Ryman Hospitality Properties Inc (RHP) 2011 Q3 法說會逐字稿

Welcome to the Gaylord Entertainment Company's Third Quarter 2011 Earnings Conference Call. Hosting the call today from Gaylord Entertainment are Mr. Colin Reed, Chairman and Chief Executive Officer, Mr. David Kloeppel, President and Chief Operating Officer, Mr. Mark Fioravanti Executive Vice President and Chief Financial Officer, and Mr. Carter Todd, Executive Vice President and General Counsel.

This call will be available for digital replay. The number is 855-859-2056 and the conference id number is 99883914. (Operator Instructions). It is now my pleasure to turn the floor over to Mr. Carter Todd. Sir, you may begin.

Thank you. 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 2011 earnings call. You should be aware this conference call may contain forward-looking statements within the meaning of the Private Securities and 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 2011 earnings release. And consequently actual operations and results may differ materially from the results discussed or projected in the forward-looking statements. Gaylord Entertainment under takes 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 to the most directly comparable GAAP financial 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 our Chairman and Chief Executive Officer, Colin Reed.

Thank you, Carter and good morning everyone. I would like to start by briefly running through our results for the third quarter and then move on to how we're viewing our business for the remainder of the year and also for 2012. Then our President, Dave Kloeppel, will offer some color around our sales and marketing activities. Mark Fioravanti, our Chief Financial Officer, will conclude our prepared remarks by providing detail on our financial results for the quarter as well as guidance for 2012. And then of course, we'll open up the lines for questions. Now let me discuss, first the easy part of the call this morning, namely Gaylord Opryland and Gaylord Texan. Both of these hotels posted record levels of CCF and are both on track to achieve their best annual CCF performance on record. And given this economic environment, we're very proud of this performance. Now, on the other hand, Gaylord Palms and Gaylord National delivered results below what we anticipated when we issued our guidance last November and again back in August. So the question you may be asking is whether or not there's any systemic issue with the group industry or, indeed, with our brand.

Now, our record results at Opryland and Texan would surely indicate that this is not the case. The problem that we've been wrestling with in both Orlando and Washington, D.C. is that the markets have continued to face challenges particularly as it relates to the group business. And in the case of Washington, D.C. the market has been disrupted throughout 2011 by the debate around the looming Federal budget cuts. This widely publicized debate has to a large extent shutdown in-the-year, for-the-year, government business and negatively impacted the spending behavior of government groups that do travel. In fact, according to Smith Travel research the D.C. market as a whole had another dismal quarter suffering the second lowest RevPAR growth of the top 25 markets in the country. Beyond market wide challenges both properties continue to be affected by a less favorable group mix.

To remind you all because of our group-centric model, business we have serviced this year was booked on average two to three years ago. Two and three years ago we were in the midst of one of the worst recessions in this country's history. It was a time when corporations by and large were not booking large conventions and meetings. So you may also remember -- let me say that again. Some of you may also remember that this was also a time when there was a lot of negative political rhetoric regarding where and how organizations should hold meetings. As a result a higher mix of association and SMERF business was booked than normal simply because large corporate meetings were being canceled and -- or deferred. Fortunately we're finally moving through the last remnants of this less profitable association and SMERF group business. However, as economic fears began to once again spread back in August these grew a little more cautious in their outside-of-the-room spending and total RevPAR at both Gaylord Palms and Gaylord National were negatively affected.

It is also important to note that both properties benefited in the third quarter in -- of 2010 for groups that were relocated from Gaylord Opryland following the flood. Some of these room nights were truly incremental to occupancy and, therefore, creates some distortion in comparing 2011 to 2010. Now, let me walk you through why we believe things at the Palms and at the National are about to improve. First, we have reached a point in the recovery cycle where the less profitable business I just mentioned will give way to the higher-rated more profitable group room nights booked as the group -- as group business began to recover.

As an example the group room night rates we are currently booking for 2012 and 2013 are already higher than what we were able to book last year during this time for 2011 and 2012. This shift should translate into improvement in rate as well as -- as well as outside-of-the-room spending. The second reason we anticipate improvement is due to the strong business that we have already booked for 2012 at both Gaylord Palms and Gaylord National. We currently have more group room nights on the books than at the same time last year and at a higher rate at both properties. Now, to illustrate let me remind you that we typically like to enter a year with approximately 50 points of group occupancy already on the books for a given property.

As of the end of the third quarter Gaylord Palms had already secured over 51 points of group occupancy for 2012. Gaylord National is in an even better position with nearly 53 points of group occupancy already on the books for 2012. Additionally, the room nights that remain to be booked in order to achieve our own internal expectations at both properties occur primarily in the back half of 2012 over periods that have historically seen strong demand. With lead volumes steadily rising at these two properties as well as across our brand we believe that the outlook for 2012 will continue to strengthen. Additionally, Gaylord Palms will enter 2012 almost as a new hotel.

