Great Wolf Resorts Reports Fourth Quarter 2008 Results Exceed Consensus Estimates

Great Wolf Resorts, Inc. (NASDAQ:WOLF) , North America's leading family of indoor waterpark resorts, today reported results for the fourth quarter and year ended December 31, 2008.

Highlights

• Achieved 2008 fourth quarter Adjusted EBITDA of $11.1 million, which was significantly above consensus analysts' estimates of $8.6 million and above the company's previously issued fourth quarter guidance range of $6.6 - $10.6 million. Adjusted EBITDA for the full year 2008 was $67.6 million, also above consensus estimates and guidance.

• Reported a 7.9 percent decline in 2008 fourth quarter Great Wolf Lodge(R) brand same store revenue per available room (RevPAR), compared to a hotel industry average decline of 9.8 percent, according to Smith Travel Research data. The company's same store RevPAR for the full year was up 0.8 percent, compared to an industry decline of 1.9 percent.

• Elected Kim Schaefer, chief executive officer, to the company's board of directors in February 2009.

• Negotiated an extension of the maturity date to November 30, 2009 on the $76.8 million mortgage loan on the company's Mason, Ohio resort property.

• Opened in December 2008, a 203-suite addition and 20,000 square feet of meeting space at the Great Wolf Lodge -- Grapevine, Texas resort.

The company reported 2008 fourth quarter net loss of $(36.5) million, or $(1.18) per diluted share, compared to net loss of $(7.7) million, or $(0.25) per diluted share for the same period a year earlier. Fourth quarter 2008 operating results include the impact of previously announced pre-tax impairment charges of $17.4 million for goodwill and $18.8 million for the company's investment in one of its joint ventures, and the related effect on income taxes of the non-deductibility of a majority of the goodwill impairment charge for income tax purposes.

Operating Results

"Our resorts performed relatively well in the fourth quarter, despite a difficult macroeconomic and consumer spending environment," said Kim Schaefer, chief executive officer. "In the current challenging operating environment, we have moved quickly to point out to the consumer the excellent value, convenience and quality of a stay at our resorts. We achieved operating results during the fourth quarter that were better than the overall hotel industry. Our Generation II properties, which are our newer, larger resorts, reflect the broad range of guest amenities we seek to incorporate into our future development properties, and contribute over 80 percent of our Adjusted EBITDA, posted operating statistics in the fourth quarter better than the overall hotel industry. These properties had a same-store RevPAR decline of 4.9 percent in the quarter, or about half the decline reported for the overall hotel industry during the period.

For the full year 2008, same-store RevPAR for all Great Wolf Lodge brand resorts increased 0.8 percent, led by a 3.9 percent increase at the company's Generation II properties. This compares to a 1.9 percent RevPAR decline for the overall hotel industry.

"We believe that, despite the current economic climate, families will continue to appreciate and seek opportunities to spend time together in a fun, safe and convenient location," Schaefer said. "We believe our resorts can be a terrific option for families that want to focus on taking shorter, closer-to-home trips. We believe such 'stay-cations' may become even more common in 2009 and that our properties are well positioned to take advantage of that trend.

"Our Great Wolf Lodge brand same store RevPAR increased 1.4 percent in January. This was significantly better than the overall hotel industry, which reported double-digit January RevPAR declines. Although January is normally the lightest operating month in our first quarter, we are encouraged by this relatively strong early 2009 operating performance as we prepare to enter the traditionally busy Spring break period."

The company increased its focus on cost control during the 2008 fourth quarter. "Like all companies today, we are stressing careful management of all aspects of our cost structure, including labor," Schaefer continued. "We have aggressively evaluated the operations at our resorts and made adjustments consistent with changing occupancy projections. Our booking window has remained relatively consistent over the past few months, with about 70 percent of our transient rooms being booked within 21 days of arrival. With this booking timeframe, we will continue to concentrate on proper staffing and other cost levels. Importantly, though, we also maintain a strong emphasis on guest satisfaction. Our guest satisfaction scores have remained high, even as we adjust our overall cost structure at the resorts."

