Ryman Hospitality Properties, Inc. (RHP) Earnings Call Transcript & Summary

Citi's 2020 Global Property CEO Conference. I'm Smedes Rose of Citi Research. We're pleased to have with us Ryman Hospitality, and CEO, Colin Reed. This session is for investing clients only. If media or other individuals are on the line, please disconnect now. Disclosures are available up here and on the webcast on the Disclosures tab. For those of you in the room or on the webcast, you can sign onto liveqa.com, enter code citi2020, and submit any questions you have or if you're in the room, you can just raise your hand. Colin, I'm going to turn it over to you to introduce the company briefly and your management team that's with you. And as part of that, I'd like you to provide the audience with 3 reasons why investors should buy your stock today, and then we'll go into some Q&A.

Okay. Good morning, Smedes. And first of all, thank you for going ahead with this conference. We think you did -- have made the right decision. To my left is Jen Hutchinson. Jen is EVP and Chief Accounting Officer for our company. We are introducing Jen to the more interesting side of business, dealing with the investment community. And Todd Siefert, to my right, is Senior VP, Treasurer of our company. So our organization is essentially made up of 2 businesses. We are in the large convention resort business. And we own 5 of the top 10 convention resorts outside of Las Vegas in the United States. And these businesses have been performing very, very, very well over the last few years. And we also have an Entertainment business. And we own some of the country's most iconic music venues in Nashville. And I'm pleased to say after the tragedy of the tornadoes last night, our businesses are all still standing, and with no damage. And so far, we haven't had any reports of any injuries to our people. So that's our 2 businesses. In terms of why investors should be interested in buying our stock, I would draw your attention to 3 things, maybe 4. I know you've asked for 3, but I'm going to give you 4. The first is the fact that our business -- 70% of our businesses group like these groups. And the interesting thing about it is our groups have contracts. And as a consequence of that, we had, coming into this year, 6.8 million gross room nights on the books for future years. We came into this year with 53 points of occupancy on the books in contract form for our same-store 4 hotels. And we opened a new hotel in Aurora, Colorado, Colorado's largest convention hotel. We opened that in December of '18. And we went into this year with over 60 points of occupancy on the books for that hotel, which is, frankly, I've been in this industry a long time, and that's absolutely remarkable. So we're really well positioned here. And I'm sure we're going to talk about coronavirus and contracts and attrition and stuff like that. I can't imagine we're not. So I'll save comments on the contracts in a second. The other thing is, the second reason is that we have several major investments that we have made over the course of the -- we have made over the course of the last couple of years and are making, as we speak, and this is going to afford us really decent growth. First is in our Entertainment business, we're opening Ole Red, Orlando. We've got more Ole Reds coming. We recently purchased Block 21, which is an entertainment district in downtown, Austin. We've launched a new television platform called Circle in January. The -- we've just announced the expansion of the Gaylord Rockies Hotel that's only 1 year old, and I'll talk about that in a minute. And then the Gaylord Palms expansion, which is underway, and we've got a ton of excess land. The third is that we've got a pretty strong financial position. Our balance sheet is really strong. We've paid a very high -- good dividend. We generate a lot of cash flow in our company. And with the forward book of business that we have, our businesses, I think, is primed for the next few years. But the fourth, I think, is really important, we converted to a REIT, as you know, Smedes, 7 years ago. And if you look at us up until last week, if you look at us on a 1-year, 3-year, 5-year, 8-year basis, and you compare us to the other hospitality REITs, we're 1, 1, 1 and 1 in terms of total shareholder return. And so I think we've got a lot of growth coming. And we know how to turn that growth into total shareholder return. So they would be the 3 with the underlying that we done it before.

All right. So we'll go into some questions, but we have -- first question we're opening with each of these sessions with is, ESG is an increasing -- of increasing importance for all company stakeholders. What is one thing your company is doing to improve your overall ESG score over the next 12 months?

