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

All right. Good morning, everyone. I want to welcome the team from Ryman. We have CFO, Mark Fioravanti. I hope I nailed that. And then...

Close enough.

Close enough. And then Todd Siefert, who quarterbacks Investor relations, right, for our lunchtime slot. So Mark, why don't we kick it off and just get a high-level view of what you're seeing recent trends? I imagine that 2021 for you guys is sort of a tale of 2 halves, maybe give us a sense what you're seeing in your portfolio from a booking standpoint, from a cancellation standpoint as well?

Sure. So we are kind of in the throes of the transition. As you mentioned, we had a -- we came off a very good fourth quarter, where we had positive EBITDA for our portfolio, including our closed hotel. We had ADR growth, which I think we were the only REIT to have that. And as we've rolled into January and February now in the first quarter, we continue to see some encouraging trends for us. This is probably our toughest quarter for the year, but we're seeing what I would consider stronger-than-anticipated leisure volumes. We're seeing lead volumes for groups continue to improve each month, still down significantly, obviously, from a year ago, but we are beginning to see more interest. We've talked about our production in February. We booked over 100,000 new group room nights, about 1/3 of those were in the year for the year. So those are all very encouraging signs for us that we're beginning to see improvements in the business sequentially. And as we think about kind of how the year rolls out, as I said, this is our toughest quarter from a burn rate. As we get into the second quarter, we think that burn rate is going to come down into the mid- to high teens. We'll reach breakeven in the third quarter and then be profitable in the fourth quarter.

And if we look past 2021, what does the book for 2022 look like? And are they equally as important? What does that look like from a rate standpoint?

Yes. So for 2022, we've got about 41 points of occupancy on the books. And from a rate perspective, solid rate growth. We're up about 1.6% versus -- or 1.9%, I guess, from an ADR perspective versus where we were at the same time in 2019. And keep in mind that most of this business was put on the books pre-pandemic. With our booking window being 3, 4 years long, we had the space of businesses as the pandemic set in. And then it's been complemented by the rebookings that we rolled into next year. So 2022 looks terrific. If you look at '23, '24, '25 and beyond, we continue to have business on the books that's consistent with pre-pandemic levels. And we consistently have low-to-mid single-digit rate growth year over year over year. So we're set up nicely for a return to post-pandemic business.

And with your conversations with meeting planners, do you get a sense that anything maybe permanent has changed? Whether the booking curve is now longer or shorter? And any sort of change now versus pre-pandemic?

I don't think we've really seen anything that in the long run that's changing. Obviously, in the near term, we're seeing more SMERF business. We're seeing a pickup in smaller meetings. Those are the shorter in the year for the year, we're beginning to see that. And so I think that from a near-term perspective, the business mix is a little SMERF-ier, if that's actually a word. And you're going to see more small meetings. But when you get into '22 and beyond, our mix looks very similar. And the behavior that we're seeing is as we see some of these green shoots from meeting planners seems fairly consistent with pre-pandemic behavior.

I know we talked about it a handful of times this morning, but -- already, but what is the -- in the year for the year business typically look like in a non-COVID or non-recovery year?

So obviously, all of our leisure business is in the year for the year. But on the group side, it's going to be smaller meetings, typically smaller corporate meetings in that kind of 10 room nights to 300 room nights on peak. And those typically come in and they fill the gaps and top off occupancy and on top of the big groups. So that's really how we fill the hotel. You lay a base of business of large groups, smaller groups come in. And then finally, the business is topped off with the leisure business.

And is that business, typically from a rate standpoint, higher? And I guess also, those could be thought of, is it accurate to think of those as compression nights where that rate is higher, so it should be a higher margin business as well?

They are compression nights, and they are typically corporate nights to smaller meetings that in the year for the year business. So therefore, it usually is a higher -- at a higher rate. Obviously, all groups aren't created equal. Companies have different cultures and different philosophies as it relates to spending on meetings and different cost structures. But generally speaking, those are compression nights. They are coming in on top of the larger business. And so they drive a higher room rate, and they also often drive higher out-of-room spend.

Are there any different pain points now with your conversations with rebookings or even with new bookings, whether it comes to rate contract terms, rebookings or cycles and anything that might stand out?

So from a rate perspective, the rebookings that we're seeing in the short run, we've -- if you were rolling a meeting from '20 to '21, for example, we were holding your rate because you're coming early in the recovery. We have a substantial amount of business that has been booked into '22, '23, '24. And in fact, about 1/3 of our rebookings is in '25 and beyond, and that's really driven by the fact that large groups already have their annual meetings booked over the next several years. So that was their first available meeting. In those cases where we've rolled meetings forward like that, we have adjusted rates both for the time and the expectation of increased rates over time as well as depending on what pattern they book into. In the near term, where we've really seen what, I guess, I would call, concessions or flexibility, we've demonstrated flexibility with groups who were booking meetings into '21, both the first half and the back half, really in terms of attrition and providing a little bit more flexibility as it relates to group attrition just because if a group was willing to book a meeting into the early part of the recovery, where timing of the recovery is uncertain, the willingness of attendees to travel is a little more uncertain, we provided them with a little more flexibility because we would rather have a group in there with a little bit more attrition, obviously, than no group at all.

