Ryman Hospitality Properties Inc (RHP) 2014 Q2 法說會逐字稿

Welcome to the Ryman Hospitality Properties second quarter 2014 earnings conference call. Hosting the call today from Ryman Hospitality Properties are Mr. Colin Reed, Chairman and Chief Executive Officer; Mr. Mark Fioravanti, Executive Vice President and Chief Financial Officer; Mr. Patrick Chaffin, Senior Vice President of Asset Management; and Mr. Scott Lynn, Senior Vice President and General Counsel.

This call will be available for digital replay. The number is (800)585-8367 and the conference ID number is 66655148. At this time all participants have been placed on listen-only mode. It is now my pleasure to turn the floor over to Mr. Scott Lynn. Sir, you may begin.

Good morning. Thank you for joining us today. This call may contain forward-looking statements as defined in the Private Securities Litigation Reform Act, including statements about the Company's expected future financial performance. Any statements we make that are not statements of historical fact may be deemed to be forward-looking statements. Words such as believes, expects or similar ones are intended to identify these statements, which may be affected by many factors, including those listed in the Company's SEC filings and in today's release. The Company's actual results may differ materially from the results we discuss or project.

We will not update any forward-looking statements whether as a result of new information, future events or any other reason. We will also discuss non-GAAP financial measures today which we reconcile to the most comparable GAAP measure in an exhibit to today's release.

I will now turn the call over to Colin Reed.

Thanks, Scott. And thanks to everyone for joining us today. This was another solid quarter for our hotels from any metric you look at. In terms of revenue, we reported an increase in RevPAR of 3.4% and total RevPAR of 4.6% driven by an approximate 3% lift in ADR. Now, while the top line continues to strengthen as we have projected it would, the real story of our quarter was our bottom line performance that was a result of the continued margin improvement. We delivered a consolidated adjusted EBITDA increase of 15.1% to $81.6 million which was a record profitability performance for any quarter in the history of our company.

We also saw our hospitality adjusted EBITDA increase by 12.6% compared to the second quarter of last year with our margins up 240 basis points to nearly 33%. Since we announced the retransition we have been very direct with you about the challenges we have confronted throughout the process of realizing the synergies associated with the transaction and our keen focus on margin management and putting the right plans in place to ensure optimal profitability. There certainly have been some bumps along the way, but with two solid quarters of positive hotel results we now feel confident that the major transition issues that negatively affected us in 2013 are squarely behind us.

Now, while there will be ongoing fine-tuning at the hotel level to ensure we maintain and improve on this good level of performance, we are very pleased with the level of profitability and this is what we expect to see in the periods ahead. And on that subject, we appreciate the efforts over the last few months of our manager to get us to the point we're at.

It is also rewarding to see that this process is being reflected in the price of our equity which recently traded at an all-time high once you dividend adjust it. We have been saying for a while now that we thought the market was significantly undervaluing the work of our unique assets and the earnings power of our business and it is certainly good to see the stock finally trading closer to what we think our wonderful, one-of-a-kind assets are worth. Now, that said, we believe that as we continue to refine our operations and given the positive tailwinds we are seeing in our business in the sector overall, that there is even more room for the value of our equity to further appreciate.

Now, as regards factors that drove our performance this quarter let's talk about it. First, group, it would seem group continues to strengthen, attrition levels again improve this quarter compared to the second quarter last year and in the year, for the year cancellations were down more than 12,000 room nights.

Other signs that were encouraging is the 18.2% increase in association group room nights actualized this quarter as compared to the same period last year. As we have mentioned before, the association business is an important customer segment for our particular business model.

In addition, we saw continued improvement in outside-of-the-room spending as groups are spending more while on property at our hotels. This is very good for our business and we expect to see this trend continue for the foreseeable future. In terms of the transient sector, this was once again a good quarter for us. As we discussed last quarter, we expect the number of transient room nights to stay fairly level on a year-over-year comparison with the properties focusing on aggressively driving rate.

As we saw this quarter the hotels were able to drive an increase in trend in ADR by over 8%. Transient room nights were down just over 6% year-over-year, partially due to the fact that we had roughly 15,700 room nights out of service for renovation at the Gaylord Texan.

