you have some management changes there that are gaining some traction also. And I wonder how much of an opportunity you think there might be with some of the other properties to maybe learn from some of the successes that you've had recently at the National? And we look at this against the backdrop of Dave assuming a COO role and if we can just talk through what a realistic expectation is for some of the others, particularly Opryland that had a tough one.

Boy, there's a lot of questions in that statement you just made, a lot of different questions. First and foremost, Opryland, you have got to remember 12 months ago, Opryland made over $18 million of profitability. Opryland has being disproportionately hit by this wave of corporate cancellations that it's received in the first half of this year. Opryland still has -- this year has operated approximately 60 points of occupancy, has generated 25 points of margin. We are sitting on top of that. We still see a lot of business that wants to book into Opryland. My view is that Opryland will recover into the 70s and our goal for Opryland over the long term when this economy stabilizes is to have it operating at 80 points of occupancy. I believe, and Dave, you can weigh in on this, with everything we have done at Opryland this year, if we can get this hotel back in short order to 75 to 80 points of occupancy, it will produce a lot more profitability than it did 12 months ago, just because of what we are doing.

Absolutely. And David, your question is a good one, but I would maybe rephrase it to say not so much what can we learn from the National that can benefit from the other properties but really, what can we learn from each of the properties to carry through to the other properties. Because each of the properties is physically different, so there are some unique characteristics about how we can service the guests when we're on each property. But as we go department by department and compare the four properties to one another, one of the best demonstrated practice in each area. So one thing we are doing now is we are having regular monthly meetings to review those types of best practice opportunities to be able to drive -- to learn from the Palms, as best said, department X, let's understand why they're the best, why their process is different and understand if we can move their process into other hotels to really drive overall better profitability and better satisfaction from our guests. So it is a much bigger issue than just the National had a great quarter, so what should we learn from the National?

I would say as well, it just takes time when you open these big hotel. Opening these hotels that are 1500 to 2,000 rooms with 400,000 feet of meeting space is not like opening a 300 room hotel. We employee 1,500 to 2,000 people. We went through exactly this same issue with the Texan. When we opened the Texan in 2004, the results for the first 12 months where we overstaffed in the place because we wanted to make sure we delivered high level of satisfaction.

It took us a year and a half to two years to get that hotel to where we wanted it to get to. And I think National is the same way and as David said, we were just dealt a few body blows earlier in this hotel's life with things that we don't need to talk about yet again. But we are pleased with the improvement in this hotel, but as I said when Chris asked the question, we still have a ways to go for this hotel to get the sorts of returns that we all anticipated when we built this thing two, three years ago.

All right. So am I able to take away from this that there -- as the overall, the entirety of Gaylord grows that there is still some maturation to go on across the whole portfolio, not just obviously for National, but just in general? Because I think this has been kind of a recurring question. What can we do to push up the profitability at each of the hotels as we proceed. So it sounds like this is a sort of portfolio-wide issue now.

Yes, absolutely. David as I mentioned in my comments, the four things that I am really focused on and trying to rally the rest of the organization around are get that star satisfaction, sales, so therefore revenue drivers and then margin management. And that last one is what you are hitting at. And we are absolutely focused on continually improving the way we service our customers and the way we can do that in a cost effective manner.

Okay. Great. Thanks very much.

Thank you.

Our next question comes from Jeff Donnelly with Wells Fargo.

Good morning, guys. A few questions actually. Just first, does your 2009 CCF guidance include or exclude this severance and TIF gain?

It actually included originally the TIF gain but excluded the severance. Because --

I apologize if you said this on the call, I might have missed it, but do you share the Smith Travel RevPAR index data for your hotels, either alone or in the aggregate versus the competitive set?

Yes.

What are they?

We continue have that in the release, but we are happy to share it. I have it in front of me, so just give me just a second to flip through it. So Opryland, what do you want, year-to-date, running three months or last 12 months?

I'm looking for some context and maybe what it is, maybe say year-to-date versus last the last 12 months and kind of give some sense of how you fared versus competition.

Okay. Year-to-date for Opryland, on total RevPAR we are at a 210 index running 12 months, that's year-to-date, running 12 months is 247. Okay, remembering that Opryland substantially outperforms during the holiday season, that's competitive. Okay? National runs at about two times the competitive set on total revenue, two and a half times, actually. And that's a little bit better than the last 12 months. Palms, and it is, again, total RevPAR runs at about three times its competitive set, and that is consistent with the last 12 months. I take that back, it is actually up about ten points year-to-date versus last 12 months, and Texan three times its competitive set and it is about 3.2 times for the last 12 months.