Similar to leisure trends in the fourth quarter, the company saw group business also decline during the period. "Our same store number of group rooms was down 8 percent, or about 1,250 rooms, during the fourth quarter," Schaefer commented. "We believe this is primarily due to the widespread economic shifts that started in September 2008. For the full year 2008, our same store group rooms were up more than 29 percent. As a result, we believe the long-term trends in this business can be favorable for us and will remain an important part of our plan to increase our mid-week business."

Fourth quarter operating statistics for the company's portfolio of Great Wolf Lodge resorts were as follows:

                      Great Wolf Lodge Brand - Same Store Comparison (a)

                            Q4              Q4          Increase (Decrease)

                            2008            2007          $            %

  Occupancy                 48.8%           51.4%          N/A   (260) bps

  ADR                    $239.54         $246.69        $(7.15)      (2.9)%

  RevPAR                 $116.88         $126.91       $(10.03)      (7.9)%

  Total RevPOR           $364.21         $378.85       $(14.64)      (3.9)%

  Total RevPAR           $177.71         $194.89       $(17.18)      (8.8)%





                        Great Wolf Lodge Brand - Generation I Resorts Only

                                  - Same Store Comparison (b)

                            Q4              Q4          Increase (Decrease)

                            2008           2007           $            %

  Occupancy                 40.0%           43.5%      N/A       (350) bps

  ADR                    $184.84         $201.52       $(16.68)      (8.3)%

  RevPAR                  $73.99          $87.65       $(13.66)     (15.6)%

  Total RevPOR           $287.40         $305.50       $(18.10)      (5.9)%

  Total RevPAR           $115.05         $132.87       $(17.82)     (13.4)%





                            Great Wolf Lodge Brand - Generation II Resorts

                                    Only - Same Store Comparison (c)

                            Q4              Q4          Increase (Decrease)

                            2008            2007          $            %

  Occupancy                 55.0%           57.1%          N/A   (210) bps

  ADR                    $267.54         $271.03        $(3.49)      (1.3)%

  RevPAR                 $147.02         $154.65        $(7.63)      (4.9)%

  Total RevPOR           $403.53         $418.36       $(14.83)      (3.5)%

  Total RevPAR           $221.75         $238.72       $(16.97)      (7.1)%





  (a)  Same store comparison includes only Great Wolf Lodge resorts that

       were open for all of both Q4 2008 and Q4 2007 (that is, the

       company's Wisconsin Dells, Sandusky, Traverse City, Kansas City,

       Williamsburg, Pocono Mountains, Niagara Falls and Mason resorts).

  (b)  Generation I Resorts same store comparison includes Great Wolf Lodge

       resorts of approximately 300 rooms or less that were open for all of

       both Q4 2008 and Q4 2007 (that is, the company's Wisconsin Dells,

       Sandusky, Traverse City and Kansas City resorts).

  (c)  Generation II Resorts same store comparison includes Great Wolf Lodge

       resorts of approximately 400 rooms or more that were open for all of

       both Q4 2008 and Q4 2007 (that is, the company's Williamsburg, Pocono

       Mountains, Niagara Falls and Mason resorts).

Capital Structure and Liquidity

The company recently completed negotiations on an extension of the maturity date to November 30, 2009 for the $76.8 million mortgage loan on its Mason, Ohio resort. As part of the extension transaction, the company provided the Mason mortgage loan lenders with a partial corporate guaranty and a cross-collateralization on the Grapevine, Texas Great Wolf Lodge resort property, the partial guaranty and cross-collateralization will remain in place until the company makes a $15.0 million principal reduction of the Mason loan over the remaining term of the loan.

"Excluding the Mason mortgage loan, we do not expect to have any significant debt maturities until mid-2011," said James A. Calder, chief financial officer. "This gives us a cushion to wait for some stabilization in the currently disrupted capital markets. On the Mason loan, we believe we can satisfy the required $15.0 million principal reduction through cash available from operations in 2009.

"Going forward, we have no significant long-term capital commitments for construction or development of new properties," Calder continued. "Our largest remaining capital commitment currently is for the completion of the construction of the new Concord, N.C. resort, which opens next month. We expect that all remaining construction costs of that resort will be funded from the construction loan in place for that property.

