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

[Audio Gap] Citi's 2021 Virtual Property CEO Conference. I'm Smedes Rose of Citi Research. We're pleased to have with us Ryman Hospitality and CEO, Colin Reed; and CFO, Mark Fioravanti. This session is for Citi clients only. If media or other individuals are on the line, please disconnect now. Disclosures are available on the webcast. [Operator Instructions] Colin, I'm going to turn it over to you just to quickly introduce the company and Mark. And then I want to start with the following question, which is coming out of the pandemic, if an investor would choose only one real estate stock to own, what are 3 reasons why they should invest in Ryman?

Okay. Thanks, Smedes, good morning. Good morning, everyone. And hopefully, this is the last time we hold a conference like this virtually, and we're all back together. And hopefully, we can convince you at some point to do it in a really good hotel. So with me this morning...

I think you have one in mind.

I had 5 in mind. So this morning with me, as you introduce Mark here, Mark Fioravanti, the President and Chief Financial Officer of our company; we had Todd Siefert as well with us, Todd is the Treasurer of our company. And Jen Hutcheson, Jen is the Chief Accounting Officer of our company. And we've invited this group here this morning. Our company, really, we're in 2 lines of business. We own large convention resorts. We own 5 of the top 10 non-gaming convention resorts in the country where they operate as 1 brand, the Gaylord brand. They are market leaders in each of their markets without question. And we believe these hotels are poised for a very strong recovery here over the next 12 to 24 months. We also own an entertainment business that we believe is extremely valuable. It's a sleeper. Pre-COVID, this entertainment business was on a run rate in 2020 to do somewhere in the $60 million to $70 million of EBITDA. It's a real business, and we believe it to be of great value. Let me -- so that's our business, and we can talk a lot about the individual pieces of it in a minute. But let me get to your question about if an investor has to choose one, who should they choose. And I was thinking at the weekend when I was watching some of these derby prep races for the Kentucky Derby that what I was going to try and answer your question metaphorically and say, if this was a horse race, and you could only bet on 1 horse, what would be the 3 things that you would look at? And the 3 things you would look at would be past and current form, past and current form. You would look at the conditions of the race. And you would ask yourself question, is it likely that a particular horse is going to improve over its past performances prospectively? So in terms of past and current form, there's no question that we're the strongest horse in the race because if you look at our company on a 1-year, 3-year, 5-year, 8-year TSR, going back 90 -- from 2019, we're 1 and 1, 1 and 1. We have dramatically outperformed in total shareholder returns through that period of time. And we've done that because we've deployed capital very, very well. We've deployed capital into very high-returning projects in an environment with no new supply. And the hotels, by and large, have been run very, very well. In terms of current conditions, if you look at what has happened to our business over the last 3 quarters, and particularly focus on the fourth quarter, again, I think we are the shining light in a very dim environment. When you look at how much we have -- all of the cancellations that the entire industry, the entire United States of America have absorbed the cancellations of every -- basically every group, we -- we've rebooked 60%, almost 60% of those canceled room nights. We were the only company in the fourth quarter that actually produced positive consolidated EBITDA for all of our hotels, including the one that we had closed. And the other thing is, if you look at them, dig down into the fourth quarter again, we actually had ADR growth, whereas the competition, if you look at the other horses in the race, they all were down 25%, 30%. So then the other question is -- so then the last question is, are we likely to improve over our performance? And you've heard us talk about the fact that we've learned a lot in the last 9 months. We're going to, I believe, come out of this with margin growth. We've got a very strong forward book of business. We've -- we also have the opportunity of extracting profit from assets that we brought to the market over the last 2 years, additional profit. Our SoundWaves is a very new venture. Our Texas expansion is an expansion that's been open about 2 years. Our Palms expansion is due to open. And we have further expansion opportunities in our existing business. And then last but not least, we have substantial upside in our Entertainment business. So I would conclude that if this was a horse race, and we were sitting at Churchill Downs, trying to pick the winner of the Kentucky Derby, there's no other horse in the race that has the history that we do and the positioning that we do coming out of this mess. So that's how I would answer your question.

Okay. I appreciate that. Before we go into questions, I wanted -- there's someone typing. I'm not sure if it's an open exchange or someone else that's on an open line. But if they could mute themselves, that would be better.