Now, I would like to take a moment and focus on the Washington DC market. I am sure most all of you are familiar with the issues that have set the hospitality, and particularly the group segment in our Nation's Capital for some time now. While we continue to view the DC market overall as challenging the performance of Gaylord National and the broader National Harbor development relative to the rest of the market is what has us highly encouraged. Gaylord National had another solid quarter with RevPAR up nearly 5% and total RevPAR up nearly 9%. As a more than 40% increase in corporate room nights helped boost outside-of-the-room spending and revenue overall.

In addition, with the latest rounds of recent approvals in Prince George's County fully clearing the way for the MGM casino we now feel like National Harbor is poised really to start moving in the direction that we all had hoped it would almost a decade ago when we undertook this development. MGM has begun to move ground on its development there which is slated to open in 2016 and projected to bring thousands and thousands of new visitors to this area. This is just one of the several positive developments underway in the complex.

Now, this morning you may have read about a transaction that we announced with the developer of National Harbor. Almost 10 years ago when we purchased the real estate that sits under our hotel, we had a belief that one day gaming could come to Maryland and if it did National Harbor would be a wonderful location to house it. Consequently, we knew that our major development, now known as Gaylord National, would give the developer of National Harbor a real leg up in attracting gaming operators and convincing the state of Maryland a casino should be developed on our doorstep.

Now, as a result, we negotiated an economic interest in the land that would accommodate the casino if indeed it materialized. Now, once again -- let me say that again, once gaming was passed by voters in Maryland and the site was approved, this agreement became valuable and we feel like it is in the Company's best interest, and that of our shareholders, particularly now that we're a REIT to capitalize on this value. Accordingly, we have agreed to sell our economic interest in this agreement to an affiliate of the developer of National Harbor.

Separately, we have also agreed to purchase a 190 room hotel in National Harbor currently being operated as the Aloft hotel. As well as a vacant parcel of land that is located at the front door of the Gaylord National. This site is suitable for development of another hotel, should we so choose, but no final determination has yet been made as to the highest and best use of this vacant land. All of these transactions are scheduled to close by the end of this year.

In terms of the new hotel property, it is still too early to definitively say how the hotel will ultimately be flagged, but obviously from a synergies perspective and given its close proximity to Gaylord National, something with a Marriott flag would make the most sense for us here as the new hotel can serve as a natural overflow destination from the Gaylord National and would be overseen by National's management. Now, also to be clear, the restricted covenants that are in place regarding what hotel product and meeting space can be built in National Harbor are still very much in place.

Okay, now let's shift gears and talk about sales production. Now, last quarter I previewed for you that we were optimistic about the bookings, what they would look like in the second quarter. Now, I hope you will agree with me that clearly this optimism was well-placed. We booked nearly 640,000 gross room nights in the second quarter and more than 475,000 net room nights. Now, these totals represent an 84.5% and a 150.4% increase, respectively, over the second quarter last year. And to be clear, these numbers also represents the best second quarter of production that we have on record.

Now what is particularly encouraging is that we believe there is still more room for improvement in our sales processes. As we have detailed on previous calls, both Marriott and our Company have been collaborating to optimize the production levels from Marriott's regional sales structure. You may recall that these offices are responsible for booking the short term group room nights in the 10 to 300 room night range. This segment of our business is very important as we maximize occupancy and thus, yield our properties. However, we still feel that the regional sales offices should be able to generate more room nights to our business and we have developed a plan with our operator and we are confident it will lead to these numbers getting where we would like them to be over the months ahead.

Now, let's switch gears and turn to an area that you all know we are very enthused about, our Nashville entertainment asset. This quarter this business segment again performed very impressively. With revenue growth of nearly 12% and adjusted EBITDA growth of nearly 23%. Now, some of you may accuse me of sounding like a broken record here, maybe that will be somewhat fitting given that the appeal of Nashville's music -- given that the appeal of Nashville music scene is the key element fueling the city's tourism growth.

Year-to-date, according to Smith Travel Research, Nashville is currently the fastest growing hotel market in the country in terms of RevPAR growth, these numbers confirm that we are seeing in this market -- these numbers confirm what we are seeing in this market with people continuing to flock from all over, including international, in order to experience its music and its vibrant scene. The city's profile as a destination continues to grow both among the transient leisure guests as well as group.

