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

All right. Good afternoon, everyone, and thanks for joining us. We're here live with Colin Reed, Chairman and CEO; and Mark Fioravanti, CFO, Ryman Hospitality. Colin, Mark, thanks for being here and taking the time today. Obviously, interesting times we're living in, so let's jump in.

You guys provided an update last week with some recent occupancy and operating trends. Maybe we could just rehash some of those and kind of what you've seen over the last couple weeks and months as we progress through the pandemic?

Sure. Well, let's start with our hotel business. And Mark, if I miss anything, please jump in here. Our hotel, 4 of our 5 hotels are open right now. We have 2 small ones. We really don't count those. We talk about hotels in the context of big ones. Four are open, one are not. The one that isn't is based in Washington. The 4 that are open, we opened the first one -- reopened the first one of those early in June, and we opened the other 3 towards the end of June. We've been pleasantly surprised with the levels of occupancy we're putting through those hotels. We've been generating anywhere from 15 to 20 points of occupancy. At weekends, those occupancies have moved up into the 30%-ish range. And what I'd like to point out, Omer, to the folks that are listening into this, 20 points of occupancy in one of our hotels is a hell of a lot of room nights. We -- our smallest hotel is 1,400 rooms. Our largest is 2,880. And so we're generating a lot of hotel rooms and a lot of outside of the room spend. And we've been very happy with what is going on in -- with COVID, especially with COVID. We -- obviously, in our hotel business, have had a lot of room nights canceled, just like every group hotel and every convention center across the nation. And we laid that out in the report that we put out on Friday, if you referenced. We've had about 1.7 million room nights canceled. We have rebooked just over 45% of those room nights, which is substantial, and we're very, very pleased about that. On the cost side, we have worked very, very hard with Marriott, our manager, in -- we furloughed, basically, I would say, 90% of our payroll in these hotels. And as we have reopened them and we have been bringing back certain of our management. To give you an example, in the Texan that has been operating probably at the highest level of all of those 4 hotels. We have about 180 managers -- supervisors, managers, directors, vice presidents, and we brought back, Patrick, I think, somewhere in the 80 range. So our margins are pretty good. And what we have laid out in these updates is that we estimate that if we can get -- build -- continue to build this and get to 30 points of occupancy, we should have those hotels breaking even from a cash flow perspective. And so that's where the hotel business is. Our Entertainment business, we've obviously been subjected to the criteria that city like Nashville has put out where businesses were closed. And then slowly, they've been allowing businesses to reopen our -- for instance, our restaurant business here is operating at 25% seats available. But our Ole Red's that we have opened have all opened pretty well, and we've been very pleased with that. We've been live streaming at the Ryman. We've been doing paper views for the last 4 weeks on a Friday. We've been live streaming the Opry on a Saturday night in front of no crowds whatsoever, to 0 people in the Opry house. But we've been getting huge online activation last weekend. Not this weekend, on the weekend before, we had Brad Paisley and Carrie Underwood, and we stream that to 2 million people and we also had it placed on our Circle TV network. So given this very, very unusual circumstance, I would say we're in as good a shape as we can be in this very torrid time. And I suspect that through the fourth quarter and into the early part of next year, you'll see, I think our business continue to -- our businesses continue to reopen and strengthen, and that is reflected in the estimated cash burn that we referenced in Friday's release. Down materially from the third quarter. Down materially -- third quarter was materially down from the second quarter. We estimate somewhere between $22 million and $24 million monthly cash burn, and that's after debt service, too. So we're making progress in a very unusual and difficult time.

Awesome. And you alluded to it earlier, but the Gaylord National is the only major hotel here that's closed. Can you give an update as to what you would expect or what would need to happen for that hotel to open, whether it be on the operating side or the [indiscernible] side?

Yes. Yes, sure. So as we think about every hotel in a very consistent way, and there are a number of factors that we take into consideration. One, how much group business does the hotel have on the books between now and the year-end? Is it likely that we can generate tremendous leisure business in a particular hotel? And the fact of the matter is Gaylord National, the National has the highest percentage of group business on an annualized basis, and our leisure business in that market is relatively limited. So that was a factor as to why we didn't open it. The second part of it is the cost structure dealing in a market like Washington, D.C. is higher. Simply because it is a union hotel. And then the third thing that we took into consideration is that this is the only hotel that we have an outstanding major capital rooms refurbishment. And so what we have done is we've accelerated that refurbishment. We started doing that back in the June time frame, Patrick, I think. And we'll have -- we're attempting to get 1,000 rooms done by the end of the year. And over the next month to 2 months, we'll be probably a little bit more definitive than when we're opening it. But I very much doubt whether that hotel will open much before the year-end.