Well, obviously, ESG is -- when you listen to guys like Larry Fink-- it's sort of flavor of the day. But we've been at this for a long time. In terms of the environmental piece of this, we have converted all of our -- a lot of our power plants in each of our big hotels. We use digital thermostats on all of our boilers, and we've been dealing with electricity, lighting in our hotels to just be good stewards of this area, but also to conserve energy. And we've been pretty good at that. In terms of the social piece, we've been a very philanthropic organization as long as I've been at this company. We do lots of things in our markets for education and youth and the arts. And on the governance perspective, I feel very proud about what we've done in terms of our Board over the last few years. And just -- we punch well above our weight. We've got 8 members on our Board. 4 members are sitting CEOs. I mean you can look around our peers, you don't see that. We've got 2 minorities on our Board. We have 2 females on our Board. We have sometimes, it becomes a little taxing, but we have 3 Harvard MBAs on our Board, and we have brought the Board tenure down over the last 5 years from 15 years to now 5 years, and the average age is 47. So I'm a big outlier on this Board. So we have really upgraded. And interesting, I got a call from one of these big board search organizations about 3 weeks ago, who wanted to ask me if we -- they could do a study of our Board and the relationship our Board has to our TSR that we have done because they believe that there is a -- and I do, too, that the stronger your Board, the stronger the TSR. So I'm very proud about that part of it.

Okay. So obviously, the last several weeks have been really overshadowed by coronavirus. It's taken a big toll on hotel stocks. We've seen some press releases out from other companies. So what are you guys seeing, I guess, in terms of any cancellations of visitations?

Yes. So this is -- this coronavirus is a very unusual thing. And we -- I've been CEO for this company now for 19 years. And we've -- as an organization, we've lived through 9/11. We lived through the financial crisis. We lived through a major flood in Nashville that shut our businesses down for 6 months. And we witnessed the panic in the market and the reaction of consumers. And so we, as an organization, we have, and we have had this for the last 10 years, a crisis management organization in place -- committee in place to oversee situations like this. Actually, in 2015, we had a norovirus in one of our hotels in Nashville, actually. Essentially, we had to shut that hotel for 3 days when someone brought the virus into that hotel. So we've had lots of experience in this type of thing, but this is a little weird. So last week and frankly, we've been dealing with this, I suppose, for about 3 weeks now. We've had a couple of groups. First of all, technology groups that we've seen larger-than-usual attrition. And what we have done is we've studied those groups, talked to those groups. And we've identified both of those groups. The reason for attrition is because of international delegates that were going to be coming to that convention now -- those conventions. Both of those groups will have to pay us attrition because we have a contract. Every -- 99.9% of our business, group business, is conducted through a contract. And essentially, what happens is the group agrees, the company agrees or the association agrees that they will come 3, 5 years from now or next week, whenever it may be. And if they decide to cancel, they have to pay us either a cancellation fee, or if they show up 50% light, they have to pay us attrition. And it's all preagreed to. So those groups, we'll have to sit with those groups, and they'll have to pay us attrition. Now we had last week 3 groups that canceled. One of those groups is a loyal group that's been coming to our hotel for 10 years. And they said, look, we really just -- because of all of this fuss, we can't come next -- this week in Orlando. We can't come. But this group would have had to pay us somewhere in the region of our profitability. And the way this particular group works because it's been a loyal for 10 years is that, that group has a rebooking clause. So what it means is, that they can book within a 12-month period and they can be relieved of about 75% of the cancellation fee. And as of last night, that group is still looking at a particular date in October. So we'll see where that goes. One other group canceled last week about 1,500 rooms. And that group does not have a rebooking clause. That group will have to pay us attrition -- will have to pay us cancellation. And then we had a group, it was an interesting group that's a little different to what we typically do, it's with the U.S. armed forces, and it was 50 rooms over about a 5-month period of time, mid-week rooms and that total, I think, it was about 8,000, 7,000 room nights. That -- because that business was short-term business with the U.S. armed forces, that is not a group that we -- that has a cancellation fee built into that. That was short-term business that we took to fill out. Now the good part of this is that we feel that some of those weeks where that group is not coming, we'll be able to fill that because those are weeks that we're already full. So that's what we have seen. We've been having calls every night, 5 o'clock, talking to our sales people in our businesses, and frankly, we just finished up the February bookings for our company, and they were solid rate growth. January and February, we'll talk about that when we do our earnings call in early May, but our January and February has been pretty good. On the leisure side, Smedes, we're really seeing no change. Our leisure business over the last week has been pretty solid, both in our hotel business and in our Entertainment business. Did I miss anything?

Okay. Yes. That's right. So I wanted to ask you, in the financial crisis, one of the big selling points around cancellations that you would receive fees and it's something you've talked about before, it's kind of a backstop. And I would kind of sort of ask this in conjunction with the question from the audience and say, do you feel this is the most defensive lodging stock in the market, given the certainty of cash flow? Has that improved at historically in a lower volatility of cash flow?