"Looking forward, the current outlook for the future availability of capital for development is uncertain. As we have stated previously, we do not plan to make any material commitments or to begin construction on future development projects until we have both the debt and equity capital fully committed. We still expect our near-term development plans to focus exclusively on licensing arrangements and joint ventures. That strategy should allow us to use capital most effectively as we look to continue to grow our brand."

Construction and Development Update

The company opened a 203-suite and 20,000-square-foot expansion to the Grapevine, Texas resort in mid-December. "We have had a positive response to the resort and the expansion generated strong occupancy during the December holiday season," Schaefer noted. "We believe the combination of additional rooms and meeting space will allow us to capitalize on this strong leisure and group business market."

Great Wolf Resorts conducted a hard-hat tour in December at the 402-suite Great Wolf Lodge resort currently under construction in Concord, N.C. for more than 500 dignitaries, media and targeted guest representatives. The development costs for the property remain on budget. The property is expected to have its soft opening in late March, prior to spring break. "The nearby Lowe's Motor Speedway recently completed a major expansion which will accommodate a larger number of major new family-oriented events that we believe will positively impact the area and the potential of our new resort," Schaefer commented.

As previously announced, the company has signed a letter of intent with the Mashantucket Pequot Tribal Nation to develop a Great Wolf Lodge resort on tribal-owned land near its southeast Connecticut reservation and Foxwoods Resort Casino. "As we have indicated previously, we will make no material development commitments until we have debt and equity capital in place," Schaefer said. "The timing of this project, as a result, is contingent upon a change in status of the capital markets. We will, however, continue to move forward on the design and permitting activities so that we can get the project underway rapidly when the capital markets begin to rebound.

"If there is an opportunity in the current credit crunch, it is that virtually all indoor waterpark resort development by our competitors has come to a halt," she noted. "We believe a challenging environment in our business sector will ultimately benefit nationally-focused companies with a strong brand and the best people and resources available - in other words, companies like us. We intend to take advantage of our place as the industry leader by positioning ourselves both to increase efficiencies at our existing resorts and to plan effectively for our future growth. We remain optimistic about the long-term prospects for the company."

Key Financial Data

As of December 31, 2008, Great Wolf Resorts had:

• Total unrestricted cash and cash equivalents of $14.2 million.

• Total secured debt of $414.5 million.

• Total unsecured debt (junior subordinated debentures) of $80.5 million.

• Weighted average cost of total debt of 6.1 percent.

• Weighted average debt maturity of 6.6 years.

• Total construction in progress for consolidated resorts and other projects currently under construction but not yet opened of $117.1 million.

Outlook and Guidance

"Similar to many other companies, our near-term outlook for the economy is uncertain," Schaefer said. "We believe, however, that our business model can continue to outperform the overall hotel industry through this current downturn. Compared to other alternatives, we can provide a great guest experience with high value, convenient, drive-to locations, and a strong and growing brand. We expect to open the North Carolina resort in about 30 days, which will tap into new markets and further geographically extend our brand. As we grow, though, we are focused on increasing efficiencies within our portfolio, thereby building and preserving capital until future opportunities are available."

The company provides the following outlook and earnings guidance for the first quarter and full year 2009 (amounts in thousands, except per share data). The outlook and earnings guidance information is based on the company's current assessment of business conditions, including consumer demand and discretionary spending trends, as of February 24, 2009. The company may update any portion of its business outlook at any time as conditions dictate:

                                      Q1 2009           Full year 2009

                                   Low       High      Low        High

  Net income (loss)              $(6,600)  $(5,400) $(25,020)   $(20,020)

  Net income (loss) per diluted

   share                          $(0.21)   $(0.17)   $(0.81)     $(0.65)

  Adjusted EBITDA (a)            $12,400   $14,400   $58,600     $66,600

  Adjusted net income (loss) (a) $(4,560)  $(3,360) $(21,600)   $(16,800)

  Adjusted net income (loss) per

   diluted share                  $(0.15)   $(0.11)   $(0.70)     $(0.54)

The outlook provided above for the 2009 first quarter reflects the expected shift of the majority of the traditionally busy Spring break period from March in 2008 to April in 2009, due to a shift in date of the Easter holiday. The forecast above assumes a first quarter 2009 same store RevPAR decline of approximately 10 percent and a full year 2009 same store RevPAR decline of approximately 5-8 percent.

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