Ryman Hospitality Properties Inc (RHP) 2009 Q3 法說會逐字稿

Welcome to the Gaylord Entertainment Company's third-quarter 2009 earnings conference call. Hosting the call from Gaylord Entertainment are Mr. Colin Reed, Chairman and Chief Executive Officer; Mr. David Kloeppel, President and Chief Operating Officer; 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 35977301. At this time, all participants have been placed in a listen-only mode and the floor will be opened for your questions following the presentation.

It is now my pleasure to turn the floor over to Mr. Carter Todd. Sir, you may begin.

Good morning. My name is Carter Todd, and I'm the General Counsel for Gaylord Entertainment Company. Thank you for joining us today on our third-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 third-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. Thank you also for joining us today to discuss Gaylord Entertainment's third-quarter 2009 financial results.

As always, I will begin our call with an overview of our business and what we're seeing in the market. Then, our President and Chief Operating Officer, Dave Kloeppel, will provide additional color on our operational performance. And then our Chief Financial Officer, Mark Fioravanti, will conclude our prepared remarks by providing some more detail on the financial results for the quarter and how our properties performed. And finally, we will then obviously answer questions.

This was another decent quarter for our business, despite what remains a challenging environment for the hospitality industry. Groups continued to book advance room nights with us, and meeting and convention groups continue to fill our hotels pretty regularly. Importantly, our aggressive collection of attrition and cancellation fees and our focus on driving cost controls, along with our commitment to customer service, allowed us to deliver solid margin gains year over year.

Over the past two quarters we've told you that we are seeing tangible signs of stabilization in our business, and this trend continued during the third quarter. We booked nearly 500,000 new room nights, roughly in line with our bookings in the third quarter a year ago. And occupancy held relatively flat in the mid 60's. In addition, attrition and cancellations were down compared to the prior quarters in 2009 and were lower during the same period in 2008.

Even as attrition and cancellation levels, and subsequently, the levels of fees we collect, returned closer to historical averages, our hotels brand was still able to deliver a solid CCF margin performance of 25.5%. This underscores the hard work and contribution of our STARS to streamline our operations and cut costs. That said, cancellation and attrition fees did continue to provide profitability protection this quarter, as we collected $4.3 million in fees, an increase of roughly $1 million when compared to the third quarter of 2008.

As I've said on previous calls, we'd clearly prefer to have guests staying at our properties in order to take part in our unique outside-of-the-room offerings. Groups continue to be cautious in their spending, and as a result our hotels saw an 11.5% decline in outside-of-the-room spend this quarter, resulting in a 10.7% total RevPAR decline.

Now, turning to the top line, pricing continues to be pressured by the economic environment and the lodging sector's response to it. As a result, average daily rate at our hotels declined 3.3%. We're confident that once occupancy begins to recover, rates will follow suit.

We have been successful in building a base of highly loyal customers, many who rotate through our network from property to property on an annual basis. They trust the consistently excellent levels of service and accommodations across our brand. This has been an invaluable differentiated component of our business and has helped us to keep our financial profile stable during this awful downturn, and will be critical to rate growth as the economy gets healthier.

Now, in terms of our focus on cost efficiencies, we continued to streamline operations throughout our business, and our efforts contributed to a solid CCF margin performance in the third quarter, as I've already mentioned. To date, we've taken approximately $45 million of annualized cost out of our business during 2009. How has that translated into profitability? Year to date our same-store CCF margin is off roughly 300 basis points on a same-store revenue decline of nearly 18%. We are pleased with this performance, especially when compared to the margin performance of our lodging peers.

Over the past 18 months, as we have worked to streamline our operations and reduce costs, we've remained committed to doing so without compromising the service and guest experience that defines our brand. David will provide you a little more color on this. We continue to build momentum from the repositioning of our sales and marketing resources, and Dave will also provide more color on this shortly. But the decision to market more heavily to transient customers, improve on-line bookings, and focus more on bookings in 2009 and '010 has successfully manifested itself into bookings that are replacing the high levels of cancellation we experienced throughout this year.

As I mentioned earlier, our gross room nights production for all future years during the third quarter was about 500,000 rooms, which reflects a decline of less than 1% when compared to the third quarter of last year. Importantly, we expect to see an even more significant impact from these initiatives a year from now.

I'd like to briefly touch on the Gaylord National in Washington, DC, our newest property. The National performed well this quarter, posting solid CCF results and profitability margins. This property continues to gain momentum as it grows its revenue base and tightens its operational efficiencies. We're also encouraged with the overall progress of National Harbor, which is quickly becoming a leading destination on the East Coast. We're confident that this development will continue to deliver even greater success moving forward.