Yes. So let me give you a couple of benchmarks. So we have 1 hotel operating when 9/11 occurred in Nashville. And that was Opryland in Nashville. And we have positive RevPAR growth 3 months after 9/11. If you'll recall, those of you that were in and around business, I mean, basically, the airlines shutdown because everyone was afraid of flying across the nation. But we had positive RevPAR growth 3 months after, simply because associations, and we can get into that if you want to, but so much of our business is association business and associations tend to turn up. In the financial crisis of 2009, in that late period of 2008/2009, we had a total of about 135,000 group room nights canceled in that period, of which 130,000 of those were corporate and 5,000 was one association. Now if you go back and you analyze what happened in the hospitality space in that period, you will tend to see revenues for the hospitality companies decline somewhere in the 15% to 20% range, and profitability was off anywhere from 30% to 40% in the financial crisis. Our business because so much of it is in contract form, our business was off 10% in revenue and 9% in profitability. And the reason for that is, we collected almost $30 million of cancellation fees in '09 from those organizations that canceled or didn't turn up in -- to their block. So I don't know how to think about this coronavirus. And we all have our opinions as to what may or may not happen here over the next few months. But I -- my personal belief is that this is a wonderful country, and we will have a something for this particular virus that people can be inoculated with. And in a relatively short period of time, I know, we hear anything from 6 months to a year. But I feel that this issue will be dealt with and I feel the country will get back to business. And I feel that our business will be very solid and very strong when that happens, is that going to happen in a month, 3 months, God -- none of us know at this moment in time. And -- but my sense is, we're -- I'm sure we'll talk about capital deployment. We're an organization that focuses on the long-term here. We're trying to build businesses that are sustainable, not only in the good times, but in the bad times too. And my sense is this country will get over this issue relatively quickly. And...

In the last -- in the great financial crisis, you mentioned 135,000 room nights canceled. And significant fee collection. That was when you were still Gaylord, right, and negotiating with your contracts. Is there -- is it different with Marriott now running the contracts there? Are they going to be more willing to say we're going to work with you, or what's the -- or is it the same?

Yes. So this is -- how do I say this?

Just spit it out.

So one of the benefits of our company is that we built this brand. We operated this brand. We conceptualized this brand. We knew the customers. We know the sales people. And when we handed it over to Marriott, we said, guys and girls, this business, you're going to be our manager but you're going to operate it in a way that we feel comfortable. So as an example, one of the things that we do, I heard yesterday, one of our compatriots was making observations that the contracts Marriott's doing, and we as the owner don't have anything to do with that. We audit these contracts. I mean we've got an audit team that goes in to make sure that these contracts have the framework that we gave them when we handed this business over to them to manage. So even though the financial crisis was when we operated this business, today, I feel pretty confident that the form of these contracts and the behavior of the salespeople, most of which are people that we employed are consistent with what went on back in '09.

Okay. So I want to move on to some other segments. I did want to ask one more question about these contracts. You mentioned cancellations versus attrition fees. Can you talk about a little bit about the difference? I mean my sense is cancellation, you're starting at 100%, and then you start negotiations, what's the difference with the attrition in terms of what you -- what the customer pays?

He's asking about the difference in cancellation fees, what's the difference between the two?

Well, the attrition fees, the way they work is, so let's take it simply, you contract for 1,000 room nights at $200. And what we do when we put this piece of business on the books, we do what's called blind cutter, where we put it on the books at 90%, a bit like the airlines. We put it on the books at 90% to make sure that we don't have nights where we are 10% because they don't show up in full. And then we give, in the contract, each group, depending on the group, we give them wiggle room. And we basically say, if you turn up with 800, you have to pay us x. The other -- so that is the way that works. And also, that was the way the attrition works. The other thing is, into the contracts, we put food and beverage minimums. So this group, for instance, will contract with this hotel to do all of these breaks, and they will deliver x amount of breaks at x amount of dollars per number of delegates and you put food and beverage minimums in. So if we get into the group, and all of a sudden, the group is saying, I want to cancel this. I want to cancel this. You get into a situation where you have -- you can -- under the contract, you can go back and you can say you haven't met your food and beverage minimums. Most of the time, it works the other way around where the group increases stuff. And that's why we've had much stronger outside of the room spend over the last couple of years than we have inside of the room spend. In terms of cancellation, there is essentially a glide slope into these contracts. So the nearer you get to the date you come, the more you have to pay us in terms of the cancellation fees. So essentially, the way we work it is that if you cancel today for tomorrow, you pay us our profitability.

