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 a digital replay. The number is (800) 585-8367 and the conference ID number is 66655148. [Operator Instructions] 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 REIT transition, we have been very direct with you about the challenges we've 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 2 solid quarters of positive hotel results, we now feel confident that the major transition issues that negatively affected us in '13 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 that the level of -- 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…

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 did 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 2 events reduced both RevPAR and total RevPAR growth by approximately 200 basis points. Excluding the impact of these 2 events, we believe that RevPAR would have increased by more than 5% and total RevPAR would have 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 9,155 room nights, down by 57.2% compared to the second quarter of last year. Attrition rates continued to decline, falling 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…

Mark, I think we've been at this long enough. So let's open the lines for questions. Jackie, if you could organize that for us, that will be good. Please. Thank you.

[Operator Instructions] Our first question comes from the line of Amit Kapoor with Gabelli & Company.

Colin, can you please talk about the catalysts 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 your scripted 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?

Yes, 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've 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'll 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, very well, as it's tucked in under the management of this -- of the existing National hotel and gets the benefit of the overflow, as well as what we see in '16 as the substantial increase in leisure customers that will be coming to National Harbor. That's 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've been there, Amit. We've 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's just over 0.5 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've 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. It is --…

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

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

Chris, it's Colin. What I'm going to do is ask Patrick to deal with the second quarter impacts and also as we think about the next 12 to 24 months. But let me we sort of preview. We're very optimistic about this hotel. We have recently changed the general manager of this hotel. Our ex-general long-time Gaylord manager had retired. And we have brought a new manager in from the Marriott organization that I would say we're 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.

Yes. 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're expecting, 15,000 rooms were out of service -- or 15,700 roughly. So if 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-the-room spend looked very good. I mean, it's about 5%, 6% roughly of 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 itself will impact the property, if you look at how the Palms has performed post the renovation, they've had a freshened product to try to capture the attention of meeting planners. And with that fresh product, they've 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's great. And then I want to ask on the -- on your Aloft acquisition and your plans there. I understand that Marriott will take over management of that hotel. Is there a -- 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 -- in an Opryland?

Yes. I don't think we will be branding it independently. We are currently in discussions with Marriott in terms of which brand most is the -- would be the most effective. And I think we will brand it a Marriott property. We'd 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 that -- 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're excited about this.

Chris, just to add to that, the Residence Inn is an extended stay-type product. And with this hotel, the current Aloft will be a more -- to fit our needs to fill Group over -- or take Group overflow from the National. Given that the Residence Inn is an extended stay, that opens up plenty of options for us as far as what we would do with the Aloft when we got a Marriott branded name.

Okay, understood. And is there going to be a -- is it basically breaking the franchise contract of the Starwood? Is there going to be some kind of onetime, I guess, termination fee?

There will be, but that's not on our nickel. That is something that is being that is being dealt with by the current owner of that asset. We said we didn't want to get in the middle of any determination. 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.

[Operator Instructions] Our next question comes from the line of Patrick Scholes with SunTrust.

A question for you on the impressive forward bookings that you had in the most -- in the second quarter. I'd like to see [ph] 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 bookings strength?

Yes. And I'll ask Patrick Chaffin to deal with that. But let me be clear here. We have been saying for the -- really since, I don't know, second quarter, since third quarter last year, fourth quarter last year that we've seen material improvements in lead volumes tentative prospects. We had, as you'll 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're seeing. And again, I just want -- I know you haven't asked this question, but I want to be clear. We're seeing our Ts and Ps at the end of July, I think, Patrick, at the end of this month that we have closed a couple of days ago. We're 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's a great question, Patrick. Just [ph] 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 '13. So lots of really good production in the shorter-term 2-year window that Corporate normal is booking into. And that's 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. So those 2 segments both showed really good growth. SMERF was down a little bit, which is okay because it's 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, our funnel going in to the third quarter is very strong. And so we're encouraged that the trends that we've seen over the past few quarters are continuing from a booking's perspective.

Great, that's great color. One follow-up question. How should we think about as far as your most recent bookings how pricing is fairing? Certainly, demand sounds very strong, and demand certainly has been improving over the last several quarters on the Group. But I think in general, the industry pricing still isn't where most companies would like it to be. How is that fairing 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 to pricing power way to the operator, as the economy improves and, by the way, where very little new supply is existing in this particular space. But the things that have us encouraged, for instance, '15 -- 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 will close this year.

Yes. I mean, in terms of where we finished the second quarter for room nights on the books for '15. Our rate -- the rate on the books is mid-single digits above where we're projecting we'll finish '14. And if you look out to '16, we're up to high single digits relative to where we'll finish this year. So there's good rate growth on the books moving forward. As Colin said, it's -- we don't have the pricing power we'd like to have. But I don't know that we will ever have the pricing power we'd like to have, right? That's always an issue you have with customers.

Just a little bit of additional color. We 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's moving in the right direction. There's still a lot of room to grow. But 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's 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. And Nashville, obviously, doesn't get the same rate that you see in D.C. or Dallas. So that's encouraging as well.

And 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 I -- we appreciate the focus on rates. But for us, where we generate $1.5 for every $1 -- we generate $1.5 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 we have booking room nights that have this large propensity to spend money outside of the room. And as you've been seeing this year with our business in the first quarter and in the second quarter, outside-of-the-room spend has grown at a faster rate than our inside-of-the-room spend. So that's the other big focus for us, and we're very encouraged by the quality of the bookings that we're putting on the books prospectively for future years.

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? I mean, are you pretty much maxed out? Or is there still some room to go with your hotels?

Now, 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 '06, '07 time frame, 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% occupancy at that time. So we've got a long way to go here. And what is exciting to us, with the pace of bookings that we're putting on the books, when we look at our pace for '16 and '17, we're seeing substantial increases in just pace. So we think we've 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 are immaterial.

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

Well, I'd like to thank everyone for joining us. Obviously, the market is a bit soft this morning, and our equity's down a little bit. But what we're encouraged by is the fact that we 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've continued to unwind warrants because we believe the long-term value of this equity is materially better than where we're 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. And thank you for joining us today.

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