As you are probably aware, we recently conducted a stock offering and private placement of convertible senior notes. It was our view that attractive market conditions presented a unique opportunity to raise capital and enhance our financial flexibility. We are pleased to be able to report that the offer was very well received by both existing and institutional investors new to the Gaylord story, as we raised over $400 million in fresh capital. We also were able to significantly reduce our indebtedness, buying back approximately 85% of our 8% senior notes. The transaction on a net debt to CCF basis reduced our ratio by approximately one turn. So we're pleased with the outcome from these two transactions, and the flexibility that this affords us moving forward.

But more than that, the offering was not designed as a defensive play aimed solely at protecting our financial viability in an awful time. Instead, we will retain a portion of the capital raised to take advantage of the opportunities we believe will exist over the next 12 to 24 months to enter new markets and extend our distribution. While we will continue to take a conservative approach to capital expenditures, we will be well positioned to take advantage of the right opportunities as they become available.

We are encouraged by how our business and our dedicated STARS have responded to the unprecedented economic challenges of this past year, as well as by the early signs of market stabilization. Our leading indicators remain healthy and we have been successful in implementing operational efficiencies, which has enabled us to deliver solid profitability metrics. As such, we're tracking towards the high end of our guidance, which remains unchanged for 2009.

Looking ahead, we have closely examined our business and the factors that could impact it in the months ahead, and continue to believe that 2010 will probably be a challenging year, in which top-line demand will likely be flat. Although we have successfully controlled expense levels in 2009, we expect to see some labor and benefit increases in '10. We anticipate giving more detailed guidance at the end of the year, after seeing our own fourth-quarter results, as well as seeing what is going on in this economic recovery.

Now, with that, I'd like to turn the proceedings over to Dave for some color on our operations. Dave?

Thanks, Colin. Building on what you already said, we are encouraged by how our business has performed relative to the rest of the industry this quarter, and by our ability to deliver solid CCF margins in what is still a very difficult market. However, we are aware that more challenges likely lie ahead, and are focused on continuing to find additional ways to improve our business.

From an operational perspective we remain focused on four key areas -- guest satisfaction, STAR satisfaction, margin management, and revenue generation. These four elements are critical to our business, so let me provide you with some examples of how we are driving success in each area.

Guest satisfaction is a key measure for us when gauging the success of our business. You'll recall that we gauge our guest satisfaction by a percentage of top box scores, in other words, only those people who give us a 5 out of 5. This is a very strict interpretation of satisfaction levels, and reflects the satisfaction of only our most loyal guests. Driving this level of satisfaction is necessary to build confidence in our brand and ensure that meeting planners and groups return to our properties.

This quarter we saw continued improvement in this important metric and we're pleased that, despite a difficult environment in which aggressive cost management is ongoing, our same-store score -- our same-store guest-sat score, was flat when compared to the previous year. In addition, guest satisfaction at the National continues to be on the rise, rising to levels rivaling those of our other, more established properties.

As we discuss every quarter, our customer satisfaction scores and industry-leading service are a direct result of the effort of our employees, or STARS, as we call them. We continue to invest in our STARS, and have recently instituted a number of new on-site services. One such service is general health screenings and wellness advice. These wellness initiatives improve the health and wellbeing of our STARS, while helping us to drive down costs of our business over the long term by mitigating health care cost increases. We also work hard to communicate regularly with our STARS about the progress we're making as a company, engaging them in the future of the Company and celebrating our accomplishments helps them to see directly how their efforts help us move our company forward.

Now let me move on to our efforts to drive revenue. Our efforts over the past 18 months to eliminate inefficiency and costs have enabled us to maintain solid margin performance. However, we've been keenly aware that the greatest opportunity in the current economy is on the top line. Our efforts to drive revenue have made a difference in our gaining momentum.

First, we've increased our focus on maximizing the revenue that we capture from groups while they're staying at our properties. Given that these guests are already on site, we're enhancing our pricing and packaging opportunities to entice meeting planners to purchase additional banqueting events and for our guests to partake in our many quality outside-the-room offerings.

Second, our shift toward short-term bookings has continued to deliver results this quarter. The short-term incentive program that we implemented for our sales team have been successful in replacing some of the group room nights which we have lost due to cancellation and attrition, and they're helping to drive room nights for 2010. In fact, as we entered the fourth quarter, which is a historically good quarter for booking future room nights, we had 44 points of occupancy on the books for 2010 at an average rate of $179.

Now, you may wonder how this compares to the same time in 2008 for 2009. At this time last year we had about 50 points of occupancy on the books for 2009. But ultimately, as the economy worsened, a large percentage of these rooms ended up attriting or canceling, and over 3 points of that occupancy were lost to cancellations. While we don't anticipate the level of cancellations we saw earlier this year, we have reduced our expected group attendance in 2010 to reflect the poor economic conditions that we have seen for the past 12 months. In doing so, we have reduced our points of occupancy on the books. In other words, the existing 44 points of occupancy on the books already reflects an anticipated higher level of attrition than the 50 points of occupancy that was on the books this time last year.