Okay. Awesome. That's helpful. And obviously, a lot of the demand and a lot of the recovery has been driven by that drive to leisure guests. What are the different levers that have worked and didn't work in capturing that shorter lead time leisure guest?

Yes. So what I would like to do is answer that question in a little bit more of a complicated way, which I think will be helpful to those that are listening. Our brand, this Gaylord Hotels brand, is a brand that this company designed, built and operated. And we handed it over to Marriott in early part of '13. Now part of the characteristics of this brand was that we wanted to make sure that the physical product was exceptional. That we put entertainment in these things. That we have great service and we know the customer better than anybody else. And so these hotels, Omer, I don't know whether you visited any of these hotels. But these hotels are very different to what you tend to see parked next to a large convention center in a city, let's say, like Indianapolis or pick it wherever you want to go. These hotels have extraordinary attributes. We have beautiful stars. We have beautiful pool complexes. We have multiple restaurants. We have retail. We have beautiful atriums and the list goes on and on, sports bars. And so there are 1 or 2 folks in the sales side, your brethren on the sales side, not with JPMorgan. Though it would sort of say, "Well, you're a group business, you're a group company, therefore, you can't drive leisure." That is so far from the truth. The busiest time of the year for this company, for this brand in the period between Thanksgiving at the end of the year where we don't do group business. And so we overlay it with these really beautiful leisure propositions. And that's truly what we've been up to here with Marriott since this pandemic hit in early middle March. And so we obviously shut the hotels down and then we prepared them for opening. But in that period, in middle May through the middle of June, we spent a lot of time building leisure driving programs in these particular hotels. And frankly, generating about 20 points of occupancy with the average hotel size, I would think, it's probably 2,000 rooms. That's 400 room nights -- a night since we've reopened them in each of these hotels. If this was a 500-room hotel, each of our hotels with 500 rooms, we'd be running at 80 points of occupancy. So that's what we've been up to. And Patrick Chaffin, who runs asset management side and essentially responsible for our hotel business has been working with Marriott putting together these beautiful programs. And I think we -- in our disclosure mark on Friday, we put in some illustrations of some of those programs. So they've been working pretty well. And I would like it if we had maybe bigger pool complexes at 1 or 2 of our hotels, but right now, our -- the assets that we have and the way we market them, I think we're doing pretty well. We're doing pretty well.

Maybe if we pivot a little bit to the group business and talk about cancellation trends, how would you describe the evolution of the forward cancellations to date? How far in advance are these events being canceled? And we've generally seen a 2021 cancellations focused on the first part of the year, maybe the first quarter or so. With your recent update, 11% of cancellations were for 2021, which is a bit more than it was in July. Is this still the case? Is it still, kind of, restricted to that first part of the year?

Yes. And there's a reason for this, and I need to explain this to you. So every large group that we do business with. And one of the things, Omer, you have learned about our company is we have a very high loyal base of customers that we rotate from market to market, year-by-year. And we'll talk a little bit more about that in a minute. The way these contracts work is that if a company like JPMorgan comes to us and says, "Look, we want to come and visit you in 3 years from now." We negotiate the contract. We put in the amount of room nights that you're going to generate. We also put in food and beverage minimums. And as the time between now and when you come gets closer, the amount of cancellation and attrition fees, if you may owe us, will go up the nearer we get to the time you come to this particular convention. And so the way it works is if you cancel with -- in the period between a 1 year out and the 6 months out, you have to pay x. If you cancel within 6 months, it's essentially our profitability. So what is going on now with some of the groups who are contracted to come in that first quarter of 2021? They're saying we would prefer to cancel right now because the fees we would owe you would be less than if we get to the end of the year, and we find that we can't come because we don't have a vaccine. So that is why we're seeing some leakage in the early part of 2021. But it's because we have these really, really strong contracts. Now the other thing that I want to say is that we took a decision as a company back in March of this year that because of the restrictions government have placed on people moving around this country, and regional government, city governments and state governments saying, "You've got to close your business." We took the decision in the early part of this of pandemic, that we would not enforce cancellation fees, providing that the group in question rebooked with us. And on one of the pages of the presentation, you'll see how those rebooked room nights have been rebooked into '21, '22, '23, '24 and above. So that is what's going on here. But the real good news is, is that 46% of the cancellations have been rebooked into contract form for periods downstream. So the moment our society gets comfortable about meetings taking place, these meetings will be held and our business will be at or about where we were a year ago. So that is what's going on in the -- with group business. Mark, do you want to add in some of this?