We don't see that, Smedes. We don't see that. We don't see that.

Okay. I hear it on my end, and it's distracting me. Okay. We've talked a lot about groups coming back to Ryman, and you're rebooking a lot of the -- what had been canceled in '20. Maybe you can just talk a little bit, call it, about the kinds of groups you're seeing. So I know you've talked a little bit about SMERF, which kind of the -- sort of the big summer rebound, which I think there's a broad consensus that leisure is going to come back very strong. But more on the business side, kind of is it more associations? Is it corporate? Kind of what are you seeing in terms of who's making sure to get their meaningful books going forward?

Yes. So Smedes, what we're seeing most recently in our lead in production is that we are seeing improvements each and every week and month in terms of volumes. And when we look at most -- sorry, when we look at most recent booking data, we are seeing more leads and more bookings coming from the association side at this point than we are from corporates. Interesting thing, though, is that we're seeing an increase in the year for the year, smaller meeting, and those meetings are corporate. So we are seeing interest in the short term the business starting to come back. In production, if you look at our most recent production versus -- this is February specifically. We're seeing, obviously, fewer leads, but we're seeing an increase in production actually year-over-year, both in terms of room nights, revenue and rate. So we're beginning to see some real interest in people coming back, particularly in some of the shorter [indiscernible].

Yes. And maybe, Mark, as we're on a sort of a public webcast here, maybe we can just be a little bit more specific on the numbers. In February, we generated just over 100,000 room nights, and that's up from about 65,000. I think the number was in 2020. But the interesting thing, 33,000 of those room nights were for in -- for T plus 0. So that's very encouraging. And as Mark said, a lot of those groups are smaller groups, under 300 room nights at peak. And my sense is, as I sit and talk to colleagues that are in multiple lines of business, there is a big desire to come back and meet actually face-to-face. And so I suspect we'll continue to see that pattern here evolve as we get into the spring, we get vaccination rates up, and we get the restrictions that are in place in certain markets falling away. And so that's what we're seeing. But you did make the point, we are seeing quite a bit of SMERF business. All of these kids, family, family sporting events are starting to crank off. We're seeing dance competitions. Jennifer's daughter is -- she's been in, I think, the last 2 weekends in different dance competitions. And we're seeing that business emerging. And I know we just have 1 at a hotel in Denver. So we are seeing a lot of that business start to come back.

I don't mean, this sounds like -- seems too much about layup, given where your properties are. But one point of discussion around group business has been as companies come back and presumably have a more hybrid structure of working from home and in the office, there's this sort of sense that people will need to get together more because corporate culture and other things that have been talked a lot about on calls. And I guess one question is why wouldn't anyone go to a higher cost market if you're just all meeting? Why not go to Dallas or Denver versus like in New York or San Francisco? And I guess my question to you guys, are you seeing any sort of trends along those lines, where you're coming into like a lower-cost market and, I guess, sort of taking relative share away from sort of downtown urban markets? I don't know if you can measure that or not, but maybe within the Marriott system you can.

Well, I want to answer the question, if I may, because I just don't want to get into the politics of why would one want to go to a convention in some of these bigger urban cities that have had civil unrest and stuff like that going on. I don't want to get into that. But what I would say is that we -- I think the customer, when they book conventions, want to feel safe and secure. And in all of our discussions with Marriott -- and we have a lot of discussions with Marriott both within the middle management ranks, but also at the senior of that company. It is our view as a company that so many cities across America basically shut their convention centers down. The hotels got shut down there. In a lot of these -- you know this, in a lot of these big, large urban cities, particularly those that are in the union markets, those hotels are still shut down. I believe that there is an opportunity for our business in these more open, friendly markets to actually gain share through this process. And that's been the focus of [indiscernible]. I don't know. Someone has to go on mute.

Yes.

We have sourced this to room 173. Whoever is in room 173, can you mute yourself, please? Sorry, Colin, go ahead.

That's not here.

Sounds like they're doing dishes.

Yes, it sounds like they're doing dishes or having a seizure. But -- so I think this next 12 months, Smedes, is going to be a very interesting period of time. And we've actually even suggested to our friends at Marriott that maybe we need to employ more salespeople coming out of all of this because I do believe there is going to be the opportunity for share gain for businesses that are of a high quality where potentially, there's availability. And I think that's going to be an opportunity here over the next 12 months.