Now, this quarter we announced that we will be undertaking a $14 million planned expansion and renovation of the non-historic portion of the iconic Ryman Auditorium which will be completed by next June. Just in time for the summer tourism season and the CMA Music Festival which draws an estimated 80,000 people to Nashville. At this stage we see no signs that the positive momentum around Nashville abating and our assets being well-positioned to be at the center of this tremendous growth.

We also took a couple of important steps to strengthen our balance sheet and enhance value for shareholders this quarter, which Mark will go over with you in some detail. Now, moving beyond the second quarter I would like to do something similar to what we did on the first quarter's call and provide some additional color in terms of what we are seeing so far for the rest of the year.

From a bookings perspective we are again optimistic about what our production will look like in the third quarter given the lead volumes and our historic conversion rates. We would expect our sales teams to drive a better booking quarter than we saw in the third quarter of 2013. Historically, the second and fourth quarters are the strongest booking quarters of the year and we expect this pattern to play out in 2014. As I mentioned earlier, while we expect the number of transient and leisure room nights to remain largely flat as compared to 2013, we do anticipate they will be at a higher rate than in the past.

Now, in terms of what we are forecasting for hotel performance in the third quarter we are trending towards growth in terms of both revenue and profitability compared to the same quarter last year. However, we expect bottom line growth to outpace top line growth as we continue to see improved margins. That said, we do not believe that we will see the same extreme improvements that we saw in the first and second quarter.

Given our advance book of business, we expect the fourth quarter to be strong both from a top line and bottom line perspective year-over-year with solid mid-single digit revenue growth over prior year, coupled with continued improvement in operating margin.

Now, last quarter we raised our RevPAR, total RevPAR, and EBITDA guidance and we still feel good about where these numbers are. We believe our guidance range to be appropriate at this time. So the point here is that while we are, of course, pleased with our strong second quarter, we're not going to get ahead of ourselves at this juncture as far as our expectations for the rest of the year.

In closing, we are pleased with our performance in the second quarter and the momentum in our business as we look to the rest of the year. As I mentioned at the outset, we feel that we have passed an inflection point and now can safely say the major hotel transition issues are behind us but there is still more work to be done to ensure that we can sustain and continue to improve our performance to the point we are regularly delivering on the full potential of our assets and also with the tools which the manager brings to the table.

We will continue to work with Marriott to drive synergies and as I discussed also continue to push the sales teams to maximize their ability to capture the right type of group business. Also, we will remain diligent and focused on constantly evaluating how we can best return value to the shareholders and prudently manage our business.

Now, at this juncture let me hand over to Mark to go through the financials, Mark.

Thanks, Colin. Good morning, everyone. For the second quarter Ryman Hospitality Properties total revenue increased 5.2% to $257.9 million compared to the prior year quarter. Adjusted EBITDA during the second quarter grew 15.1% to $81.6 million. And during the quarter the Company generated net income of $28 million or $0.37 per fully diluted share and $58.8 million in adjusted funds from operation, or AFFO, per fully diluted share of $0.95. Please remember that the GAAP fully diluted share calculations do not consider the anti-dilutive effects of the Company's purchase call options associated with our convertible notes.

Turning to the hospitality segment results, RevPAR during the quarter increased 3.4% to $134.85. Total revenue increased 4.6% to $316.09 compared to the second quarter of last year. Both our RevPAR and total RevPAR results were negatively impacted by the shift of the Easter holiday and the ongoing rooms renovation program at the Gaylord Texan.

We estimate that the combined effect of these two events reduced both RevPAR and total RevPAR growth by approximately 200 basis points. Excluding the impact of these two events we believe that RevPAR would have increased by more than 5% and total RevPAR would've increased by more than 6.5% for the quarter.

As Colin mentioned during his opening remarks, we continue to see encouraging trends in group cancellation and attrition rates during the quarter. Gaylord Hotels in the year, for the year cancellations totaled 9155 room nights, down by 57.2% compared to the second quarter of last year.