In January the property will complete the construction of its new sports bar, a concept that has been hugely popular with both groups and leisure customers at our other properties. 2012 will also mark the opening of our completely redesigned resort pool complex and event lawn. We are confident that we will be able to replicate the success of our resort pool at the Texan with this new offering and become much more competitive in attracting the lucrative Orlando leisure traveler. The property will also enter 2012 with approximately 1,100 guest rooms and related guest corridors fully renovated with the remaining finished in time for the spring break travelers. Now based on the overwhelmingly positive response of our guests to the renovations and upgrade to Gaylord Opryland following the flood we are anxious to introduce our guests to the upcoming changes at the Gaylord Palms in 2012.

Now, let me take a few minutes to discuss the performance at Opryland and the Texan. Gaylord Opryland delivered its most profitable third quarter on record and continued to outperform our expectations both in terms of CCF performance and CCF margin. This is its second all time record setting quarter for the property this year and guest satisfaction scores indicate that the property is on pace to continue this performance.

Now, Dave will elaborate on our successful operation improvements for the property but suffice to say that Opryland is running better than ever and the questions some raised whether it would be fully able to bounce back from the terrible disaster of the flood I think have been sufficiently answered. Gaylord Texan also delivered its most profitable third quarter on record as the Paradise Springs resort pool which opened in May continued to be a hit. This offering helped to drive a significant increase in transient room nights which were up over the third quarter of 2010 by 17,000 room nights and helped us deliver RevPAR growth of nearly 18% of the property. As I mentioned earlier we're confident that the success we have seen from this attraction is something that we can replicate at our other hotels as we are expecting to do at the Gaylord Palms.

The continued outperformance at Gaylord Opryland and Gaylord Texan as well as solid performance across our Opry and attraction segment has helped offset the impact of the group mix and market challenges at the National and at the Palms. Therefore, while we're lowering our 2011 adjusted Gaylord Hotels RevPAR, adjusted total RevPAR and adjusted CCF expectations we're shaving $5 million off the CCF -- off the top end of our guidance that we issued in November of last year. Thus, guidance is now $215 million to $225 million of CCF within the range we issued as I just mentioned. Now let me discuss for a second what we're seeing for the fourth quarter. As we have told you in the past, we believe that we are positioned for a very strong fourth quarter.

At Gaylord National we entered the fourth quarter with more group room nights on the books for the period than traveled all of last year and a rate for those room nights reflect nearly a 10% increase over this time last year. At Gaylord Palms we're in line with our numbers for the fourth quarter when you adjust for the rooms that will be out of mission due to the renovations but have these secured at a 6% improvement in rate. Now Gaylord Texan the property's strong CCF performance in the fourth quarter of 2010 has created a difficult comparison for 2011 but despite this, Gaylord Texan entered the fourth quarter of 2011 with roughly the same number of room nights on the books at this point last year but has captured these room nights at nearly an 8% improvement in rate.

And now finally Gaylord Opryland which was closed during the flood for a portion of the fourth quarter in 2010 is already seeing strong performance in October and should have another strong quarter. In fact, hot off the press this morning Opryland accomplished just over $1 million a day in revenue in October. Additionally, all four properties will benefit from the launch of the DreamWorks experience throughout the upcoming season. And I think Dave's going to talk about that.

Thus far we have seen promising results from these offerings as both advanced holiday bookings and website traffic are up over last year. We believe these are good indicators that we'll see a boost to our leisure bookings and rate for the last quarter of 2011 and throughout 2012. Now I would like to focus for a second for the outlook for 2012. Frankly, no one has a clear sense of the path the global economy will take over this next 12 months. We're operating an a macro environment that is being driven as much by fear and emotion as it is by fundamentals or fiscal policies. So I'm not going to sit here and try and tell that you we have a unique vantage point that allows us to correctly predict what the world is going to look like a year from now or at what point we will see a broad -- the broad lodging sector strengthening.

What I can do is further elaborate on why we are confident in our business model as we enter 2012 and how a number of positive indicators are coloring this view. In the third quarter we booked over -- just over 435,000 room nights. We also booked 320,000 net room nights, which is over 30% more than what we booked during the same period last year. This is notable because it illustrates that the recent negative sentiment about the economy has not had a significant impact on attrition and cancellation rates. It is also important to remember that even if we do see a true spike in negative economic sentiments our unique model should provide us a degree of revenue protection in the form of attrition and cancellation fees just like it did in the worst of times in 2009. Our booking performance was decent in the third quarter, but it is likely could have been even higher if not for the strategy we are taking with long-term bookings.

To remind you we believe that room rates will improve as the lodging sector strengths and therefore we have been aggressive on room rate for periods in future years that have historically seen the highest levels of group demand. We anticipate this will allow us to secure higher-rated business in these periods, business which typically book within a 24 month window and that when the sector finally shows meaningful improvement we will be able to reap the full benefits of a recovery as opposed to compromising on rate in the near-term. We're also optimistic about the outlook for our transient performance next year. 2012 will be the first full year of our DreamWorks experience offering. We believe that this offering can be a true differentiator in the minds of the leisure guests and as we continue to grow and refine the components of it we believe the opportunity exists to successfully fill a greater portion of the holiday and summer periods that are traditionally slower and lower rated group travel periods.