Regarding our average group rate on the books, because of the elevated levels of attrition and cancellation that we've seen, 2008 doesn't provide -- excuse me -- rate on the books in the fall of 2008 really doesn't provide a very good comparison for average rate. Instead, let me provide you with a few benchmarks that are helpful in understanding where our rates for 2010 are currently tracking.

As I've already mentioned, as of the end of the third quarter our average group rate on the books was $179. This is moderately better than the average group rate of $175 that has actualized in the first three quarters of 2009. Looking at rates booked during the challenging economic environment of 2009, our average group room rate booked in 2009 for 2010 has been moderately better than the average room rate booked in 2009 for 2009.

So let me remind you that the average rate is only one component of our business, as 60% of our revenue is generated outside the room. Therefore, we remain focused on developing long-term relationships with customers that derive substantial outside-the-room spend while they're meeting and staying at our hotels, and we continue to remain focused on those packaging and pricing opportunities I mentioned earlier to help maximize spend opportunities within our hotels for our customers.

Now, finally, we've been spending a lot of time refining our marketing tactics this year and, as a result, we've centralized our marketing team. This centralization effort will enable us to optimize our advertising and promotional spend and allow us to leverage expertise on both the group and transient front to drive increments of room nights across our business.

We're in the process of modifying the look and feel of our current web site, which will provide a more efficient, user-friendly experience for the customer and will drive more branded web bookings. The new site is scheduled to launch during the first quarter of 2010 and is one example of our efforts to increase the effectiveness, i.e., driving more bookings at a lower cost, of our online presence and our offerings.

So finally, let me share with you how we're continuing our focus on margins and profitability. First, we continue to strategically focus on the aggressive collection of attrition and cancellation fees, those fees that are -- without risking dilution of our strong relationships we have with our key customers. We are closely tracking attrition fees ahead of meeting dates and engaging our clients in discussions of our penalties, or of our potential penalties, ahead of time so we can mitigate the financial impact to our business from lost group room nights.

Regarding costs, we've remained focused on reducing costs within our business, and continue to increase operational efficiencies. A few examples of these operational efficiencies are things such as -- as occupancy levels stabilize we are purposefully delaying filling any open positions until they're mission critical to the overall guest experience. In addition, we also have recently centralized our Gaylord National call center into the Opryland call center to drive cost savings and also to drive more effectiveness. We're also in the process of deploying a common procurement system across our hotels, which will enable us to better optimize our brand buying power. And, in so doing, we have also renegotiated most of our outsourced vendor contracts in order to receive contract pricing adjustments.

We will continue to be vigilant on the cost side as we monitor the direction of the industry and the overall economic climate. And, even though we're encouraged by the signs of stabilization we're seeing, the market remains somewhat unpredictable and we are -- we remain prepared to implement additional cost savings if we think it becomes necessary.

Now I'll turn the call over to Mark.

Thank you, David.

As I've done in the past, I will review the financial performance of our business during the quarter and take you through some highlights from each of our properties.

On a consolidated basis, Gaylord Entertainment performed in line with our expectations, delivering revenue for the quarter of $199.1 million, down 12.2% from the same period last year. Consolidated CCF in the quarter increased 2.4% to $40.7 million.

As Colin discussed, the industry continues to feel the impact of the economy in the third quarter, as evidenced by RevPAR declines in the upper upscale segment of 18.4% and the upscale segment of 18.2%, as reported by Smith Travel Research.

Gaylord hotels also faced headwinds during the quarter, but outperformed its industry peers with a RevPAR decline of 9.6% and a total RevPAR decline of 10.7%, as corporate group guests continued to manage costs.

From a CCF perspective, Gaylord hotels consolidated cash flow increased slightly to $46.5 million compared to $46.3 million in the same period last year. Our CCF performance was primarily driven by continued margin improvement at the National, the continued collection of attrition and cancellation fees, and aggressive cost management at all of our properties. These efforts resulted in a 25.5% CCF margin, an increase of 280 basis points when compared to the third quarter of 2008.

We saw same-store cancellations improve significantly in the third quarter, totaling 14,375 room nights compared to 29,381 room nights in the second quarter of 2009 and 23,777 room nights in the third quarter a year ago. Same-store attrition in the third quarter was 9.9%, which showed signs of improvement from 14% in the second quarter of 2009 and 10.6% in the third quarter of last year. During the quarter we collected approximately $2.7 million in attrition and $1.6 million in cancellation fees for the brand. Although we continue to benefit from attrition and cancellation fees, these fees are more in line with historical averages this past quarter.