Okay. So one question from the audience here. So what's the difference between the full expected EBITDA from a large group versus the cancellation fee should the group cancel? I mean do they -- I guess they can come fairly close to each other?

I'm not sure I understood that question.

Well, if a large group cancels, and let's say, it was going to generate $100 for you, and you get a cancellation fee instead, is the fee $100 or is it $95? Or kind of is there a rule of thumb of what the cancellation fee would be?

$100. Yes. Yes. Yes.

So okay. You're starting even.

Yes.

One more question from the audience here. On your call, you used the term force majeure, unless the term force majeure is in place, fees are in place. What's the definition of a force majeure event? And would a pandemic qualify?

Well, a force majeure would be act of war, act of God, the building getting destroyed last night by a tornado, and it can't happen. We can't claim. They can't come. Government shuts down travel in this country, that will be a force majeure, but responsible organizations like us insure against that. We have very, very strong business interruption insurance. For instance, when we had the norovirus, when that individual brought that virus into our business at a conference 5 years ago, and within 24 hours, 300 people had stomach flu. We shut that building down for 3 days. We had a business interruption claim through that period and we claimed, and we filed the claim with our insurance company and our insurance company paid us. So we're pretty well protected here, I think, as an organization. I would much rather be in our position than have 70% of our business in the business transient leisure mix to 30% corporate. I'd rather be 30% grouped. I'd rather be in this 70% group to 30% corporate range any day because of the contractual nature of our business.

So yes, let's -- on your year-end call, you talked about gross bookings of about 2.2 million room nights.

That was last year, '19.

Right. For year-end '19?

Yes.

That you have $2.2 million going forward, right?

Right.

And I guess it would be interesting to hear maybe what you're seeing on the sort of pricing around that? And how you think about yield management in terms of the current economic environment?

Yes. Those room nights, what we do is we compare those room nights last year to the room nights that we produced the previous year. And those room nights, the rate on those room nights were up just about -- just a fraction over 3%. And as I look at our rate growth this year, January and February, and our production in January and February because of the tremendous amount of bookings, Smedes, that we've been putting on the books for the last 3 to 4 years, we've got far less availability as a company than we had this time last year and a year earlier. So we have been really pushing our manager and the sales organization to push, push rate and we're seeing that manifest itself in the actual production. The other data point I'll give you is, the other thing that we really look at is lead volume, lead volume by year. And it's interesting over the last couple of years, we have seen lead volumes continue to kick off. And our lead volume over -- at the end of February of this year, our lead volume was pretty healthy. And so that's one of the forward-looking things that we pay very close attention to. How many meeting planners are coming to us saying, hey, we're thinking about a convention at this point in time and let's negotiate. And our lead volume looks pretty healthy.

You guys talked about that you're doing kind of an updated read, sort of, a surveys talking to your meeting planners, is there anything that you're -- have discovered, I guess, since from the last time you did this?

Well, the answer is, I -- we don't have that data yet. And just for the folks in the room, one of the strong beliefs I have is that there is a big difference in business between thinking and knowing. And we challenge our managers all the time in these hotels and we challenge Marriott to absolutely know what's in the hearts and souls with meeting planners. And so our company decided to do -- even though we're a REIT and Marriott's the manager, we are in the middle of a very big piece of research where we're out talking to literally hundreds and hundreds of meeting planners across the country. We did this a few years back, and it was this data that helped us focus on these particular groups, which the last time we did it, there were 26,000 of them in the United States that want to, all under one roof, experience like groups like this, that want also to -- most of them want to rotate from market to market year-by-year. And those 26,000 groups, they were 600 people at peak, minimum or bigger. And what we found is that 50% of those groups want to go to Vegas, the other 50% never want to go to Vegas because they want to keep their people focused on the charge at hand. So we're redoing this data as we speak, and we'll have this thing knocked out in the next couple of months. We started it about 3 months ago. This takes a long time to literally sit down and do focus groups with somewhere between 600 and 1,000 meeting planners. But when we do our investor meeting in September, I'm sure we'll have all that data ready to share with the investment community, and we're looking forward to that.

Okay. We had someone from the audience asking a question, I think a clarification question on the way that the -- for cancellation fees. Because groups typically exceed your minimum contractual spend, does the cancellation fee make up for projected actual group spend or just to make up for the minimum contractual spend?