Attrition rates continue to decline following 180 basis points to 11.1% from 12.9% in the second quarter of 2013. Attrition and cancellation fees collected during the quarter totaled $2.8 million, up $1.5 million from the same period last year.

For the quarter hospitality segment adjusted EBITDA increased 12.6% to $76.6 million. And hospitality adjusted EBITDA margin increased 240 basis points to 32.9% representing approximately 85% flow through of the incremental revenue.

The operating attraction segment revenue rose to $25 million in the quarter, up 11.8% and adjusted EBITDA increased 23.4% to $9.7 million representing a 370 basis point improvement margin. The corporate and other segment adjusted EBITDA totaled a loss of $4.7 million representing a modest improvement compared to the prior year quarter.

Moving onto the balance sheet, we had a very active quarter as we successfully accessed the capital markets at attractive long-term rates and began tackling the upcoming maturity of our 3.75% senior unsecured convertible notes and related call spread.

In June the Company announced that we added an additional senior secured $400 million Term Loan B to its existing credit agreement at attractive pricing. The Term Loan B was fully drawn at close and bears interest at a rate equal to LIBOR plus 300 basis points subject to a LIBOR floor of 75 basis points. The proceeds from this offering were used to repay revolving loans under our existing credit facility and settle in part a portion of the warrant transactions entered in to in connection with the issuance of our 3.75% convertible notes.

This new term loan takes any refinancing risk off the table as we settle the remaining portion of convertible notes that mature in October of this year. It is also important to note that as part of this capital raise both rating agencies affirmed the ratings of our Company and the offering which is a reflection of the strength of our business and the confidence in our business model.

Now, moving on to the convertible notes, it was a very active quarter. As I mentioned on the last earnings call in April the Company repurchased approximately $56.3 million in principal amount of its convertible notes which were subsequently canceled for $120.2 million.

In addition, the Company settled approximately $15.3 million in principal amount of the convertible notes that were converted by holders for $33.4 million. As a result the Company recorded a loss on extinguishment of debt of $2.1 million in the second quarter of 2014.

In connection with the repurchase of the notes the Company proportionally adjusted the number of options underlying the bond hedge transaction related to the notes. In addition, the number of warrants outstanding were reduced. In consideration for these adjustments the counterparties at the call spread transaction paid the Company approximately $9.2 million. After these transactions, approximately $232.2 million in principal amount of the notes remain outstanding as of June 30, 2014.

As you are aware, the convertible notes mature on October 1, 2014 and the Company will sell its obligations upon conversion of each $1000 principal amount of the convertible notes with a specified dollar amount of $1000 and the remainder of the conversion settlement amount in shares of common stock. Concurrently, with the settlement of the notes, the Company will receive and cancel shares of its common stock pursuant to its rights under the convertible note hedge transactions with respect to its common stock. The net impact of these transactions will result in no dilution to our outstanding common shares.

Now, turning to the warrants. In May and June of 2014 the Company executed agreements with two of the note hedge counterparties to cash settle 4.7 million warrants. As a result of these modifications the Company recorded a $4.8 million loss on the change in fair value of the warrants between the date of the cancellation agreements and the settlement date or quarter end for those warrants still under the specified unwind period. This loss is included in other gains and losses. After the settlement of these transactions the remaining warrants will cover approximately 7.2 million shares with an adjusted strike price of $25.01 per share.

The adjustments to the options and warrants were considered modifications to the terms of the agreements, and the Company also recognized a charge of $5 million in the second quarter which reduced net income available to common shareholders and earnings per share available to common shareholders. As a reminder, the dilution mechanics for the remaining outstanding convertible notes and call spread is available in the Investor Toolkit section of our website and has been updated with all of the activities I just walked through.

As of June 30, the Company had total debt outstanding of $1,280.1 million and unrestricted cash of $77.8 million. As of June 30, 2014 $700 million of borrowings were drawn under the Company's credit facility including the new Term Loan B, which was fully drawn at close and the lending banks had issued $2.7 million in letters of credit which left $697.3 million of availability for borrowing under the credit facility.