As I discussed earlier, the renovations and upgrades at Palms stronger bookings position from which we entered the year should result in stronger performance for the property -- for the brand. At both Gaylord Opryland and Gaylord Texan it will be difficult to top the record setting year that each property has delivered in 2011 but we expect this positive momentum to continue and anticipate 2012 will be another strong year for both hotels. Gaylord Texan will benefit from a full year of operations at the Paradise Springs resort pool complex and Gaylord Opryland's post flood reputation will continue to strengthen. Finally, as I illustrated earlier Gaylord National is positioned for what should be a much improved 2012 regardless of whether the Washington, D.C. market remains challenged or begins to show signs of life. So all of these elements are contributing to our optimism that our business is poised to perform well in 2012.

Now on the other hand the macro environment, as I said a second ago, remains unpredictable. You just got to look at what's going on this morning in the markets. And as a result the possibility of further unexpected headwinds remains very real. Accordingly, we have been cautious in establishing our guidance for next year. Now, I will let Mark walk you through the specifics around guidance in a few moments. Now let me end my comments by just providing a brief update on our proposed development in Aurora, Colorado.

This quarter we continued to make progress towards bringing the Gaylord experience to the greater Denver region and have completed roughly 85% of the incentive package that will help fund the project. At this stage we're now waiting for the remaining 15%, which is dependent on approval by the State of Colorado under their regional tourism act. We anticipate being notified by March of 2012 whether or not we've been successful. We believe that our proposed development is an ideal candidate for this funding and soundly meets every element of the criteria so we are hopeful that this last hurdle can be cleared and we can move forward with a project we believe will not only be significant for the growth of our business but the growth of the Aurora and Denver communities as well.

It's interesting to note that we are getting quit a few inquiries from our existing customer base who would like to book a meeting into this region. This supports the findings of the meeting plan research that was recently completed which indicates that there is a strong need for a facility of this type in the Denver region. Now, with that I will turn the call over to Dave.

Thank you, Colin, and good morning everyone. I'm going to start by providing some detail on our sales performance in terms of advance group bookings. As Colin mentioned, Gaylord Hotels, including Gaylord Opryland, booked over 435,000 gross group room nights for all future years. Attrition and cancellation levels which stabilized in 2010, improved once again this past quarter as they have been doing all year. As a result our net bookings increased by nearly 33%. As of September 30th, we have roughly 4.8 million net room nights on the books for all future years, and with an improved room rate. Our total rooms revenue on the books is higher than it was one year ago. This is a testimony to the success of our efforts to maintain an aggressive stance on room rates for high demand periods. Our success with this strategy means that we will enter 2012 in a better revenue position than we had as we entered 2011. Additionally with our lead volumes continuing to improve we believe that there will be plenty of demand for rooms that we plan to sell in-the-year for-the-year and they will be sold at an ever improving room rate environment.

Now, Colin commented about our focus and success in the transient segment. A new offering launching this holiday season is the DreamWorks experience. Let me take a few minutes to give you more color on these offerings which have continued to generate excitement since initially being introduced in the third quarter. Many of you may still be unclear as to exactly what the DreamWorks Experience is so let me explain. The program enables families to vacation at Gaylord Hotels alongside character is from DreamWorks films such as Shrek, Kung-Fu Panda and Madagascar.

The program includes live interactive experiences for hotel guests that include special DreamWorks character meals, meet and greets and scavenger hunts as well as our ICE! offering themed around DreamWorks characters. For example, Gaylord Palms and Gaylord Texan will feature Shrek the Halls, while Gaylord Opryland and Gaylord National will feature Merry Madagascar. Additionally we'll be piloting several DreamWorks offerings that if successful will be rolled out to all four properties. For example, the Gaylord Palms and Gaylord Texan will offer a special DreamWorks 3-D theater experience, while Gaylord Opryland will offer a Shrek-themed street party with characters, music and dancing.

Gaylord Texan and Gaylord Palms will each offer indoor snow experiences themed around Kung-Fu Panda as well. So we will evaluate all of these offering after the holiday season and tweak or expand them as appropriate. Additional offering are also being contemplated and evaluated for the summertime introduction in 2012.

We anticipate that the DreamWorks Experience will play a key role in driving improvement in our business during periods of the year when groups typically do not travel. We expect the program to not only drive additional leisure room nights but also to enable us to drive higher rates across our leisure business. While it's still too early to gauge how impactful the DreamWorks Experience will be for our brand, based on our current transient pace for the fourth quarter we're optimistic about the potential of this partnership.

And turning to operations for just a moment the performance of Gaylord Opryland was again a highlight this quarter with a record third quarter CCF margin of 32.9%. This was partially driven by the continued benefits of the operational improvements we made last year on the heels of the flood. For example, our occupancy in the third quarter of 2011 was 6.8 percentage points higher than it was in the third quarter of 2009.