And it's not only markets, Smedes, I think it's also a product. If you look at our product relative to a what I would call more a typical or standard hotel where everything is under one roof, you can bring your people into an environment. And once they're in that environment, they don't have to leave or be in multiple locations for larger groups. I think that in the near term, that's a powerful characteristic to have, where there's -- that -- it gets back to that safety and security issue. So I think that we can induce demand through the product, not just the market that we're in.

Yes.

And how do you think about, I guess, sort of same-store margin expansion? I think you've had the opportunity to reduce some costs across the system. Maybe just kind of on a same-store basis, what sort of margin expansion would you expect to see going forward?

Well, what we have challenged Marriott with is margin into our business is affected by 2 things. One, that the costs that are actually -- that actually occur within the hotel itself. And that's management ranks, it's how you procure. But it's also -- the second part of the cost is the costs that get allocated from the center of the Marriott empire. And we've had some very explicit conversations with Marriott about, we expect COVID to have caused a determination that we can do business differently in many different areas prospectively. And what I've said to our asset management folks, and I know Mark 100% agrees with this, and he said the same thing, is that coming out of this, we want to see 100 basis point, 150 basis point real margin improvement because we've learned to do business differently in this last 9, 10 months period of time. Actually, it's more like getting on for a year now. Yes. I remember sitting in -- at a Citibank conference this time last year being absolutely peppered by questions from some investors, what about this little thing called COVID.

Yes. Well, little do we know.

So anyway, now we expect margin improvement here.

And as you think about that, I don't know if you can break that down at all. But I mean, the fees charged by brands, whether it's Marriott or other large brands, have been very much in discussion. Do you feel like those fees can go down? And I don't mean just the management fee, but just the fees that they charge-out to you guys for marketing and all kinds of various things to support their systems.

Yes. So let me first be fair to Marriott. One of the reasons we were able to extract the cost out of our business that we did when we converted to -- from a C to a REIT back in 2013 is because we benefit from scale, hitching our wagon to Marriott. So we're not moaning and groaning about "fees". But because they have centralized approach to sales, marketing, you name it, frequent flyer programs in some cases, the insurance programs and stuff like that, we're able to get the benefit of scale. But we know, as an enterprise, that as we went through COVID, it caused us a question, like in a hotel in Texas, where we had pre-COVID about 175 managers, supervisors, managers, directors, vice presidents in a hotel like that. And it caused us, as those folks went to the sidelines, and we -- then as we reopen those hotels, we brought them back. We learned that we could do without certain positions in that business. And I hope that when we are back full blown, whether that is at the end of this year, middle of next year, that our management structure, both at the hotel and the management structure of Marriott -- because we've heard, I think, all of us have heard that Marriott have laid a lot of folks off from their center. And hopefully, they've learned that they can do business in a different way, and that should accrue to everyone's benefit downstream.

As you've seen -- sorry. As you've seen groups that are rebooking from prior canceling and then companies putting new business on the books, could you maybe just talk a little bit about the mix of the customers in terms of who are current customers? And is this repeat business and they're coming back and you have a relationship with them? And then do you see a significant amount of sort of inbound new customers that are maybe looking for the larger properties that you have, the bigger footprint, it's better, easier to have social distancing for whatever reason?

Yes. Yes. I mean look, we're not going to go into the detailed detail, but the answer to your question is yes all around. Last week, I get a call from the Head of the CVB here in Nashville that a 4,000-room group wants to meet July, August of this year. That will be new to us. We haven't seen this client before but wants that all under one roof experience. So we're seeing that type of business. But look, the reason we've been able to book 60%, rebook 60% and so much of that we had to push into '25 and beyond, 2025 and beyond is because so many of these customers are loyal to us and come year by year, by year, by year. So the answer to your question is yes, we're seeing a lot of our repeat customers come back to us, rebook with us. We're excited about that. We're seeing new customers that, frankly, if we pick them up and do a good job, they're going to stay with us. That's one of the things that happens in our business because we treat our customers so well, and we have the degree of customer satisfaction that we do. We retain a ton of our customers. So the answer is yes and yes. And that's one of the reasons why we floated the idea to Marriott. Maybe we need some more salespeople to deal with this changing volume of business that I do believe we're going to see more and more of over the next few months.