During the quarter the Company paid its second quarter cash dividend of $0.55 per share of common stock on July 15. It is the Company's current plan to distribute total annual dividends of approximately $2.20 per share in cash in equal quarterly payments with the remaining quarterly payments in October and January of 2015. This is subject to our Boards future determinations and the timing thereof.

And with that I will turn the call back over to Colin for any closing remarks.

Mark, I think we have been at this long enough, so let's open the lines for questions. Jackie, if you could organize that for us, that would be good please. Thank you.

(Operator Instructions). Our first question comes from the line of Amit Kapoor with Gabelli and Company.

Hi, good morning. Colin, can you please talk about the catalyst for the right sale at National Harbor and the purchase of the hotel and then is that in anticipation of potential upside? I guess, part of these cryptic comments were alluded to that. And then, I guess, my second question is in light of the expansion at the Ryman Auditorium, can you talk about CapEx requirements for that segment in order to take it to a point of critical mass for a potential event with that segment? Thank you.

Thank you. Two good questions. So let me talk first about National Harbor. First and foremost, income that we would derive from a lease that associates with gaming is something that is difficult for a real estate investment trust and it wouldn't qualify as good REIT income. So what we have been trying to figure out is what is the best thing we do with this. And so what we have essentially done is sold it and bought, and we will probably use the proceeds to buy a hotel in National Harbor, separate transactions, that will be good REIT income. And we expect this hotel to perform very very adequately, very well, as it is tucked in under the management of the existing National Hotel and gets the benefit of the overflow as well as what we see in 2016 as the substantial increase in leisure customers that will be coming to National Harbor. That is the sort of rationale behind it.

Also, there is a parcel of real estate, if you come out of the front of the hotel, I know you have been there, Amit, we have seen you there. When you come out of the front of the hotel and you look directly into National Harbor there is a parcel of land there, it is just over half an acre in size, that sits immediately to the -- as you are standing at the hotel looking at the Residence Inn, immediately to the left of the Residence Inn there and we think that is a world-class piece of land as this site develops. And so we have also took the opportunity to purchase that piece of land at the same time. So that was the rationale, we think this is a good move for the shareholders. The income will be income that is fully permissible under hotel REIT and we are very pleased with this transaction.

In terms of the Ryman, obviously there is, sort of, two parts to your question. The first part is the amount of capital that we are putting to work here. We are seeing, as you heard from the script, we are seeing a fairly large increase in the amount of people that are journeying to Nashville and this asset is probably the single most important asset in the city under the country music banner because of its historical connections with the Grand Ole Opry and music in general. The $14 million that we are going to put to work here will generate a very good return on invested capital and we will be looking at potentially doing other things to take advantage of what is going on in this city.

At this stage we -- until the plans are fully adequately baked, it will be a little wrong of us getting the horse before the cart. Here is the good thing, this market is growing rapidly. These assets that we own are on Main and Main, and as every day goes by these assets get stronger. And what we ultimately do should, therefore, have more impact. We're working hard on it, on positioning this attractions business and I would ask you to be patient and there will be more to follow.

Thank you, Colin.

Thanks.

Our next question comes from the line of Chris Woronka with Deutsche Bank.

Hi, good morning, guys. I want to ask you about the Texan, kind of a two-part question. One is was the disruption in 2Q, was it a little bit maybe greater than you expected? But more importantly, when you get that renovation done what are your internal expectations for the ramp-up in terms of, I assume, higher rate growth?

Hi, Chris, Colin. What I am going to do is ask Patrick to deal with the second quarter impact and also as we think about the next 12 to 24 months. But let me sort of preview. We are very optimistic about this hotel, we have recently changed the General Manager of this hotel. Our ex-general, long-time, Gaylord manager retired and we have brought a new manager in from the Marriott organization that I would say we are very pleased with. And I think the renovation has been going pretty well, we haven't had any snafus with the renovation program and the hotel is looking in really good shape. And I personally think that this hotel will do well over the next 12 to 24 months.

But, Patrick, maybe you can put some color on that?

Hi, Chris, this is Patrick. Just to go back to your first question as far as how much disruption. The disruption was right in line with what we were expecting, 15,000 rooms were out of service, or 15,700 roughly. As you look at how the Texan performed in the quarter with the renovation impact and then just the general lumpiness of our business that impacted both Palms and the Texan in the second-quarter, it was right in line with our expectations. Outside-of-room-spend looked very good, it was about 5% to 6% roughly at that property. So those who were on property and not shut out due to the renovation performed well.