However, as a result of upgrades to our utilities infrastructure electricity and natural gas consumption levels were actually down by approximately 10%. This performance is a result of our investments as well as our focus on sustainability initiatives across our hotels. It's also a testament to the great work of our STARS whose efforts continue to drive improvements in both profitability and guest satisfaction scores. And with that I will pass the calling over to Mark to talk to the financials.

Thank you, Dave and good morning everyone. I'm going to spend a few minutes this morning reviewing some of the financial highlights for the quarter. I'll touch on the balance sheet and then review our guidance for the remainder of the year and for 2012. On a consolidated basis Gaylord Entertainment revenue for the third quarter of 2011 was $225.2 million, a 42.3% increase from the third quarter of 2010.

During the quarter income from continuing operations was a loss of $1.7 million or $0.3 per fully diluted share. The loss in the quarter included a pre-tax $3.5 million charge to dispose of fixed assets related to the development of the new resort pool complex at the Gaylord Palms. The non-cash charge was recorded in the depreciation and amortization line.

Company-wide consolidated cash flow was $48.8 million for the quarter, up $26.9 million from the same period last year due to Gaylord Opryland and several of the Nashville based attractions being closed during the third quarter of 2010 due to flooding.

Turning to the hotel segment, adjusted Gaylord Hotels RevPAR increased 2.1% while total RevPAR decreased 7% in the quarter. Adjusted Gaylord Hotels in-the-year for-the-year cancellations for the quarter totaled 9,861 room nights compared to 11,105 room nights in the third quarter of 2010. Attrition rates decreased to 11.3% in the third quarter compared to 12% in the prior year quarter.

Likewise, adjusted Gaylord Hotels attrition cancellation and fee collections decreased 25% to $1.1 million in the quarter. Adjusted Gaylord Hotels consolidated cash flow decreased to $31.7 million in the quarter compared to $39.3 million in the prior year quarter.

As Colin mentioned Opryland performed exceptionally well and delivered its most profitable third quarter ever. Please keep in mind that the property was closed for the duration of the third quarter of 2010 so there are no comparable results for most metrics. For the third quarter Opryland generated consolidated cash flow of $23.8 million and generated a CCF margin of 32.9%. As it relates to the corporate and other segment, consolidated cash flow in the quarter improved $2.7 million to a loss of $11.4 million.

Moving on to a few balance sheet items, as of September 30th, we had long-term debt outstanding of approximately $1.07 billion and unrestricted cash of $12.1 million. Additionally $325 million of borrowings remained undrawn under our credit facility and the lending banks had issued $8 million in letters of credit leaving $317 million of availability under our credit facility.

Now turning to guidance as Colin stated we are revising our guidance for the remainder of 2011 based on the challenges we experienced in the Orlando and Washington, D.C. markets. As such we're revising our RevPAR and total RevPAR guidance as well our full year 2011 CCF projections for the adjusted Gaylord Hotels segment. We have lowered RevPAR guidance from an increase of 5.5% to 7.5% to an increase of 3% to 5% and we have lowered our total RevPAR guidance from an increase of 4% to 6% to an increase of 0.5% to 2.5%.

In terms of full year 2011 CCF guidance for adjusted hotels we have lowered our guidance from $170 million to $177 million to a range of $164 million to $168 million. For Gaylord Opryland, we're increasing full year CCF guidance to $85 million to $87 million from $81 million to $85 million while maintaining our current RevPAR and total RevPAR guidance. Additionally we're increasing our guidance for the Opry attraction segment to $13 million to $15 million and we're also increasing our guidance from corporate and others to a loss of $47 million to $45 million for a total consolidated company CCF guidance of $215 million to $225 million, which is within the guidance range we have previously provided.

Looking ahead to 2012 based on the trends we're seeing in both the overall economic environment and in our business, we expect Gaylord Hotels' RevPAR to increase 3% to 6% and total RevPAR to increase 2% to 5%. We have set full year CCF guidance for Gaylord Hotels at $265 million to $275 million which includes the impact of completing the room renovation at Gaylord Palms that will result in approximately 9,525 -- 29 room nights out of service for 2012. Our 2012 CCF guidance for Opry attraction segment is $14 million to $16 million and our corporate and other guidance for CCF in 2012 is a loss of $51 million to $48 million. On a consolidated basis total Company consolidated cash flow calls for $228 million to $243 million in 2012. And with that I'll turn it -- turn the call back over to Colin for closing

Thank you. That's a lot of data there. Melissa we'll open up the call for questions please.

Thank you. (Operator Instructions). Your first question comes from Bill Crow of Raymond James.

Hey. Good morning, guys. Couple of questions for me. You talked about rates in 2012 or I would like you to comment on rates in 2012 and I know earlier in the call you talked about your determination to maintain the rate structure despite the economic headwinds and that's kind of what we heard in the second half of 2009 and 2010 and I guess what I'm wondering is looking backwards whether that was a strategic error in trying to maintain rates so that you lost occupancy early in the recovery. Would you do it the same? If you could just comment on the rate structure.