Makes sense. Makes sense. I think another point on rebookings, and you've rebooked 60% or so of your canceled room nights, which is significantly higher than any of the lodging peers or lodging REIT peers, which are more focused on the transient business. What do you think has driven that outperformance and driven that high degree of rebookings?

Well, I mean, it really started last March when we made the decision to retain 80% of our sales teams or Marriott sales teams in the hotels. We went to Marriott and said that we thought it was important that we maintain that capability to work with groups, not only work through the cancellation process and possibly the collection of fees, but also to help that meeting planner navigate their rebooking process and be there for them to support them. It's -- our business is unique in that the 5 hotels that we own work together. 53% of our business is multiyear, either in the same hotel or rotating from property to property. And so that relationship with the meeting planner is incredibly important. And we recognized from our experience in '09 and in the flood in '10, when Opryland was shut down that helping meeting planners get through this process is extremely important. It preserves your business, and it also gives you an opportunity to grow market share. And so our intention, we were willing to take on the additional expense during the pandemic to carry the sales team so that they can work with those customers, so that we could rebook this business, so that we could come back out of the pandemic quicker and then ultimately, steal market share.

Yes. One of the things that I would add on to that, too, is it's been interesting to see, too. We saw 60 -- 58% is across the portfolio. But if you look at the rebooks at the Gaylord Rockies, it's over 70%. So it's been interesting to see the market dynamics there, particularly the groups going there that -- a lot of these meetings that we do are revenue critical to these groups, whether it's an association business because that's their livelihood, or if it's a dealer network. We have a lot of corporate clients that either -- have either managers that are out there having to get their stores ready for when things kind of get back to normal. They've got a sales team that they need to get educated and back out as soon as they get the green light to begin to travel again. So the type of meetings that we have are really critical to these organizations from a revenue perspective. So I think that's why you're seeing the success we're having on the rebooks.

Todd, you actually mentioned it, but it's actually a question that I had coming up. But looking at the Rockies property. That's one that was trending really positively prior to COVID. How does the customer base for that property -- I'd imagine it's more West Coast, maybe tech-centric, but how does that compare to the rest of the portfolio? And what have you seen from a demand standpoint from the overall portfolio for meeting planners looking to rotate in that property as well?

Yes. So that property came out extremely strong with a strong book of business. It produced over $80 million of EBITDA in the first year in 2019. And the level of booking activity and interest in that hotel is what caused us to -- we were prepared to start an expansion there in 2020, which we put on the shelf. It's designed and ready to go. And when we feel like the timing is appropriate, I think we'll certainly relook at that project. But in terms of how the book of business there is different, it's obviously different geographically. The vast majority of the bookings that we had for that hotel preopening had not stated at Gaylord before or been in the state of Colorado for a meeting. So it induced a considerable amount of demand. A lot of that did come from tech in the West Coast in the western U.S. I think the other thing that it's a natural part of the maturing of a hotel like that. Your early years, you have a little heavier corporate and a little bit average smaller meeting on your books because the larger meetings that have that 5-, 6-, 7-year booking window, they're hesitant to book into a new property in its first year of operation in the event that there would be a construction delay or that kind of thing. So we are -- continue to be very excited about the potential for that product. That's a product that we think that with its location, its airlift, into that market that over time, that product could be expanded considerably and begin to look more like an Opryland-scaled project versus what it looks like today.

And you own 62% of that property? Is there...

65%.

65%, sorry, excuse me.

Yes.

Is there a path or is it once we hit our groove, once we're on the other side of this and all else clear, is there a path or at least a desire for you guys to up that to 100% or do you see the opportunity to do that?

Yes. I mean, we like that product long term. We would like to own it 100% at some point. Obviously, that ultimately is -- that decision is in the hands of our partner. I think that they view it as a long-term hold as well. So I don't know when or how a transaction like that would take place. But ultimately, that's up to Arne and his team to determine kind of what their long-term view is of that asset.

Great. And then shifting back to the recovery. Obviously, your RevPAR, the occupancy and the ADR on the books is great and impressive, and you have a clear trajectory to getting back to 2019 levels. What has changed on the OpEx side? And I guess, another way of phrasing the question, do you need to get back to 2019 top line level in order to get to 2019 EBITDA level?

