Vail Resorts operates four Colorado ski areas -- Vail Mountain, Beaver Creek, Breckenridge and Keystone -- as well as Heavenly Resort at Lake Tahoe straddling the California/Nevada state line. It also operates the Grand Teton Lodge Company in Jackson Hole, Wyo., and numerous hotel properties across the United States and the Caribbean under the RockResorts brand.
The dramatic decline in Real Estate segment revenue was partially offset by the company's Mountain and Lodging segments, which improved in the second quarter from the same period in the prior year by 3.6% and 2.0%, respectively, driven largely by an increase in season pass revenue and cost reduction initiatives implemented in the second half of fiscal 2009.
"As expected, Real Estate segment revenue and Real Estate Reported EBITDA declined significantly due to the prior year quarter closings of certain Lodge at Vail Chalet, Crystal Peak Lodge and Arrabelle units," acknowledged Rob Katz, the company's CEO. "The strength of our resort business has led to strong free cash flow over the past twelve months before real estate activities, despite the state of the economy. Overall, our balance sheet position remains strong, even though we have been funding the investment in two real estate development projects under construction, with Net Debt leverage of 2.6 times trailing twelve months Total Reported EBITDA; no borrowings under our revolver at the end of the second quarter of fiscal 2010 and virtually no principal maturities due on any of our debt until 2014."
Katz seemed undeterred by the company's plunging real estate revenue. "I am pleased with how we have performed so far this season, particularly given the low early season snowfall levels at our Colorado resorts and a still challenging economy," he said. "While current conditions at all of our resorts are terrific, snowfall in the earlier part of the ski season was at thirty year lows at our Colorado resorts, leading to a 1.6% decline in visitation at our Colorado resorts when compared to the prior year, though our overall visitation was up 0.1% due to increased visitation at Heavenly. Vail Mountain visitation was the most impacted as we could not open the vast majority of the Back Bowls until after Christmas."
The company's lift revenue increased $2.4 million, or 1.9%, for the three months ended January 31, 2010 compared to the same period in the prior year, primarily due to a $3.1 million, or 6.2%, increase in season pass revenue, partially offset by a decrease in lift revenue excluding season passes of $0.7 million, or 0.9%. The increase in season pass revenue was due to an increase in season pass units sold. Total skier visitation was up 0.1% with overall visitation for the company's four Colorado resorts down 1.6%, negatively impacted by significantly below average snowfall. Despite the increase in season pass units sold, visitation by pass holders was relatively flat while visitation excluding season pass holders was up slightly by 0.2%, as season pass holder visitation was impacted more by the low snowfall levels at the company's Colorado resorts. In addition, effective ticket price ("ETP") growth of 1.7% was driven by an increase in season pass revenue when combined with a decline in the average number of days skied by pass holders, partially offset by a decline of 1.1% in ETP excluding season pass products.
Total skier visitation and, to a lesser degree, total lift revenue were favorably impacted by the timing of the current year quarter end compared to the prior year (the current year quarter ended on a Sunday versus the prior year quarter which ended on a Saturday).
Katz reported an increase in guest spending in the company's ski school and retail/rental operations, which realized revenue increases of 3.8% and 3.0%, respectively. Dining revenue was impacted by the significantly lower than average early season snowfall, which resulted in delays in the opening of a number of on-mountain restaurants. Dining revenue decreased $0.5 million, or 2.4%, compared to the same period in the prior year, due to an approximate 5.6% decrease in the number of total on-mountain food and beverage transactions partially offset by a 4.2% increase in revenue per transaction. Additionally, fine dining was down approximately 4.4% driven by lower revenue per transaction.
Results from the company's Lodging segment fell below the prior year due primarily to declines at Keystone lodging properties, which have been hardest hit in the current economic environment, "but I am pleased with the improvements reported by our lodging properties at our other mountain resorts," Katz asserted. "Our Lodging segment bookings have trended lower than the prior year; although, our guests continue to book closer to their arrival date than they had in years past and we have seen the gaps fully close in all of our resorts, except Keystone."
It was the company's Real Estate segment, however, that had the most significant impact upon the balance sheet. Real Estate Reported EBITDA was a negative $6.5 million for the three months ended January 31, 2010 compared to a positive $29.6 million in the same period in the prior year. Second quarter results in 2009 included the sale of 10 residential units in Vail for a total of $88.3 million in revenue, while no such sales were reported in the second quarter of fiscal 2010.
Despite the declines, Vail Resorts on Wednesday announced its calendar year 2010 resort capital expenditure plans, which were reduced in calendar year 2009 from previous year expenses that included gondolas and major hotel renovations. The company currently anticipates it will spend approximately $75 million to $85 million of resort capital expenditures for calendar year 2010, and included in these capital expenditures are approximately $37 million to $42 million which are deemed necessary to maintain appearance and level of service, including routine replacement of snow grooming equipment and rental fleet equipment. Discretionary expenditures for calendar year 2010 are expected to include a new high speed chairlift to serve Vail Mountain's Back Bowls; a new on-mountain restaurant at Heavenly; a new coaster slide at Breckenridge; expansion of Vail mountain's Adventure Ridge; Keystone Lodge guest room renovation and new marketing campaign management software, among other projects.
"Our capital expenditure plan for calendar year 2010 focuses on high-profile, high-return projects that underscores our commitment to delivering an unparalleled guest experience through the highest quality amenities," said Katz. "This expected investment includes the first high speed chairlift to serve Vail's famous Sun Up and Sun Down bowls, which will dramatically improve the guest experience, as well as the addition of a year round restaurant at the top of Heavenly's gondola, significantly increasing the indoor seating capacity of the resort, and investment in high returning year-round mountain activities at our resorts. Our ability to continue to invest in our world-class assets further distinguishes Vail Resorts as the leader in the mountain resort industry."