Now, let me quickly walk you through the performance of our individual properties, starting with Opryland. Opryland generated revenue of $54.5 million in the third quarter of 2009, compared to $64.2 million a year ago. Third-quarter RevPAR decreased 12.2% (sic - see Press Release) largely driven by a 7.9 point decline in occupancy, which was impacted by group cancellations and attrition. Total RevPAR in the quarter declined 15.1%. CCF at Opryland decreased 11.7% to $14.4 million. The resulting third-quarter margin for Opryland was 26.4%, which was a 100 basis point increase from a year ago. Opryland CCF in the quarter benefited from a continued focus on cost management and a $1.2 million favorable adjustment for lower property tax rates.

Now, looking at the Palms in Florida, in the third quarter the Palms posted revenue of $30.4 million, down 13.1% versus prior year. Occupancy declined 10 points for the quarter as a result of group cancellations and attrition. Group ADR in the quarter increased 2.4% versus the same period last year, but was offset by 11.4% decline in transient ADR, due to the highly competitive Orlando transient market. Despite the decrease in revenue, continued focus on cost management at the property resulted in a CCF margin of 18.6%, a 190 basis point increase compared to the same period last year. The property delivered CCF of $5.7 million, compared to $5.8 million in the prior-year quarter.

As for the Texan, revenue was $39.5 million in the third quarter of 2009, a decrease of 15.6% from $46.9 million in the prior-year quarter. RevPAR in the third quarter declined 10.8% compared to the same period last year due to a decrease in ADR. Occupancy in the quarter was flat at 72.8%. The property delivered CCF of $10.9 million compared to $12.9 million in the prior-year quarter. Continued cost management at the property resulted in a strong CCF margin of 27.5%, which was flat with prior year.

And finally, turning to the National, as Colin discussed, the National delivered another solid performance this quarter, as guests and meeting planners continued to embrace our newest property. RevPAR for the quarter declined 2.5% over the third quarter of 2008, driven by a 3.4% decline in ADR. Total revenue for the quarter was $56.0 million, an increase of 0.6% over the third quarter of last year. CCF was $15.2 million, an increase of 42.1%, (sic - see Press Release) driven by tighter operation efficiencies and resulting in a 27.2% CCF margin, an 800 basis point improvement over the third quarter of 2008. In spite of a difficult environment, the National continues to progress and mature, delivering another solid performance this quarter.

In the third quarter, the Opry and Attractions produced $3.3 million of CCF. And while CCF production in the third quarter of 2009 was down versus prior year quarter as a result of revenue declines, our Opry and Attractions segment increased its CCF margin by over 90 basis points during the quarter.

Now, let me briefly discuss our balance sheet. As of September 30th the Company had long-term debt outstanding of $1.5 billion and unrestricted and restricted cash of $469.6 million. Our liquidity position is solid and we have no significant debt maturities until 2012.

As Colin mentioned earlier, during the quarter we conducted a public offering of 6 million shares of common stock. The offering was closed on September 29th at a price of $21.80 per share. We received aggregate net proceeds from the sale of approximately $125.0 million, after deducting underwriting discounts, commissions, and expenses. We also received net proceeds of approximately $316.2 million from a concurrent private placement of $360 million in aggregate principal amount of 3.75% convertible senior notes due in 2014.

With the proceeds from the offerings together with cash on hand, we intend to purchase, redeem or otherwise acquire all of the $259.8 million aggregate principal amount outstanding 8% senior notes due 2013. On October 21st we announced that we had accepted the purchase of $223.6 million in principal amount, or 86% of these notes, and we've called for the redemption of the remaining balance.

With that, I will turn the call back over to Colin for any closing remarks

You know, Mark, thank you. David, thank you. Melissa, let's get to the questions so we can let folks get back to their business.

(Operator instructions.) Chris Woronka; Deutsche Bank.

I was hoping maybe, Colin, maybe you could comment a little bit further on your outlook for I think what you termed as opportunities to potentially acquire assets, just kind of remind us what the criteria are. Is it a market you're looking at? Is it a return? Is it something else? Is it all of the above? And kind of how we should view that relative to your potential opportunity in Mesa. Thanks.

Chris, thanks. Simple question; reasonably complicated answer. First and foremost, return is at the top of the list. We're not going to do anything for distribution and only distribution. We're obviously looking at -- distribution is important. But it is our belief that there are multiple hotels across the nation that were built over the last 5, 6, 7 years, acquired over the last 5, 6, 7 years, that are now operating way below what their pro formas were initially determined. And we think that there are some -- there will be some opportunities here over the next 12 to 24 months to pick up, selectively, assets in some of these markets.

But the key for us is this -- we've got this small group of consumers that rotate from market to market. We want to make sure that wherever we go we go to a market that these folks want to go to. And we will obviously be trying to acquire assets on a multiple of current cash flow and it will be our view that we could improve the quality of those assets because we believe our delivery system has strength. And so that's the hypothesis. And we're looking at multiple markets at this moment and we have a list of assets that we think would be attractive to us. And as those assets shake loose or those assets need to get refi'd, we will look and study and make a determination as to what best fits our strategy.