As far as how we think this will impact -- the renovation stuff will impact the property, if you look at how the Palms has performed post the renovation they have had a freshened product, it has captured the attention of meeting planners and with that fresh product they have been able to draw in a lot of high-quality groups. So I wouldn't quantify what we expect to see on rate or anything like that, but freshening the product up brings the attention back of some of those high-quality groups because they want to be the first ones to get in and stay at the property. So we have great expectations for what this will do for the property.

Okay. That is great. And then I want to ask on the Aloft acquisition, and your plans there. I understand that Marriott will takeover management of that hotel. We know there's a Residence Inn there, are there branding options for Marriott or is this something that you might kind of brand independently like The Inn at Opryland?

I don't think we will be branding it independently, we are currently in discussions with Marriott in terms of which brand would be the most effective. And I think we will brand it a Marriott property. We'll probably have to put a $4.5 million worth of capital into this hotel to do a product improvement plan to, sort of, de-Aloft it and position it for the asset -- for the brand that will ultimately sit over the top of it. But, we expect this hotel to generate somewhere in the $3.5 million to $4 million a year out of the gate. And we are excited about this.

Hi, and Chris, just to add to that, the Residence Inn is an extended stay type product. And with this hotel the current Aloft being more to fit our needs to take group overflow from the National. Given that the Residence Inn is extended stay that opens up plenty of options for us as far as what we would do with the Aloft when we go to a Marriott branded name.

Okay. Understood. And is there going to be a -- is it basically breaking the franchise contract to start? Is there going to be some kind of one-time, I guess, termination fee?

There will be but that is not on our nickel. That is something that is being dealt with by the current owner of that asset. We said we didn't want to get in the middle of the termination. We said we would be very happy to buy this asset but if we do we need to buy the asset free and clear of any operating contract.

Okay. Very good. Thanks, guys.

Thanks, Chris.

(Operator Instructions). Our next question comes from the line of Patrick Scholes with SunTrust.

Hi, good morning. A question for you on the impressive forward bookings that you had in the second quarter. I would like if you could give a little bit more description of what types of customers are you seeing the most improvement from? What are you seeing as far as mix shift within those booking strength?

Yes, and I'll ask Patrick to check and to deal with that. But let me be clear here, we have been saying for really since, I don't know, second-quarter, since third quarter last year, fourth quarter last year that we have seen material improvements in lead volumes, tentative prospects. We had, as you recall, that superb fourth quarter followed by a weaker second-quarter which is normally the pattern and then this record second-quarter. And frankly, we weren't surprised by this. We were happy with the level of actual conversion of the lead volume that we are seeing. And again, I know you haven't asked this question, but I want to be clear, we are seeing at Ts and Ps at the end of July, I think, Patrick,at the end of this month that we have just closed a couple of days ago, we are seeing Ts and Ps at very high levels, which is also exciting and bodes well for the production in the third quarter. So if you would give Mr. Scholes some -- Patrick to Patrick, give some color on the quality of the bookings.

Absolutely, it is a great question, Patrick, and let me give you some color on that. We saw good growth both in terms of corporate and association. Our corporate bookings were up about 104% over the second quarter of 2013. So, lots of really good production in the shorter-term, two-year window that corporate normally is booking into and that is a continuation of what we already saw in the fourth quarter and in the first quarter of this year.

We also saw some really good strong growth on association bookings as well, they were up about 98% over this time last year in the second quarter. So that's really encouraging to see some of your longer-term bookings, 3, 4, 5 years out strengthening 2017 and beyond where we stand right now. Those two segments both showed really good growth.

SMERF was down a little bit which is okay because it is essentially just an indication that we have tremendous demand from some of the higher rated more premium business. And as Colin already said, even despite all of this great production in the second quarter or funnel going into third-quarter is very strong. And so we are encouraged that the trends that we have seen over the past few quarters are continuing from a bookings perspective.