Yes. Let me touch on... Hey, Bill, good morning. It's Colin. Let me touch a little bit on the backward look and then Mark -- or Dave you can tackle rate in 2012.

Look, here's -- the situation. When we were operating in 2009 all of us in this industry, you as an analyst, all of the other executives in the hospitality industry, none of us had a clue how bad this thing was going to get and frankly, in the early part of 2009 as other hotels companies' profitability were falling off a cliff, the rhetoric we heard from the White House, corporations canceling like no tomorrow we were all sitting here in an environment that none of us had ever lived through before and -- so I think all organizations probably did some things in hindsight playing the Monday morning quarter back that we probably wouldn't have done and -- but the difference between today and 2009 is we have lived through this. Our Company when you look at our performance in 2008 we generated $197 million of CCF, in 2009 in the worst recession the world has seen we generated $191 million of CCF. And now two years later you've seen from our guidance this morning we're between $215 million and $225 million.

We have come through this. We know our model works and -- what we have -- would we have reacted quite the same way -- will we react quite the same today as we did in nine? The answer is no because we've lived through it and we know the resilience of our model.

Yes. That's fair.

So the second part of is how things are looking for 2012. And let me just remind you of one thing here, Bill; for every $10 of rate -- of RevPAR we put into our business would be -- with the -- size of our business and the occupancy of our business is $20 million of -- room revenue, and as you know we -- most of that goes to the bottom line. So we're very focused on rates. Mark, you want to talk about 2012?

Yes. In terms of -- in terms of our -- bookings for 2012 and how rate is looking for 2012 if you look at -- if you look at the business on the books that we have currently for 2012 versus where we're forecasting to finish this year in terms of group rate, our business -- we have high -- single-digit rate growth for that book of business currently.

Okay.

So we feel real good about the quality of business that we have going into next year not only in terms of volume but also in terms of rates.

And the obvious question from there is well why is your guidance what it is on RevPAR and the reason for it is we're just taking a cautious view in terms of -- in terms of the in-the-year for-the-year bookings. When you see the daily toings and froings of Europe and the implications on these markets here, we're just being cautious. It doesn't pay us to be aggressive for 2012 in our discussions with you guys.

Right. That's fair. One more question from me, please, and that's the difference between the RevPAR growth and the total RevPAR growth in the quarter and I'm wondering if there's something you can do to adjust whether it's a pricing issue that's -- I mean the groups have been eating and drinking and doing something and what -- was the change in the profitability relative to just the top line? In other words, if they're going for discounted food are you still able to net a similar amount?

Is it yes, Bill. Hey, it's Dave. So what happened in the quarter is when you compare to last year is that a big shift in mix from corporate business to other types of group, mostly SMERF-related business. So that's social, military, educational, religious, fraternal.

Those groups number one just as you compare them in any kind of economic environment, corporate groups are going to spend a whole lot more outside of the room than SMERF groups and then, number two what also happens is those SMERF groups in times like these they tend to especially in the summer when there was a lot of uncertainty about the economy, they tend to really tighten down their events and spend to their contractual minimums in our contracts. So they do that by either cutting off food and beverage events so they don't hold a catering event they would have otherwise hold and instead of holding a catered event, they hold a COD event where we'll roll out kind of a sandwich cart, if you will, and that's grossly understating what it really is but and then they will let their attendees pay out of their pockets instead of having the organization pay and that's what you really saw a lot here in the third quarter was one, the mix shift and two, that kind of reduction in -- catering reach, if you will, where groups were saying look, I know I still have to eat so give me something that I can -- where I can feed my people but I don't want to spend more than my minimum.

And you know, Bill, I hate to say it like this but this is tongue and cheek, I suppose. You know, Mark and I do quite a few analyst conferences and we've noted -- we've noticed the analyst conferences in terms of food and beverage and hospitality are a little bit different today than they were two, three years ago and it's just -- it's just the way this environment is, but -- here's the point.

Two of our four hotels have accomplished the biggest fourth quarter they've ever had in their history and -- two of the -- other two are in markets that are being disrupted the most, and we expect those businesses next year to be very, very decent. So we're being very selective which groups we bring in-house. We have a very clear model and understand those that have a -- high revenue potential for us and we're sitting on top of this. It's just that we made some calls back in 2009 in the depths of the recession, that in hindsight that we probably shouldn't have made but we did it in good faith because we just didn't know-how bad the world was going to get.

Yep. Fair enough. I'll cede the floor. Thank you, guys.

Thanks a lot.

Your next question comes from Jeff Donnelly of Wells Fargo.

Good morning, guys.

Morning, Jeff.

Just a question, I guess considering the visibilities that you have not so much for your demand in the books as a percentage of what's coming in the next year but actually just specific to a given quarter and the reason I'm asking for it is that I think one of the -- advantages to Gaylord's model has always been that it offers a higher degree of visibility to bookings than your peers have more transient exposure, but in Q3 I don't think that really comes through for a lot of people in my seat or investors out there because there seems to be a disparity in people's top line expectations for you and what was realized and I'm not trying to necessarily assess blame. I'm just trying to understand at the start of a given quarter how much of your revenue that's ultimately realized is on the books of at the beginning of that same quarter?