Okay, great. Another high-level question for you, Colin. How much do you think the impact is from Las Vegas, in terms of we know they've obviously been fairly promotional and continue to be promotional. And yet from -- your forward data points are reasonably encouraging as well. Is Last Vegas -- how much of a threat do you think that is to your business in the next year or two? And -- or is it more a case of that there's room for everyone? Is it other markets that are losing or other players? Or how would you characterize --

Yes. Yes, yes. That's a very good question. And one of the things that I would take you back to, and you've heard this because in some of the analyst gatherings we've had over the last several years we've talked about this. And this is the analytical work we did several years back, understanding the desire of the convention customer. And prior to this downturn there were approximately 24,000 of these large star accounts that rotate from market to market.

Now, remember, 50% of those, approximately 50% -- 48% of those customers have a desire to go to Las Vegas. The others never want to go to Las Vegas. And so Las Vegas -- if Las Vegas goes crazy on its discounting and its -- and the new supply that's coming into this market, that will be potentially attractive to approximately 50% of the group industry. But the other 50% it won't, because these are the people that don't want to go to that market. So the issue for us is knowing who the customers that don't want to go to that market are, and being very focused and targeted towards them. And that's what we've been doing. If we ever find ourselves in Las Vegas, obviously the other 50% of customers that do want to go there, we know who they are. And that will be obviously attractive to pick those customers up if we ever get into that market.

So that's how I would describe it. We don't see it as a sort of a systemic issue. It's going to be an issue for the next 12 to 24 months as all this new supply comes on and these folks in Vegas will "cutting each other's throat." But I don't think it's going to materially affect our business.

Yes. And Chris, just to back up that last comment of Colin's, the behavior of Las Vegas, meaning being very aggressive from a pricing and concession perspective, is not new. I mean, they've been extremely aggressive since the downturn began back in -- post-Lehman collapse. And nevertheless, you see that this quarter our gross bookings were roughly equivalent with the gross bookings we did last year. So we're continuing to be able to sell room nights. We're continuing to be able to sell room nights at prices that we think are good prices for our business. And we do run into Vegas quite a bit, but so far we've been able to find an appropriate amount of business to come our way that isn't so much focused on getting the cheapest price, which may be Vegas.

Got you. That's very helpful. Thanks, guys.

David Katz; Oppenheimer.

I think you may have just started to address my issues. But, have you commented at all about the notion of wanting to own in Vegas? As we look at it now, clearly that market is closer to a bottom than where it was white hot a few years ago from a cost perspective. And I think you may have just touched on the notion that there are some flow benefits from your groups and customers. But would you consider owning a piece? And how would you sort of go about sort of entering that market? What are the range of potential ways to do it?

Yes. David, thank you. Good morning.

Good morning. Nice quarter, by the way.

Thank you very much. You know, the quarter's a result of all the work that our folks have been at for the last 12 to 18 months, probably back two, three years ago, all the bookings we put on the books. But, thank you.

The issue of Vegas -- I'm not going to get in -- and this won't surprise you. I don't think we should get into too much detail here, but we've been consistent in analyst gatherings over the last two to three years by saying that there's many, many, many of our customers that rotate out of our system when they go to Vegas. We've got a lot of customers in our database, loyal customers of ours that go to Las Vegas. So we believe if we end up in that market, we can deliver a bunch of customers into that market.

Is that market something that interests us? It is. There are probably, as well, five, six, seven other markets in the United States that interest us as well. The issue is one of making sure that whatever we do generates very high returns for our shareholders. And there are, obviously, other complicating features about that market, i.e., are you in gaming or are you not in gaming. And I'm not -- we're not going to get into that right now. We understand -- because of the management experience we have in this company, we understand the implications of that question. But it's something that we're looking at.

And my sense is that the bottom of Vegas hasn't yet come. My belief is the bottom of Vegas will probably be more like next year than this year. And the reason I say that is I think that the supply [shock] that is about to occur will create some challenging opportunities for those that are in that market today. And it's something we're just going to watch and observe and we're not going to crazy and panic about.

Okay. And I apologize if this may have come out in your answer with Chris, but I was in and out. We were curious about the timing and size of the bookings that are out there. Given the focus on very close-in bookings and then from some of our work a sense that there is a focus on 2012 and beyond, rather than '11 being left in the middle and even next year, to some degree, being left in the middle.

And then, of these, in terms of group size, are these groups the same size, shrinking? Or are you filling them in with smaller ones? How is that rolling out?

David, do you want to take that?

Sure. Yes, David, I'm just trying to think through your question and give you the most efficient answer.

I apologize. It was about nine different questions.