Great. Thank you, that is great color. One follow-up question. How should we think about as far as your most recent bookings, how pricing is faring? Certainly demand sounds very strong and demand certainly has been improving over the last several quarters on the group. But I think in general for the industry pricing still isn't where most companies would like it to be. How is that faring in the bookings?

I think we would say it the same way. Pricing isn't where we would ultimately like it to be. I think there's a gradual shift of pricing power away to the operator as the economy improves. And by the way, where very little new supply its existing in this particular space. But, you know, the things that have us encouraged, for instance 2015, Mark, the statistic you were sharing with me this morning. Maybe you just want to give Patrick a little bit of color on what the room nights on the books are at rate wise compared to where we think we'll close this year?

Yes, I mean, in terms of where we finished the second quarter for room nights on the books for 2015, the rate on the books is mid-single digits above where we are projecting we will finish 2014. And if you look out to 2016 we're up to high-single digits relative to where we will finish this year. So there is good rate growth on the books moving forward. As Colin said, we don't have the pricing power we would like to have, but I don't know that we will ever have the pricing power we would like to have, right? That is always an (multiple speakers) that you have with customers.

Just a little bit of additional color, we have saw as far as what was booked in the second quarter, we saw growth in rate both in terms of year-over-year as well as the second quarter versus the first quarter. So it is moving in the right direction, there is still a lot of room to grow. I was encouraged, personally, just to see the Palms was one of our stronger performers as far as capturing rate growth in the second quarter compared to the first quarter, and that is an extremely competitive market down in Orlando. So to see rate growing there is very encouraging. And then also we saw some good rate growth as far as what was booked in the second quarter at Gaylord Opryland. Nashville obviously doesn't get the same rate that you see in DC or Dallas so that is encouraging as well.

Let me just say this, Patrick, as well, and you understand this because we've talked about it face-to-face. Rate is very important and we appreciate the focus on rate, but for us where we generate $1.50 for every $1 -- we generate $1.50 out-of-the-room for every $1 we generate in the room. The other thing that is important to us is to make sure that the booking room nights that have this large propensity to spend money outside-of-the-room. And as you have been seeing this year with our business in the first quarter and in the second quarter, our outside-of-the-room spend has grown at a faster rate than our inside-of-the-room spend. That is the other big focus for us and we are very encouraged by the quality of the bookings that we are putting on the books prospectively for future years.

Thank you. Great answer. One last question, I promise, here. One thing in the hotel industry statistic wise that occupancy has exceeded the prior cyclical level. How much more occupancy do you think you have room for as we think into next year? Are you pretty much maxed out or is there still some room to go with your hotels?

If I could have given you a leading question that would probably have been the leading question because these record -- the record profitability that we generated in the second quarter, $76.6 million of adjusted EBITDA for these hotels, $81 million for the whole Company, but $76 million with a margin of 33% was done off an occupancy of just over 74%. So, back in the good old days, in the 2006, 2007 time frame where we were putting a ton of occupancy in these businesses, we were saying to folks like you that we believe we can build these businesses to 80 points of occupancy and we were operating somewhere between 76% and 77% percent occupancy at that time.

So we have got one way to go here and what is exciting to us with the pace of bookings that we are putting on the books, when we look at our pace for 2016 and 2017, we are seeing substantial increases in just pace. So we think we have got the ability to add another 3 to 4 points of occupancy into these hotels. And you can do the math, when that happens with these types of margins the profitability increases is immaterial.

Very interesting. Thank you. That is all.

Thank you very much.

It appears that we have no further questions at this time. I would like to turn the floor back over to Colin Reed for any additional or closing remarks.

I would like to thank everyone for joining us. Obviously, the market is a bit soft this morning and our record is down a little bit. But what we are encouraged by is the fact that we have had a record second quarter in terms of profitability,very high margins, record bookings, and this Company is positioned -- and our attractions business is performing at a record level. Growth in that second quarter was tremendous and obviously, as Mark talked about on the converts, we have continued to unwind warrants because we believe the long-term value of this equity is materially better than where we are currently trading at. So we are pleased with where we are and we look forward to engaging in more conversations with our investors over the weeks and months ahead. Thank you for joining us today.

Thank you.

Thank you very much, Jackie.

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