Yes. So, Jeff, it's Dave. So rooms revenue we have a tremendous amount of the expected rooms revenue on the books. The outside-the-room piece, we start to get a sense of it probably 60 days out or so but it doesn't become final until the group is actually on property. And those are the opportunities where we have to either to up-sell the group to different types of catering events. And so as I was mentioning to Bill Crow in the last call, what we saw in this period -- I'm sorry. Let me back up.

And so to evaluate the catering expectation for all those groups, we have history on them, have great history on the ones who have stayed with us, which is roughly half or a little bit more than half the groups who stay with us. And then for groups that haven't stayed with us we get history from hotels where they have stayed in the past so we have a good sense of what kind of program they typically have, what kind of food and beverage they typically are looking to buy and then we'll put -- we'll make our own assessment of what we're hearing from the meeting planner in that 60-day-out period, is the meeting planner sounding more optimistic or less optimistic? And so what happened in Q3 this year if you look at where the changes were, they were primarily outside the -- they're almost entirely outside-the-room with the exception of one which I will comment on in a second and it was -- the outside-the-room experience particularly at the Palms where we based it on what these groups had done at the Texan and other hotels that are in our brand these groups came in and really surprised us frankly, and ended up performing to their minimums in their contract rather than to what they had done in the past over the past two or three years. And so that's what drove a portion of the -- of the mix if you will at the Palms it was that outside-the-room piece.

The other piece that was unusual this quarter was we had a group again at the Palms who were schedule to stay there in the third quarter and because they were launching a product, the product launch got delayed so they asked to move to the fourth quarter which we accommodated because we had space for them at that time. So that's another kind of intra-quarter -- it was an unusual events for us but net-net for the Company it's the right decision but it causes an unusual bump in the third quarter for the Palms.

Is it fair to say for example if we're just using hypothetically fourth quarter of 2011 right now, that if your room revenues are effectively known and you have already within the 60-day window for a portion of your revenues -- your F&B revenues that maybe headed into any quarter that you effectively have visibility of at least say 50% of potential, as much as 75% of your revenues or is it -- am I off base on that? I'm just trying to figure out how much of that is highly visible versus not.

Yes. The group revenue I would say we have -- we have visibility of 75% or more of the revenue.

Yes. Absolutely

Yes.

Okay. And effectively the swing is you could argue is the last months worth's of F&B revenue and whatever transients are there over the quarter?

Correct.

And then, Colin, I'm a probably getting this wrong, but in the press release you were saying that gross bookings for all future periods were flat year-over-year, but I think in your remarks earlier in the call you were saying that group bookings for I think it was just 2012 I think you said the volume was up and at higher rates. Does that mean that -- your bookings for periods between 2012, meaning 2013, 2014 are not as -- I guess as strong as they have been in the past maybe because groups are booking earlier? Am interpreting that right or --

The answer to that -- Dave, you're waving. You want to take it?

Yes, Let me just break down the production for you. So if you look at production what's happening three years out and in, so T+3 and in is pretty consistent with what we have seen in the past in terms of overall room night production. When you layer on our room rate increase revenue is -- in a good place for the near-term period. Near-term buyer definition.

Where production is lower is in the out years, the T+4 and beyond, so for right now we're in 2011 so that would be 2015 and beyond and that's the effect of the overall rate strategy that we've talked about now for two or three quarters, not wanting to take a discount if you will on business that's in 2015 when we expect that we're going to see the types of business that we want to book in that intervening three years until the date of stay.

You know, we're seeing more leads for one piece of business that we're actually booking. We're seeing a lot of people price shop all over the place, particularly into markets like Las Vegas, like Orlando and we're just holding the line on this 2015, 2016, 2017 as Dave said business and that's -- it's not that we're not seeing the business. We could book a lot more business if we were being a lot more accommodating on rate for these out years but we just don't believe this is the right thing to do.

Yes. We see -- we see 20 times the number of leads T+3 and in that we see leads T+4 and out, and we see that T+3 and in growing faster than we see T+4 and beyond. So because the economy has improved somewhat we can all argue how fast it's improved because there's not much lodging supply that's being built, and --

And groups have had pent-up demand. They haven't had meetings and so they now feel they need to have meetings.

That's exactly right. So we're seeing that kind of near-term demand growing at a much faster pace than the longer-term demand and again that gives us -- that gives us confidence that if we -- if we turn down a piece of business that's for 2015, we're going to have 20 more shots at that piece of -- at a piece of business for that period between now and 2015.

That makes sense. Thanks for helping interpret that. Just one last question.

I don't know if you might be able to guess this kind of off the cuff but as it relates to your Q3 results or something call near-term like that if you had to mark-to-market the results -- let's just use Q3 -- as if this was booked in the quarter for the quarter, what do you think that gap would be between the rate you actually reported? The total RevPAR you actually reported and what you might have realized if those rates were actually set right now today as opposed to say one, two or three years ago? I'm just curious as to what that price gap might be.