Talk about size first, Dave, I mean, what we're seeing in terms of general --

Yes. Generally, the groups that we're booking are very similar types and sizes and groups that we've seen over the past 12 or 18 months. What the slight behavior difference between now and what we saw 18 months ago is, if a group is talking about booking 2014, as an example. So that's five years from now. If we were talking about that in 2008 or 2007, the group would have projected that there group is going to grow 3% or 4% a year, so they're going to book room nights that would accommodate that growth in the size of their group.

Today they're generally saying, "I'd rather book what I know I did this year from an attendance perspective, or maybe a slight premium to what we did this year." But they're not kind of projecting out that 3% to 4% annual growth. So the groups are still of significant size. They just may not book the growth factor that they may have considered a year or two ago.

The volume of those groups that we're continuing to discuss bookings with continues to grow as well. The lead volume that we see kind of coming in to our -- kind of through our national sales force and into our property sales teams continues to grow. It's still running at a slight discount to last year's levels of leads, but our conversion rate has increased. So our bookings levels, as you saw earlier in our call, are roughly equivalent to what we did this time last year.

The distribution of those bookings has been focused a bit more so on the shorter term than the longer term. And the reason for that is we believe -- our market view is that we're better off trying to fill occupancy in the shorter term and trying to hold more availability in the longer term with a view that the economy will recover and we'll be in a better position to negotiate price and terms at some point in the future. So you are seeing a slight change in distribution of those bookings than what we had seen in the past. But if our former average booking window was nearly three years, you're probably seeing that moved by less than half a year to maybe 2.5 years.

David, let me add just one thing. The other thing, David is -- David Katz -- the other thing is this, that we know these large groups, these associations particularly, these groups that are our current customers, that rotate with us, we know some of those organizations in fact do want to book in '13, '14, and '15 now and we are booking them, because we want to keep those loyal customers of ours into those time periods. So David's exactly right; our focus has been on the short-term, but we aren't seeing huge material changes in our customers' behavior.

One last follow-up, if I may. As you negotiate those groups, can you just talk about how the different aspects of the negotiations are evolving? Are people beating you up more for price or -- on rooms -- or are they beating you up more on softer issues such as attrition allowances or other throw-ins or other flexibilities?

Beating us up, David, that implies an adversarial relationship.

Our customers love us.

So I'm not going to characterize anything as beating anybody up. But I will say that as we're discussing future periods, there is a higher level of focus on some of those contract terms like attrition or guaranteed room blocks than there has been in the past. And that's exacerbated in the short term by a lot of our competition, who've offered next 12 months free attrition, those kind of things.

So, again, the world view of this management team is the next 12, maybe 18, months are a period where we're going to continue to see pressure on price, pressure on terms because there still is modest demand growth relative to supply growth. So as we look at things kind of in that shorter-term window we are willing to provide more flexibility around some of those terms than we would have two years ago. But as we're looking out to [T-plus-three] and beyond, again, we think that we're better off sticking to our knitting with those types of groups and those types of contracts, because we know as we get closer to that period of occupancy we'll be able to fill that business.

Okay. And last one, I promise, and then I'll give someone else a chance. The DC property, obviously that was some pretty good margin gain. Have you sort of any updated thoughts regarding where you think a reasonable aspirational peak margin might be at that property?

No.

Okay. Thank you.

Thank you. No. Simply said, so much of that hotel's future is going to be determined by what on earth happens broadly across this country from an economic perspective. But if we're able to accomplish mid-20 margins with 65 points of occupancy on the books, it's very obvious that this business, this hotel, if you can -- if we can get it more back to pushing to 80, becomes a very profitable enterprise. But we haven't talked about explicits around margins. But, thank you for the question.

Okay. Thanks.

Jeff Donnelly; Wells Fargo.

Actually, if I could circle back to Vegas just quickly on one question. I was just curious, have you seen a pickup in volumes at your hotels because that destination was something of a -- kind of a political hot potato earlier this year? And, I guess, do you feel that's behind us as an industry?

You know, Jeff -- good morning. We've been asked that question Lord knows how many times, and I think we've answered it this way. We've seen -- we saw after the original -- the early comments last year coming out of the White House -- we saw some inquiries, a few tens of thousands of room nights of inquiries, but that's really it. I mean, we haven't seen a wave of business piling out of that location.

And I guess to add to the shared misery of all of us in the first quarter, for every inquiry we had of a group that was looking for some alternative to Vegas, we had one or two inquiries from existing customers to say, "Gosh, the political pressure is so high, I'm thinking of canceling my meeting entirely," for -- that -- our existing customers. So is that behind us? Certainly the political pressure I think is behind us. I think there still is, from a customer's perspective, some general desire at least for the short- and medium-term, to look for "safe markets," markets that are harder for them to be criticized about choosing. And I think Vegas certainly fits in that category.