Yes. And regardless of whether they're an existing customer who's loyal or a new customer we haven't seen, the phenomenon that we are seeing is we are beginning to see, we saw in the fourth quarter, we're seeing in the first quarter, new meetings that aren't associated with rebookings. Now that income, that interest is coming back. People are beginning to think about meetings, not just about replacing a meeting that they had to cancel, but now new meetings, traveling. So that's a very encouraging sign. And I...

I think that's really going to get influenced by the speed of which people get vaccinated in this country. And I truly believe that you may think I'm crazy and maybe too old for this business, but there's going to be this inflection point where emotion changes in this -- in America here. I don't know whether that's going to be 2 months, 3 months, 4 months from now, but there is going to be this moment of where we believe, by and large, we've got this thing lift. And I think that the mood of corporations changes, the mood of associations changes. We're getting a lot of customers who are on the books for conventions, latter part of second quarter, third quarter, saying like in a market like Nashville, I talked to the mayor about this last week. We want to make sure that all the restrictions in Davidson County have fallen away come the middle part of the year. And the way these restrictions fall away here in Davidson County is purely based on the rate of vaccination. So once vaccinations get to like 50% of the population of Davidson County, you're going to see all the restrictions gone. And it's the speed at which all of this is happening is so critical to, in my mind, that inflection point, and it's going to happen.

So maybe you could speak to a couple of things. I think you -- I've talked about going into next year with 40 basis -- 40 points of occupancy on the books. Could you maybe talk about rate a little bit for that occupancy? And when you talked about the expected margin expansion, what sort of backdrop of rate is -- does that encompass? Is that a down rate, an up rate, flat rates?

We -- number one, we haven't gotten into 2022 guidance. So we've got to be careful here of what we say. But the room nights we've got on the books for 2022 is at a higher rate than the room nights on the books for 2021. And we're pleased with that. And the interesting thing, and I -- we sent -- Mark sent this little signal here about 3 minutes ago, the amount of business we booked in February and the amount of business we booked for T plus 0, the short-term business, that was 1/3 of the total production in February with short-term business. My sense is as we get into March, April, we're going to continue to see short-term business crank up. And that is, I think, going to be very good for our company. And -- but that short-term business is not -- it's not at the expense of rate. We're holding rate on the short-term business.

Okay.

And we provided in our most recent investor update that our 2022 occupancy is -- it's at a 1.6% higher ADR, the 41 or so points that we have. So we do have nice rate growth there. And our margin expectations or our growth in margin expectations, the 100 to 125 basis points that Colin is referring to is really about what we think the long-term margin growth is in this business, not near term. In the near term, we think that we may actually exceed that level. And it really does get back to, at what pace does some of the above-property costs come back into the business, at what point do you get into the incentive fee with Marriott, those types of issues that really have to do with the speed of the recovery and how costs come back into the business, particularly from above property.

You mentioned potentially having to have more salespeople at the property level, given the uptick in business trends. Over time, do you think Gaylord needs to expand its footprint? I mean there was talks going back a couple of years now about moving into the San Diego area. Is that sort of still on your radar? Or is that more in the back burner?

The answer is, look, there are 5, 8 markets that the meeting plan wants to go to that we're not in. But we've said the same thing consistently over the last few years, which is that we'll only go to a market if we can find an asset that fits the quality of the existing system, and we can do it in a way that generates real shareholder value. We're not going to go to a market and do a 7% deal where -- with our cost of capital at 7. We're just -- we're not going to do that. And so it's really -- let me also back up a second and say this. We don't have to go to another market to get growth. We don't have to do that. We can continue to -- we've got a hotel here in Nashville, Tennessee, that's 2,880 rooms, the largest resort convention hotel outside of Las Vegas anywhere. And over time, that hotel, we have grown that hotel. We've grown that hotel, and it -- pre-COVID in 2020, that hotel was going to do about $150 million of EBITDA. Now there's no reason over time why we can't do the same thing for our hotel in Texas, why we can't do the same thing for our hotel in Denver. And so we can physically grow our assets with what I would suggest would be high-return deployment of capital to get growth in this business. And so we're not going to get seduced into going and buying something because it has to be in a market that we would like to be in and pay an ungodly sum of money for it. That's just not the way we do business.