That's helpful. And if I could, I would love to get a little more color on the advance bookings. I think in the past, you guys used to give a pipeline of advance bookings that was for all future periods and now, obviously, you guys give a bit of a net change for future periods in the quarter. You might have said it in the call and I might have missed it, I have a few going on today. But can you give us what the the bookings are for all future periods and perhaps how those lay out for 2009, 2010 and 2011?

Jeff, we tend not to want to give out the annual number on bookings page because they can -- when I say annual, I mean the bi-booking period. So, giving you 2009, giving you 2010, giving you 2011, giving you 2012 because the numbers bounce around a lot and it would cause somebody who is looking at it from the outside loads and loads of questions about what's happening. So what we are trying to give you is a sense of what I think most people -- what people are most focused on which is 2009 and then generally what direction we are heading for 2010. So I don't want to give it to you by booking period in its entirety because if I give it you orally, then I am going to set a standard that we have to give it to you in the future and then I think we open ourselves up to an entire hour call on what happened to bookings in 2013 versus 2012.

Reality to this question, Dave, is that we shift focus within three to six month blocks. We look at future pace --

Right.

Jeff, and we direct our sales force to deal with a particular period in a particular year, and we -- I just don't want to get into competitively sharing too much of this data.

I understand. I guess I am trying to figure out is -- I am making some broad comments, but I have to believe that the cancellation and attrition activity you mentioned you saw in Q2 and the difference between 498,000 nights you booked versus the 171 net that you put on the book. I guess I am assuming that that 330,000 differential is probably most likely cancellations and attrition say for six to 18 months out. Did something change in the minds of an event planner? Are they trying to make some sort of a change in the plans to fully trigger fees, because (inaudible) signings are most likely beyond that period of time. So I am trying to figure out if you -- most hotel companies are seeing a choppy next few months or next few quarters, but you are actually setting yourself up for a better 2011 or 2012. Despite what desire is to be booking on near term, I'm wondering if your actual activity is a little bit further out.

Well, we are booking short term and we are booking disproportionately more short term than we have historically booked as it relates to all bookings but we are booking a lot of business, a lot of that 490,000 room nights were for future years, a lot of it.

Maybe this was asking my first question in a different way again, are you -- could give us some context, as I said, the difference between the 498,000 nights you booked versus the 171 net, that's 330,000 future nights that were attributed to cancellation and attrition. Can you give us some context like on what base of all future bookings does that represent, and how much of those cancellation versus attrition?

Jeff, there are -- and this is where the bookings information gets confusing. So I will give it my best shot. If you have questions, just ask. So the difference between gross, which is the 498 and net, which is the 171 is attrition in the period, cancellation in the period and block adjustments, I will call it inventory adjustments, which is inventory adjustments for any future period based on changing trends, okay?

So the pieces that you really can't observe from our release you can see the difference in attrition and we talked about that -- of the attrition this period versus last period versus last year -- same time last year. The cancellation number, I think we gave you that number as well. It is the block -- it is the sales inventory adjustments that drive a significant portion of the difference between gross and net. And in today's environment, this is what I was trying to explain in my comments, in today's environment, we are making a much more aggressive, or maybe better said, conservative assumption around how many people are going to show up relative to what the meeting planner is saying might show up.

So, in other words, the gross number is, the meeting planner says they want 1,000 room nights, and we sign a contract for 1,000 room nights. That's the gross number, but we may, based on our knowledge of what's happening in the marketplace and based on what we expect to happen in the future, we may adjust that 1,000 down to 800 because we don't expect as many people to show up as the meeting planner is anticipating. So that would mean we have instead of 1,000 gross, we have 800 net. You understand so far?

That makes sense. I guess to maybe rephrase my question. Maybe in that 330, how much of that is -- are these estimates and I guess within that, how many are made your choosing versus the event planner actually calls and says 18 months out, this is going to be a smaller group or I need to cancel?

Most of it is us.

Yes. Most of it is us. We are constantly re-evaluating our inventory and we have plus or minus 2.5 million room nights of inventory on the books at any time, in net inventory. So we are always re-evaluating that 2.5 million room nights of inventory to say, how much of that do we think is actually going to show up? So, in this type of an environment where we have seen significantly increasing attrition levels, and we expect that the economy will continue to face a headwind for a persistent period of time, we are adjusting a large portion of that $2.5 million of inventory on the books and the difference between gross and net reflects that. Okay? So we have adjusted that for 2010, we have been much more conservative around how many people we expect to show up relative to what we had at the same time last year. Does that make sense?