Yes. I would just add that, to Colin's point, meeting planners and groups are trying to manage their contract cancellation exposure, their fee exposure going forward as we roll through this period and things begin to open up. But the other feedback we're getting from meeting planners is that there is a desire to meet. I had -- we had a conversation on Friday with our Head of Sales for Opryland. And he's very, very optimistic about the desire for groups to meet even, frankly, pre-vaccine. There are a number of groups who are anxious as restrictions get lifted to come back together. So yes, groups are managing that fee exposure, but they're also very eager to get back to meeting. And we -- that makes us feel very optimistic about the speed with which our business can re-ramp once groups begin to travel.

If I may, let me just add one more thing, and it's regarding our prosecution of attrition and cancellation fees. As I said just a second ago, we made the decision with Marriott that we weren't going to prosecute in this period of time when the customer could argue force majeure, that there are these external events that they have no control over. What we have decided as a business is that as we move towards the end of this year, and these restrictions are falling away where cities are starting to open back up. If a client decides they want to cancel, let's say, for February, March of 2021 today, we're taking the position that the attrition and cancellation fees are owed to us. And now will we be lenient with the loyal customer and rebook that loyal customer? Probably. But overall, we're taking, now, a little bit of a different approach for the early part of next year than we took in the summertime of this year.

Got it. And I think you were touching on this a little bit in terms of the propensity to travel and that still being there. Does that differ by segments, whether it be corporate planners, wedding, planners, associations, large group?

Clearly, the wedding planner wants to hold the wedding. The association really has to -- so I don't know whether you're familiar with the association market, but associations all across this country use their annual meeting as a way of generating a large chunk of the money that they need to sustain the association. So for instance, in 2009, when we had the financial meltdown, the financial crisis, in that year, we had about 135,000, 140,000 room nights canceled. Of which, literally, 96% of those room nights were corporate and only a fraction were association. So we, obviously, as soon as this country gets back and feel safe and secure, notwithstanding the point what Mark made -- the point Mark made just a second ago. We think the association market is going to come back pretty quickly. Corporations, I think, are going to be a little different, and it's going to be circumstantial based on each corporation. And I know -- I'm sure, Omer, one of the questions you may have is the systemic changes to business caused by COVID. And one of the questions is, does work-at-home, stay-at-home, change the convention industry, the group industry. And our thinking is -- and based upon some conversations we've had with the meeting planner is it should be positive for us because corporations may scatter their employees across the 4 corners, but they've got to bring them together to build the culture and to talk strategy. And I think all of us don't like working at home in the basement. And so I really don't think our segment of the industry is going to change much. I'm really glad that we, as a company, are not in the business transient side because I think video conferencing, the likes of which we're doing here could impact the one-on-one type meetings. But when you need to bring 500 to 1,000 people together, this is a little bit more challenging.

Got it. Awesome. That's super helpful color and I appreciate it. So if we, kind of, look at your business and we think about the drive-to and the fly-to markets. Historically, what percent of your stays do you think were fly-in business versus drive-to? And then which of your resorts -- we touched on Gaylord National earlier being more of a fly-to market, are best and worst positioned to, kind of, address that in the near to medium term?

