Gaylord CEO seeks answers for Opryland flood

By Shelley Dubois, reporter


(Fortune) -- Earlier this month, Gaylord Entertainment CEO Colin Reed watched the Cumberland River rise right through the lobby of one of its most prominent properties: the Opryland Hotel in Nashville, TN.

Gaylord presented decent first quarter earnings in the midst of the flood on May 3, but had to cancel the earnings call scheduled for the next day. Later that week, Reed spoke with shareholders about the damage, and explained that they were an integral part of the crisis communication plan that he put in place. "It's our people, our customers, our owners, you, our board, and then the media."

Now that Gaylord (GET) has time to address number five, Fortune spoke with Reed about water in the basement, plans for a Country Christmas, and a leaky dam upriver.

Fortune: What kind of damage are you looking at?

Reed: A good 25% of our hotel was completely flooded to the ceilings. The basements of this hotel flooded-they're like a small city that houses all of the administrative and functional parts of the hotel. The flooding has basically crucified all of our technology systems and our power systems. And so the critical part for us is to be able to replicate all of that. It looks like it's going to take four and a half months or so to do.

Fortune: How do you rebound after a 4-5 month hiatus?

Reed: The good news is that 75% of the hotel is untouched, and so all of our ballrooms, the big-ticket items, and all of our guest bedrooms except 117 are intact-we have 2,900 in the hotel.

We're pretty well booked next year, and we've got a lot of customers already booked for our Country Christmas Extravaganza that starts around Thanksgiving. We are pretty confident that this issue will not lead into 2011.

Fortune: Is Nashville going to take a financial hit while the Opryland Hotel is rebuilding?

Reed: The hotel basically represents about 10% of the room supply in the greater Nashville area, but it generates about 20% of the room taxes. The town obviously doesn't like the idea of losing the customers that spread out from that hotel into the community, so the city has been extraordinarily supportive.

Fortune: How much is it going to cost to fix?

Reed: We're going to be putting out the official numbers probably some time middle of next week. What we have said so far is that there have been analysts sort of projecting anywhere from a few $150 to $400 million, we don't think it's in that ballpark. But every day, we're discovering things that we need to do.

Fortune: Why do you only have $50 million in flood insurance?

Reed: This whole area flooded in 1975, the last time there was a "100-year flood." So when we built this hotel in stages from 1975 on, we put a 100-year FEMA-approved flood levee around this hotel, and for 35 years it's worked very well.

But about four years ago, there were a bunch of articles in our local newspapers about the Wolf Creek Dam up in Kentucky -- there was a lot of speculation that the dam was leaking. The river system comes through Nashville by way of the Cumberland. So candidly, after that information came out, flood insurance became monumentally expensive.

What we're concerned about is that the [Army Corps of Engineers] opened several of these dams and just pumped billions of gallons of water into the Cumberland River system, and that really, really helped create this flooding problem. That was the hypothesis that appeared locally. We're not spending a whole lot of time looking at that at this stage, what we're going is trying to stabilize our business. But at the appropriate time, we're going to be looking at this.

Fortune: Can Gaylord properties outside of Nashville bear the financial brunt of the damage?

Reed: Well, our other businesses are doing pretty well. If you go back and look at '09, our business outperformed the industry in a shocking economy. For the next three months, we've already booked 20,000 Nashville room nights back into our existing hotels.

I am convinced that five months from now, we will be a better business. The imperfections that we're wrestling with because of this flood, we'll correct all of those very rapidly.

Fortune: Are you going to rebuild with the possibility of a catastrophic flood in mind?

Reed: One thing is for sure: we're not going to live in fear of another 500-year flood. It's not just our levee that needs to get dealt with -- the whole community here flooded, and the city's got to have a plan. For us, we're going to raise those levees because we're not going to have a flood and live through this again. To top of page

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