Okay. Okay. I think you mentioned on your fourth quarter call that you would hope to reopen the National by spring. Any kind of updates there or kind of thoughts around how -- what that might look like?

Well, I think in our last call, we said we think it's not going to be the spring if the spring is -- the spring is in June. We think it's going to be sometime in and around June.

In June. Okay.

Yes.

And are you booking business there, I guess, to open with? Or -- I mean how are things looking, I guess, to that specific property?

Yes, sure we're booking business. Even though it's sharp, we booked 9,000 rooms in the month of February. So the hotel we are -- and that was marginally down on the previous February. But we've got an active sales organization there, and that hotel will open sometime in June. To preempt maybe the next question from you, through Marriott, we've spent quite a bit of time dealing with the union in that market and to get some work rules modified that make the flexibility of that hotel even greater. And I'm delighted that we were able to sit and have constructive discussions with [ unite ] here and make the modifications that we sought. And that should improve the margin of that business when we reopen that hotel over time.

We'll also have our room renovation completed prior to reopening. So we're renovating all rooms and corridors there.

Hotel looks really good.

Good. Okay. Yes, I just -- I didn't want to leave our session without touching base on the Entertainment segment. You noted prior to COVID, it was on a run rate of $60 million to $70 million of EBITDA. Maybe how would you characterize kind of, I guess, the ramp-up now going forward with everything kind of reopening?

Yes. Well, we've been pleasantly surprised how our -- some parts of our Entertainment business have been performing here in the midst of COVID. Already in Gatlinburg is sort of performing at the same level as it was pre-COVID. It's quite remarkable. And our hotel in -- already in Orlando that we opened in the middle of COVID is ramping up pretty nicely. And so the issue here with all of our businesses that we have in Nashville is going to be how quickly we can go from 25% capacity in the Ryman at the Opry House to 50 to 75. But we, on average, every Saturday night, now we can put up 1,100 people in the Opry House. We're putting 1,100 people in the Opry House. And the amount of visitation this last weekend to Nashville was surprising downtown. And so I -- in order to answer your question, once the restrictions fall away, I think this town is going to show really strong recovery. And I believe that we'll be seeing that in the back end of this year. And the statistic, Mark, why don't you just give Smedes the statistic on the Ryman's booking -- book of business for the back end of this year?

Yes. I mean if you look at how the concert schedule is stacked up for the Ryman, essentially, in the third and fourth quarter, we have -- where essentially, the count is almost full. We have 2 fewer events booked at the Ryman than we did in the back half of 2019.

But we also have -- we're in negotiation with 10 other concert promoted for those remaining dates. And I think the only dates that are sort of remaining now are at and around Christmas.

As we get Christmas and New Year.

And New Year. So I think we're going to see a rapid acceleration on the concert side here once the restrictions fall.

And we're adding a Friday show at the Opry House.

All right. You've got 1 minute left. So I want to go through 4 really quick questions with you. Mark, I'll start with you. What is the 10-year treasury 1 year from today? It's about 1.5% now.

Yes. My feeling is it's probably going to be in that ZIP code 1 year from today. I don't see a lot of [indiscernible].

Colin, what do you think the corporate travel budget will be this year as a rough percentage of what you spent in 2019?

This year, 2021?

Yes.

Yes. It'll be probably 70% of what we spent in '19.

Okay. What do you think would be one thing that surprises people most a year from now when they're looking back at your business?

Yes. I think it's going to be the speed at which our company ramps up.

Okay. And can you give us your guestimate for 2022 same-store NOI growth for the hotel industry? Not for Ryman, but hotel industry.

I don't know. We only focus on Ryman. Ryman's will be good. But I think STAR has RevPAR growth of 22% or 32%. So you're going to see good growth overall. But I don't sit around trying to fantasize about the rest of the industry. I just worry about our company.

Great. All right, guys. Thanks a lot. It's good to see you, and thanks for doing this with us.

Thanks, Smedes.

Thank you.

Bye.