Well, that's a simple question, but it's a complicated answer. From the leisure perspective, I would say the vast majority of our business, say, Orlando is drive-in business. Because each of our hotels, if you look at -- draw a concentric circle around each of our hotels, you go out 300 miles, you probably have 100 million people residing in that concentric circle. So it's a drive-in market. Orlando is very different because of its geographical positioning in the country, but also because of the national -- the national attraction that Disney and universal bring. So we see, from a leisure perspective, more fly-in in that particular hotel. But we predominantly do business with national customers. That's why when we opened Denver, it was very important to us because we were -- it gave us access to those Western corporations that we're able to bring into a market like Denver and then rotate through the rest of our business. And we have been very careful and in terms of where we position these hotels. If you look at our hotels, they -- apart from Washington, they all sit near a large airport. Denver, our hotel in Aurora sits next to that hotel that has that airport that historically has had 65 million de-planements and planements, 3 hubs, 12 international flights a day. Dallas, the same thing in Grapevine. National -- Nashville here, huge in Orlando, the same thing. So from the group customer, we tend to like to do business with those group customers that are between 1,000 and 2,000 at peak that are national, and they come in by air. And frankly, we don't see any change in that. These groups have to meet. And now maybe there's a way in which we -- instead of doing one large meeting in one hotel, let's say, in Dallas, we do 5 meetings for the same company and link them together through video conferencing. But I don't think there's any systemic change to this. But whether they come by rail or by car or by air depends on the type of customer. Do you want to add on anything?

I would just say that if you look across the portfolio, probably in Texan and Opryland, they have the strongest driving markets. They also have probably the most robust amenities to support drive-in leisure with the pool products that they have. Yes. Those are probably the 2 strongest.

Yes.

On the pricing front, how competitive are you and how competitive is the market there on the pricing? Obviously, everybody is looking to increase occupancy of these in fairly low levels, but how competitive has it been on that rate front? And how much of that has kind of translated into forward contracts when you talk about rebooking these large groups into future areas?

Yes. Well, again, what I want to remind you of is we don't -- we are not -- you're going to think I'm crazy here, but we're not obsessively focused on ADR and RevPAR. We generate for every dollar in the room, we generate $1.50 outside of the room. So we think about total RevPAR. And we map these hotels against competitive hotels through Smith Travel. And we have, as you probably know, very large RevPAR -- historically have had very large RevPAR indexes. The good thing about our business is our hotels are very different to what you tend to see. So we're not out there slashing our rate to try and drive business. Our rates have been pretty good over the last 2 to 3 years, and that's why our margins in our business have also been historically very, very strong. So the other part of it is, as you well know, pricing is a function of supply and demand. And on the supply side, there really aren't any hotels like our hotels being built in this country. And so when you look at the amount of meeting space that we have per guest bedroom, it's disproportionately greater, and it's done on purpose than what you tend to see in our segment. So pricing historically has been decent. And I -- one thing I look at, as does Patrick and Mark, every month, all of the new business we sign up, we look at the pricing that Marriott is extracting and we compare that to the pricing grid of 12 months earlier. And I've been very comfortable, as I know Patrick has with how we are driving pricing for future years and future conventions in our business. And as I said, from a supply perspective, things are only going to get better because there is not going to be strong supply growth in the sector that we're in. Did I miss anything?

No, I would just say that the -- obviously, the vast majority of the business on the books was pre-COVID, at pre-COVID rates. The business that we're rolling and rebooking is at previously contracted rates. And when you look in the near term, rates are not going to drive people to travel during COVID. And you see that in our transient rates, we're running about 140 STAR Index on ADR compared to our comp sets. So people are making choices about where to stay not based on rates, but about amenities and about their comfort with cleanliness and other types of amenities.

And I've been surprised that we're actually booking non-rebooking room nights. We're booking 40,000, 50,000 non-rebooking room nights. And we've been booking those at a really good clip in terms of rate. And so rates is the first issue that we have to deal with. It's how do we drive room nights here over the next few months until our society becomes comfortable that traveling on mass, on block is, once again, a good thing.

So generally, across your 5 major hotels, you need 30% to 40% occupancy to breakeven on EBITDA, 50% on free cash flow. How does this -- so obviously, we touched about rate, but how does this kind of assume rate in terms of channel mix, presumably, if you're leaning more on that leisure customer, given that dynamic that you discussed about the out of room spend. How does your reliance on the leisure customer, kind of, impact that breakeven math?

Well, yes. You're going to get to that breakeven at 50 points. You're going to be introducing group into the mix right at that point. So I think your mix is going to be in -- is going to be normalizing. And it's going to be normalizing at contracted rates.