And then, I guess, to switch it over on pricing, it seems to be the overriding concern, I think, these days on -- at least in my perspective -- on investors' minds, not so much your bookings going into future periods. What we're hearing out of the other brands, the Marriotts and Starwoods, is they keep talking about how transient rates in given markets or hotels are below group rates, and these are many of the places that are competitive with, I would argue, with Gaylord's properties. And I think what they're implying is that the group segment for their business is going to be weak relative to the transient segment over the next, say, two to three years until that relationship realigns. I guess, what do you think about that premise and what the implications are for Gaylord?

The behavior we're seeing out of a lot of our competitors supports the thesis that because transient rates are lower we need to go chase more group business, and we're going to be really aggressive about group business. In certain markets, there are groups -- excuse me -- there are competitors that are doing very -- behaving very unusually with respect to the kinds of offers and incentives they're giving groups to come their way.

I'll go back to our kind of world view, our thesis here, and that is that over the next 12 to 18 months things will continue to be competitive. And we -- it will still continue to be hand-to-hand combat to make sure that we're locking in business over that short term. Over the longer term, we should see that supply and demand equilibrium come back and we should start to see the brand start to switch more of their inventory allocation back toward transient demand and more away from group demand.

And our view is, if they're going to be -- if they're going to offer kind of noneconomic terms to lock in group business, we're going to let them have that, because when 2013 or '14 comes along and they're locked in a $99 a night or whatever the discount they gave was, there still will be a lot of other groups for us to fill our hotels with.

One of the brands actually was making the statement that they were thing about -- I think it's to your point about sort of holding off on backing group business right now, because they thought that pricing power would improve if they went after that same business a year from now. I guess is that your sense, that it's best not -- I know it's sort of different for you guys -- but is it best not to chase it too hard at this point?

You know, intuition would tell you that's right, but if you're a roulette player in Las Vegas, it's like sort of saying, "I'm not going to make a bet this time, because next time I've got a greater chance that it turns up on red." We're living in a very, very difficult economic environment. And we don't believe we're in the gambling business. What we want to make sure is that next year we've got high levels of utilization in our hotels next year and the year after, with group business. There's a discernible difference between a transient customer that pays $150 a night at our hotel, and a group customer that pays $150 at our hotel. We get so much more money outside of the room from that group customer.

So what we're seeing -- I was talking to Randy Smith two days ago -- Smith Travel. Randy was telling me that what's going on in the upper upscale and the luxury is they're booking a lot of transient business because people are trading up. These hotels have discounted and people are trading up. And fortunately for us, we've got great assets. And people like to stay in our hotels. And if we charge a decent price on the leisure -- on the transient side, we seem to be able to book a bunch of customers. We're doing that.

But our focus is on the group side. It will continue to be focused on that. That's the profitable side of our business. We're booking lots of business on the group side. We're booking stuff for '10 and '11. David was clear, I think, that in the out years, '13, '14, '15 we're booking our regular customers. And that's all reflected in those 500,000 room nights that we booked in the third quarter. But we are not discounting the living daylights out of our business in the '12, '13, '14 period of time. We're just not doing that.

And just, if I could, like one or two more quick questions. Dave, in your remarks you said that 2010 rates booked this year a little better than the '09 rates booked this year. Are you able to tell us what that trend has been as we've moved through this year? I mean, have we had more, I guess, pricing power? And I guess the second part of that, can you tell us how 2011 rates compare to 2010 in business booked this year?

On the -- I don't want to give too much detail on pricing and how it trends, because that starts to give groups kind of a roadmap to how to discuss pricing with us. So I'm going to be a little bit circumspect. But I will say that as we've gotten through the year, the first quarter obviously was a pretty major shock from an overall pricing and demand perspective. And it has -- those terms have improved somewhat and narrowed the gap between kind of '09 and '08. As we get into the rest of -- as we start to compare ourselves, fourth quarter of 2009 -- I've got to make sure I've got my years right -- 2009 to fourth-quarter 2008, you'll start to see a lot closer comparisons, I think, from a price perspective because that's kind of post-Lehman shock and of course everything else. So I think from a pricing perspective we're comfortable saying that we're running a slight premium from a '10 -- from bookings from '10 versus bookings for '09 in '09. And that trend we think will continue.

And Jeff asked about '11. And the answer to the question, Jeff, is that what we tend to be booking '11 for is materially better than '10. But there's another complicating issue here and that is [pattern], because we've got more availability in '11 than we have in '10. And so if people -- more availability in the periods of time customers want to come, but the rates that we're booking '11 at today are materially north of what the rates we're booking '10 at.

That's a good sign. Now, but if your 2010 rates are looking better, I guess why do you expect -- oh, maybe I'm misreading the term. In the release it said top-line demand would be flat next year. I guess that means you think rates would be better but your absolute attendance might be a little softer?