Yes, that's helpful. Thank you.

Our next question is from Will Marks with JMP Securities.

Great, thanks. Hello, David, Colin and Mark. A question on Mesa. Is there a -- if you were to move ahead with it in the near term, what would you say the ideal structure is right now, capital structure?

Well, in this environment, with what we have been living with here, I think in Mesa, we would to -- we would this in some form of joint venture arrangement. This is not something that I think we would contemplate -- not I think, I know we would not contemplate doing it 100% on our balance sheet with what we've lived through here for the last 12 to 24 months. So, that is the way we are contemplating Mesa. And frankly, we've pushed out the timelines on Mesa with our contractual obligations and continue to review all of that stuff.

Okay, and I assume you have also pushed out the expansions on the two projects as well.

Absolutely. We are 100% in control of those .

Okay, and then on -- Dave, you response, I believe, to Jeff's question on the RevPAR indices, you gave total RevPAR numbers. I understand those are relevant. I would think RevPAR is as well. Can you -- you don't have to run through all of the numbers, but are you significantly outperforming the competition based on a straight RevPAR?

Depends on the property. Opryland, no. National, on straight RevPAR we are in line. Palms, we are outperforming and Texan, we are outperforming.

Okay. Just my last question, on -- in the current environment, I know you're working a lot on margin. How on the food side of things versus the room, is -- I know the margins themselves are a lot different than the other -- where have you -- have you been able to find cost savings in both areas?

Yes, we have gone through all the departments and the hotels. This is the exercise we did back in early this year, and we were able to identify opportunities for cost savings pretty much across the board. But as I said earlier to, I think it was David Katz, one initiative that we have underway is to continue that -- that continual process improvement and continue to do that benchmarking and best demonstrative practice (inaudible).

Our procurement processes, David, have improved a lot these last 12 months and have yielded real savings our direct food cost, and we'll continue to refine that.

Okay, and then my final question. Are there any capital raising plans -- I realize you're not going to discuss this too openly, but do you feel like there's a need to raise capital at this point by selling any interest in assets by raising equity and just if you can discuss that briefly.

There are two answers to the question. Do we need to raise capital and sell assets? And I think Mark dealt with that when he talked about our bank lines. We're well and truly within all of that covenants, we expect to generate healthy free cash flow this year and next year. There's no necessity to do anything, no necessity to panic. However, the second piece of the equation is, so what are going to be the opportunities that a company like us can take advantage of? And those are things that we are basically focused on every single day. And so I am going to stop there, Will, because all I am going to do is speculate on how we take advantage of all of the opportunities that we believe will be forthcoming here over the next one to two years, and I think that's a little inappropriate at this stage.

Okay, that's all for me. Thanks.

Thank you.

Our next question comes from Kevin Milota with JPMorgan.

Good morning, guys. Quick question on the advance bookings. Was wondering if you could you provide some context in terms of the rates that you are currently booking at, maybe in terms of year-over-year percent change, just given your emphasis on securing bookings for second half '09 and 2010.

Sure, Kevin. We look at what we are putting on the books for 2010, they're at rates that are consistent with the room nights that we had on the books for this year at the same period last year. So, rates we are seeing come consistently in our rates 2010 that are consistent with what -- with '09. In the terms of what we were booking in the second quarter of this year, we have seen some decline in rates versus last year. If you look across our brands, our rates that we booked in the second quarter are about 4% lower for second quarter than prior year.

Okay.

Correct.

Okay. Then, just in terms of the distressed environment, you might not want to comment too much here, but have you thought about re-engaging the business strategy to potentially acquiring a 500 to 1,000 room property and slapping the Gaylord brand on it?

You are right, but that is something that we probably don't want to answer. But it's a good question

Okay.

I don't mean to be cute about it, but it is a real good question, something that consumes us.

Okay, thank you.

Thank you.

Our next question comes from Bill Crow with Raymond James.

Good morning, guys. Kevin, just answered your asked couple of questions. Let me just make sure I have got one of the answers correct which is the 41% advance booking rate in 2010, that is at ADR that's comparable to where you where you were at this point last year, is that fair?

Yes.

Okay. I won't ask you about the expansion opportunities. Let's talk about transient demand, what you've seen in July because that's as close to fourth quarter as we are going to be able to get.

Dave, I am not sure we should give out the specific numbers. But our July has been relatively good right across the board. And talk about transient for July in broad terms, Dave.