I know -- I know it will be significantly higher, but.

Do you think it's a 5%, 10% gap or do you think it's substantially higher than that?

It's got to be ten I would think, Mark.

I don't know that we would want to venture a guess.

No. I don't know. We'll have to -- that's not a question that we have come across before, Jeff. We will have to take a look at it.

Okay. Thank you, guys.

But it is significantly higher.

Thanks.

Your next question comes from David Katz of Jeffries.

Hi. Good morning, all.

Hey, David.

I wanted to just ask about a comment earlier from Colin about entering years, I think in your opening remarks you talked about entering years with around 50% of occupancy on the books. At one time that was -- that was higher as I -- as I recall and I guess I didn't understand you correctly. I think it used to be trying to enter a year optimally with 60% or 65% and booking another 10% or 15% in-the-year for-the-year. And is this related to the shift in strategy of trying to book more in-the-year for-the-year rooms or am I going off on a tangent?

No. No no. You're remembering percentages but you are remembering them in a defined to -- a different criteria. What we have said historically is that typically our business we will produce about 60 points of group occupancy and about 15 points of leisure business. That's what you remember the 60% from, okay?

But -- we book a lot of business in-the-year for-the-year on group business, okay? And that's -- and that's what we want to be somewhere in this 50% going into the year group business on the books and we -- tend to book, you know, in-the-year for-the-year five, eight, ten points of group business. That's where the disconnect is here.

Now, the only other thing that we're in the middle of -- evaluating is because of the success of our Texas pool and the -- and the RevPAR growth that we have seen in Texas in this third quarter, i.e., an 18% growth. Because we put a lot better quality leisure customer into Texas, we are evaluating how much group business we put into this third quarter, particularly over weekends in markets like Texas and Orlando, because Orlando next year will have this wonderful leisure pool, and this -- enables us to shift the quality of the customer to higher-rated business.

We're also going to evaluate as we go through this fourth quarter, the impact of this very exciting program that we have with DreamWorks because what we have seen in our advance bookings so far for this fourth quarter on a leisure -- from a leisure perspective is a decent jump in room rate because customers want -- families want to come and experience the DreamWorks Experience that we will be offering at our hotels. So we're continuing to evaluate the precise mix month by month, season by season. The way to think about it is 60 points of group, about 15 of leisure of which 50% of the group we have booked as we go into that year. Dave, Mark, any...

Yes. If you look back through the cycle, at the peak of the cycle we typically entered the year with somewhere in the mid-50s on the books, you know, where you were getting up into 53 points, 54 points of occupancy as we entered the year and then if you look at the trough of the cycle we ended the year in the high 40s, in the 47 points, 48 points. So on average through the cycle we typically enter with about 50 points on the books.

Alright. Now, with the change or some of the volatility in the financial markets I believe one of the considerations that's been on the board for a while is the prospect of including financial partners either in the existing portfolio or in the prospective Denver project. What are you -- what if anything are you seeing out there and is that still a realistic strategy in the near-term? I just asked the question in the context of the capital intensity of the properties which is an on going -- an ongoing dynamic?

Okay. Yes. There's a lot of sort of sub questions within that broad question. In terms of new assets are we interested in having a partner in those new assets? The answer to that question is yes.

Are we doing something about it? We certainly are having broad communications as it relates to the newest asset that we're looking at which will be Denver. In terms of the existing assets, there is a trade-off here in terms of -- in terms of what is the potential -- what is the potential of these hotels? These hotels -- Opryland is going to do the guidance, let's say it does $85 million or $87 million this year, it's running about 72 points, 73 points of occupancy.

The opportunity to grow that business dramatically is very exciting to us over the next three years. The issue is taking a partner now, we would want to be compensated for the value that we have created with this particular asset. So this is something that we look at all the time, but when you look at our balance sheet which is -- which is obviously extremely important next year we've guided somewhere between $228 million and $243 million pick the mid-point of that, $235 million. Between 2008, 2009 our debt levels will have gone down by $200 million with a completely refurbished Opryland, completely refurbished Texan. We can basically if we want to do Denver off of our existing lines of credit with the free cash flows that we're generating we can do that.

So we are constantly looking at what is the opportunity to monetize and to -- take this capital and do more shareholder-friendly things with it, but on the other hands we're not going to sell an asset at bargain basement price -- at a bargain basement price at this stage of the recovery. We just don't think that's a wise -- a wise thing to do.

I would agree. If I can just ask one additional with respect to the Palms and I apologize if you gave this out already, if the quarter took 6300 some odd room nights out, should we be running modeling the property with about 70 rooms out? What number of rooms should we take out and for how long should we leave those out of the -- out of the model?

For what -- -- period? (inaudible)

Well, I guess that's -- kind of what I am asking what your renovating some rooms at the Palms that were out of the system,

We talked about this in the script, Mark, how many rooms will be out of action.

Yes. Our...

In 2012.

Yes. Our guidance in 2012 includes about 9500 room nights out of service in 2012.

Got it. Okay. Thank you very much.

Thank you, David.