Well, we're kind of looking into a fog right now in terms of what the future looks like. Our general belief is that we're not going to see the cancellation shock that we saw in the first quarter of 2009 again in the first quarter of 2010. So while our pace, as we talked about earlier, is behind by about 6 points, some of that gets made up by the cancellation differential. The other piece that we're assuming for next year, or that we believe for next year, is that attrition is likely to get a modest amount better, but probably not materially than it has been over the last six or eight months. So we're not expecting a huge, positive benefit from an attendance perspective and we're expecting that rates will continue to be challenging to maintain over the 2010 period.

Let me just add to that. Dave said "looking into the fog." The facts about our business are this, that I think that certainly from quarter two, quarter three, our performance to the rest of the industry has been pretty good. What we're seeing right across our business, we're seeing attrition rates currently falling. We're seeing cancellation rates slowing. We've seen our booking pace, which is healthy. We have a decent book of business on the books. Our customers like us. They respect what we do. But the fact of the matter is, we're operating in the worst economic time this country's seen since the 30s. And it would be silly for us to pretend that his economy is going to be V-shaped in its recovery.

And so we're being cautious and I think we said at the end of the second quarter and some of the investor trips that we've done, we're managing 2010 as if there's no material change to 2009. So if the economy does start to pull out and we see demand picking up, 2010 will be a good year for us because of the fundamental trajectory we have in our business. If this economy -- if we get into a double dip, we get into a health care plan, a health care fix that creates increases in costs to organizations like us, we have no control over that. So our cautiousness, our caution about '10 is really just a function of the unknown for us. The things that we're in control of we're pretty confident are going to flow through in our business next year.

Thank you.

Kevin Milota; JPMorgan.

Most of my questions have been asked, but was hoping you could provide a little bit more color on bookings for 2011, just how many points of occupancy you have on the book and what you have remaining to sell off?

For 2011, Kevin, we've got about [35 points] (corrected by company after the call) of occupancy on the books right now.

Okay. Thanks so much. Appreciate it.

Thank you. It's pushing 10:00, Melissa. Let's have one more question and then what I would suggest for anyone else that have questions, they can get hold of Mark Fioravanti or Patrick or call Dave or myself here. I think everyone who are shareholders have our numbers. But let's have one more question and then we'll shut this call down.

Bill Crow; Raymond James.

I'm going to ask a two-parter. First of all, are you seeing any associations --

Hello? Melissa?

Mr. Crow?

Are we seeing any associations --

It seems as if his line has disconnected. Do you want to take the next question in queue or did you want to go ahead and end?

Let's have one more question and hopefully they stay on.

Susan Gutierrez; JMP Securities.

I was wondering if you could give us a sense of how much you expect costs to increase in 2010, and if there's any costs that might drop due to some of the cost-cutting initiatives implemented in 2009?

Do you want to take that, Mark?

Well, as we look out at '10, certainly we're anticipating seeing some cost increases as it relates to health care costs and benefit costs for our STARS. We're also anticipating having some merit increase cost increases for STARS in terms of labor. And that's an area where we had focused some effort this year and had had limited salary increases given the environment. Beyond that, we're anticipating typical increases as it relates to things like energy and vendor costs, et cetera.

But there's no exceptional new competencies we're putting into the businesses that are going to cost us an extra $3 million, $5 million.

Correct.

It's just reflecting the fact that from one year to another, particularly this year, where we've really held back things like merit increases, stuff like that, incentive compensation, we plan to do that next year. And so these are marginal increases in cost. These are not major increases in cost.

Okay. If I could just ask one more. In terms of the National, should we assume growth simply because that's still ramping up, or are (inaudible) than that?

What we would ask you to do -- we're not going to get into directionally talking about the National until we give broad guidance, which will be, as Mark and I said, towards the end of this year. And really, the issue for us, Susan, is we want to get through the November/December timeframe. Our October across the board has been pretty decent again. The same sort of stuff that we talked about this morning for the third quarter we've seen in October, from a positive perspective. And so we want to get through this more leisure-orientated two months and then we'll give full guidance towards the -- right at the end of the year. And we'll be doing that. And at that time we'll talk about Washington. But as we sit here today, we're encouraged about that hotel. And we continue to be encouraged by the way our customers are responding to the quality of that asset and the substantial improvement we're seeing in customer satisfaction. So you can read between the lines as to how we feel about Washington, but the facts and the numbers will be forthcoming.

Okay. Thank you.

Thank you very much. Melissa, let me just say to everyone, thank you for spending the time this morning listening to what we're up to. The Company -- we're getting through this mess, this economic mess that we've all had to deal with. And our business is in pretty good shape. And we'll continue to, we believe, over the months and quarters ahead, continue to strengthen. And thank you for spending the time with us this morning.

Thank you for participating in today's conference call. You may now disconnect.