Yes, Bill, we continue to see a lot of transient demand. Now, the transient demand it is more price sensitive than it was last year, certainly, but we have been able to, in terms of our transient revenues, been able to drive reasonably good performance. The Texan has had a -- has a program called Summerfest that has been very popular and has been able to drive a large number of transient room nights, albeit at a slightly lower rate than we saw perhaps last year. If you look at all of the hotels and just look at the second quarter rather than looking at July, transient revenues were down about 6%. That's certainly a lot better than the overall RevPAR decline.

So the transient business, we are able to stimulate, kind of like cruise lines can, we are able to stimulate the business if we get it to the right kind of package and pricing offer made available to them. So we feel relatively good about what's happening from the transient perspective. We feel relatively good about the fourth quarter. All of our early channel checks indicate that the business should be consistent with our prior expectations. So that was one of the reasons we felt comfortable continuing to affirm our guidance.

Bill, you've touched on -- this is Colin. You have touched on a subject that is something we have applied a lot of time to here as a company over the last few months. It is clear from what Opryland does every Christmas that people, the transient leash consumer loves the assets that we own, and so I believe there is a big opportunity for us on the transient side, and I know Dave and Mark feel the same way. And we are going to continue to invest money into improving our transient delivery capabilities as an organization. I think -- Bill, is there any more questions?

No, that's it, thank you guys. Thank you very much.

Melissa, I think we will take one more question please and then we will shut it down.

Okay, our final question comes from Steve Kent with Goldman Sachs.

Hi, good morning. Could you just talk about what your competitors are doing in response to what's going on just more broadly? Some of them have said they have become more aggressive both on corporate and on some of the association business, and I just wanted to hear what your reaction has been, and if you have seen any changes.

Well, look, here is the way I would the answer and Dave you jump in it. I was yesterday lunchtime in meeting with about 150 customers, and talked to a bunch of them. And it is clear that our competition is getting focused on this sector that we have been very aggressively focused on for the last five years. But I honestly believe, and you may say, Steve, that we are out to lunch when I make this observation. I really believe that the meeting planner and our -- and the customer really, truly understands that we are committed to this business. We are not one of these organizations that sort of flip flop in and out based upon the economic conditions of the country. We are committed to it, and our customers know that, and our customers love us for that. And that is why I think we were able to book in worst recessionary environment has seen the since the Great Depression, we were able to book almost half a million new room nights for future periods in this second quarter. So look, we only have four big hotels in this sector.

We only have just over 1% of the market share of the large group business these groups that are over 600 room nights at on peak. I really don't mind what -- I don't know how David feels about -- well, I know how David feels about this. I don't care what these other biggies do in terms of their efforts to go after these customers. I know we can gain the share of business that we need to run these -- run 60 points of group occupancy in these hotels. I know we can do it, because I know that we have high levels of respect from the meeting planning community in this country.

And Steve, I would say that the challenge for us, or the opportunity for us is to really focus our sales and marking efforts around customers who are buying based on value and not based on price. This meeting that Colin referenced he was just at, there certainly are a number of customers, some of whom were at that meeting, who very much are commodity based buyers. They know what their program is, all they want is a certain number of rooms with a certain amount of space and they want it at the cheapest price they possibly can.

There is another portion of the meetings universe that is a significant portion that is very much focused on the value and value delivered to the meeting planner and to the attendees. And the things that we make available to the meeting planners and to the attendees that generate great amounts of value for them around our, in part, our physical space and the ability to network and part around the way our STARS service them and part around how we program the building for them while they're on site, really creates a great deal of value for those meeting planners. And the opportunity for us from a sales and marketing perspective is to focus our sales efforts on those customers who are buying value and focus less on those customers who are buying commodity. And I think, as Mark indicated, the bookings for the quarter were a solid set of bookings. They were a modest decline ADR year-over-year, and I think if you ask our competitors for those same statistics, you would probably find a lower volume of bookings and probably find a much lower ADR because They are focusing on different things than we are.

Okay. Thank you.

Thanks, Steve. Well look, Melissa, I think that's it. If any of the -- I would like to again thank everyone for joining us this morning. If there are any other follow up questions, please call Mark Fioravanti, he's our new Chief Financial Officer that we have enormous faith in, and Mark will field out the questions, whatever you may have, and thank you very much indeed for joining us. Look, this period of time has been challenging but I tell you, I think we are a better company today than we were 12 to 24 months ago. We have questioned a lot of the current items in our young brand, and I think 12, 24 months from now, we will be an even better company. Thank you for joining us.

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