Your next question comes from Kevin Milota of JPMorgan.

Hey. Good morning all. Just wondering on ADR, trying to get a sense for where the inflection point is looking forward for -- 2012. Wondering of the 50 plus points that you have on the books for 2012 what was -- what was booked in 2009, 2010 and 2011 and then separately on the Denver CapEx front could you just refresh us as to the what your CapEx liabilities will be for -- next year and for forward years? Thanks.

Thank you. Well, do you want to --

In terms of -- I will deal with the CapEx. In terms of Colorado for 2012 assuming that we're successful in March and we move forward with the project we would have approximately between $25 million and $30 million of CapEx for 2012 in Colorado. That would ramp up in 2013 to about $150 million and then the remaining capital spend at 2014 and 2015, but the lion's share of capital, Kevin, occurs in the last two years of the project.

And, Kevin, as to your rate question the -- last of the low-rated business that was booked burns off in the fourth quarter of -- in the fourth quarter of 2011 so as we get into 2012 you should see a clean -- a clean rate structure that eliminates the effect of any sort of discounting that we may have done during the down cycle.

Okay. So that means that basically those rates were all at positive levels on a year-over-year basis?

Yes.

Okay. Thank you.

Thanks, Kevin.

Your next question comes from Andrew Didora of Bank of America.

Hi. Good morning everyone. Just wanted to touch upon the margin situation here. I guess just looking at your 2012 guidance it implies very little, if any, margin expansion on the hotel side. Just curious is this driven by Palms or National in particular or is it just based on a rate structure you talked about for next year being up in the high single-digits? I would have thought this would be the -- margin growth would be a little bit higher. Is this just conservatism on your part or are you seeing something in the business that makes you be a little bit more cautious on this side?

Well, let me take it at 30,000 feet. I think you'll -- your sentiment about is it us being cautious, it is. We're being cautious. We're not seeing anything -- there's no weight pressures here. There is a lit bit of commodity price pressure, but we have seen commodities drop back of recent. This really -- there's really nothing that we're seeing that should give us rate compression here and I -- really think that we have just been cautious in terms of rate. We are -- in terms of margin. We've -- accomplished some very -- particularly in Opryland and the Texan this year we've accomplished some very strong margins and we don't expect those margins to -- fall backwards. So I think it's -- we're just being cautious in this environment. That is the truth, Andrew. Mark that.

Sorry. Just to follow up on that. You know, in your 3% to 6% RevPAR guidance if you came in closer to the -- higher end of that range, what would that imply for margins next year?

Yes. I mean I guess it depends in part how it comes, whether it comes through rate or whether it comes through occupancy. You know, if you look at the guidance that we put out there, just Colin's comments on -- are they conservative or not what we really said to ourselves as we set guidance was look if I just do what I did in 2011 what does it look like? And that's really where the guidance was -- that's how the guidance was developed. So I think we feel good about the rate structure, how we're selling for 2012. I think we feel good about the revenue picture, but we don't know what the global macro environment does in terms of a governor so we put our own governor on the overall guidance picture.

And maybe I'm going a little bit too far here, but one of the things you should be comforted by is that our own internal plans for margin next year do not see margin compression.

Okay. Thank you.

Thank you. One more call, Melissa and then we will hang up and let folks call Mark or me or Dave or Patrick.

Your final question comes from Patrick Scholes of FBR Capital Markets.

Hi. Good morning. You may have answered this earlier in the prepared remarks but can you help me understand just a little bit better or summarize what changed in how you went about bookings in the third quarter ? As I look at the first quarter result the -- it was down 31%, down 24% in the second quarter and then it was flat in the third quarter. Did you change your pricing mix or really what changed from being down double digits to basically flat in your

Well, we didn't change pricing and the -- we -- in that first and second quarter, Patrick, we had a ton of leads that just -- people were being a little bit more -- just being slower in -- getting to the finishing line and we expect also to book a bunch of business in this fourth quarter just because of all of the -- amount of tentative prospects that we have got out right now and I just -- I just think it's -- just a way it worked this year. David, I don't think -- there certainly was no pricing changes here that we did.

Yes, agreed. It was nothing to do with pricing. Had everything to do with the sales team getting out and beating this -- beating the bushes and finding every lead they could and making sure they turned it over. As we saw in the first quarter of the year, we had a really big production year last year as you know, the sales people have a tendency for the first couple weeks the year to kind of recuperate and recover.

Go skiing.

I didn't want to say that but to recuperate and recover and take a little while to get the engines cranked again and we saw that in the first quarter. We saw them starting to get after it more in the second quarter and as they start to get to doing the math on how their incentives work and how many they have to book to get to the kind of incentives that they want to generate within our sales plans, they know they got to really start beating the bushes and so we saw them now in the third quarter realize that the goals are big goals and they need to go -- get out there and turn some business and that's what we did.

Great. I appreciate the color. Thanks.

Thanks Patrick. Okay well, thank you everyone for joining us today and if you have follow-up questions you know how to get a hold of us. Appreciate it very much. Thank you.

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