Yes. It's actually just what's in the contract. So basically, it's the rooms that are contracted at times the rate, it's about 75%, 80% that, and then the minimum food and beverage that's in there. Obviously, we'd be in a much better position for those groups to come in because you don't capture the ancillary spend, whether it's in your food and beverage outlets, parking, spa, all of that. And also the -- you don't have an opportunity to upsell those groups while they're on in-house as far as our food and beverage offerings. So it's just the contract within the contract.

Okay. And then there was a question on timing, too. If cancellations, a day -- canceling couple of days in advance versus canceling 1 to 3 months in advance, what are kind of the metrics that are used for fees and attrition fees?

Yes. And Colin answered that, the closer they are, usually if you're -- depending on the size of the group, it's a larger group and you're 6 months out. It's more punitive. So the closer you're into the travel day. If we can actually resell those rooms, we find another group that comes in or helps offset it, we won't double dip. So we won't charge both the cancellation fee and book the new group that's coming in. So...

We're learning a lot about cancellation fees in this conference this year.

I bet this group, you're going to be into attrition. There's -- of all the years I've been coming to this Citi conference, it seems fewer people this year. And I bet you this -- the Hilton boys will be all over you on cancellation fees -- on attrition fee. And good luck. If you need some help in negotiating this, give us a call.

I'll give you call. Okay. Well, speaking of Hilton. I mean they've launched a brand, that sounds like it's kind of targeted at what you're doing with Signia. They've got one -- some new construction and then 1 under conversion. Have you heard anything about that? Or do you consider it a competitor?

He's asking if Hilton...

No. No. No. Look, I can tell you, the hotel we opened last year in Aurora, we started negotiating this 10 years ago. These buildings don't happen overnight. These buildings take 2 years to negotiate within a municipality, they take a year and 1.5 years to actually physically design and you don't design them before you finish your deal with the municipality. And then it takes you anywhere from 3 to 3.5 years to build, at best. So all of a sudden, someone sort of says, hey, we're going to create this brand. It doesn't happen overnight. Similarly, when you hear our compatriots say we're going to group up, it doesn't happen overnight because corporations tend to book 2.5 years ahead of time and associations 4.5 years ahead of time. We've been at this now for 15, 16 years, and that's why our business is performing the way it's performing. So we don't look at Hilton's. What is going on is there's a lot of focus on our company because -- simply because of each one of our hotels have such a large market share in each of the markets they do business in. We've been expanding these hotels. We've been driving profitability, driving total shareholder return. And all of our competitors are saying, boy, we want to do this, but it takes a long time, this stuff doesn't get done overnight.

Okay. We're -- as we come in towards the end here, I did want to just ask you a little bit about -- you made some initiatives on the entertainment front. Just as you think over the next couple of years, what -- as a percentage of your company's overall EBITDA, where do you think entertainment moves to?

So boy, we could spend 3 -- we could spend another 30 minutes talking about this business.

But we can't.

But we -- let me sort of -- let me give you 1 minute. We essentially have such a large presence in country music. We've approached our Entertainment business the way we approach the hotel business in the sense that we identified how many customers there are out in the United States of America in this genre, it's about 120 million of these people that are avid country music fans. And so the issue for us is, we don't want to build bars around the country and serve hamburgers and Budweiser, anyone can do that. But what we want to do is build a relationship with these folks around the country, and then sell them the content that our company either owns or is currently creating. And so that's -- we've got these iconic assets that give us this preferred relationship with the country music folks, the great artists, the great songwriters, and we have so much content that we own and that's why we launched Circle, this linear TV platform on January 1. We're now into about 60% of the households across the United States. And we are going to launch an SVOD, an over-the-air, over-the-top service sometime in the middle of this year where we'll take all this content direct to consumer. We touch millions of people in this business, and frankly, we haven't talked about Block 21. The reason we bought this Block 21 in Austin was because Austin is probably the second most important music market in the United States to Nashville. And Austin, this theater that we purchased is where Austin City limits occur. So it's going to give us an opportunity to speak to just millions and millions of people that we don't speak to today in order to sell the SVOD to when we get this up and running in the middle of the year. This...

All right, Colin, 10 seconds left. We got to go.

All right.

More or less companies in your sector a year from now?

I'm going to give you the same answer last year, there should be less, but would probably be...

10 year, 1 year from today?

I have no comprehension. I mean God almighty, 3 weeks ago, it was 175. Any way.

What year will the U.S. go into a recession?

Tell me what's going to happen in this election and with coronavirus, I'll give you an answer.

All right. Thanks for your time, guys.

Thanks, appreciate it.

Thank you.