I think in terms of 2019 as kind of the benchmark for recovery and getting back there, we don't view it quite that way. And I would -- and the reason for that, I think, is twofold, to your point. Number one, from a capital perspective, if you look pre-pandemic, and through the pandemic and just -- and set aside the Rockies and the continued maturity of the Rockies, which is a significant incremental profit contributor, we've invested over $400 million in our assets in term -- with high-return growth capital, whether it's the expansion of the Texan, the expansion at the Palms, SoundWaves, the rooms renovation that's currently underway at the National. So we come out of this with a significant level of capital commitment already in the hotels that's not fully mature. So that's going to provide a significant tailwind. In addition to that, we've made some changes in our operating structures, along with Marriott, in the hotels that, ultimately, we think in the long run, can provide 100 to 125-or-so basis points of margin improvement sustainably in the business, both from a technology and customer-facing perspective, but also from a labor perspective, both management labor as well as line level labor in all of our hotels and at the National, which is our only union hotel. We made some modifications there and working with the union, as it relates to food and beverage, work rules that are allowing us to reconfigure that food and beverage to drive sustainably better margins there.

Right. And there's 2 components, right, to that top line recovery. There's the RevPAR and then there's the other RevPAR segment, right? How do those -- how do you think about the recovery of either because the other RevPAR segment can be pretty significant for you guys when looking at the total. How do you think about the recovery for each of those?

Well, I mean, we've talked about rate and the rate integrity that we have on the books. The business that we've been booking in the near term in the last couple of months, both from a leisure perspective and from a group perspective has been at very nice rate increases year-over-year. And so we have a tremendous amount of rate integrity in the business on the books. Transient continues to perform well, as I said. And our experience, thus far, with transient during the pandemic has been that we've seen significantly higher outside the room spend. And whether that's because people have travel budgets that they haven't used because of the pandemic, or whether that's because people are spending more time on property versus venturing out into the market because of COVID, I'm not sure, but it has manifested itself in higher outside the room spend. And as we look at outside the room spend for group, we've maintained our food and beverage minimums in our contracted business. So I think it's our anticipation that outside the room spending for groups will be positive as well. And as we reramp the business with some of the smaller corporate business, corporate typically does spend higher outside the rooms than either SMERF or associations.

Great. And I guess, as you think about the recovery and going forward, you've done an impressive job building that leisure business or at least filling these empty rooms now with leisure business. Do you envision a scenario where as group comes back, that you can still retain a lot of this leisure business and maybe drive more compression?

Yes. I mean, we had a robust leisure business pre-pandemic, about 30% of our business was leisure. So -- and we've invested considerably in leisure business. If you look back at the pool product expansion, SoundWaves, et cetera, because it's an important component to fill in periods when groups don't travel, to your point, to create compression to top off occupancy. And so it's our hope that the exposure that we've gotten to new guests during the pandemic from a leisure perspective does translate into both higher occupancies as group comes back and create incremental compression, which will help drive rate. So our hotels were running as a portfolio in the kind of the high 70s prior to the pandemic. So there's certainly room to drive some additional occupancy. But I think that where you might see some of the benefit really will be in rate and being able to drive rate on those nights when we're full.

On Gaylord National, it's still closed, and you guys talked on the 4Q call plans to open it up late in the 3Q -- or late in the 2Q, excuse me, early in the 3Q. How do you think about that property's ramp relative to the rest of the portfolio?

It's -- it will be in the second quarter is what we're targeting. We've got a solid book of business in the back half in that hotel. So we would anticipate that it will reramp consistent with the rest of the portfolio. The challenge that we had with that product was really twofold. One is, obviously, the cost structure is a bit higher because of its union labor and the union -- we worked constructively together to modify some of that, as I mentioned earlier. The other is that, that hotel, and it's kind of its amenity package and its location does a higher percentage of group business versus transient. It doesn't drive the same leisure demand or other hotels do. And that's why we've kept that hotel closed until the point where we have a greater level of comfort that it will have the group business on the books that it can reopen successfully.

Awesome. Maybe a couple of bigger picture questions. But as I think about some of the companies that have come out and said that they'll be at least permanent or to some extent, work from home, how do you think about that as a headwind or potential headwind or I guess, tailwind to the business as everybody's remote, but you still need to have some sort of meeting or interaction in person?

Yes. I mean, we've -- I think our view that the kind of the work from home marginally is a potential tailwind for us just because at some point organizations want to bring people together to talk about strategy or to celebrate wins, those types of -- or training. Remote working, clearly, there's a bit of a change occurring. I'm not sure that -- and this is my personal opinion that you're going to see as dramatic of a work-from-home movement, I think, is maybe people anticipated in the middle of last year. I think that there's certainly a realization from our company's perspective that you lose something when people aren't together. And whether that is comradery, communication, the ability for younger members of the team to learn and work with more experienced members and grow professionally. I mean I think all of those things require a certain amount of togetherness and working together, and you lose that when everyone's on a Zoom call. But we don't think that work from home is an impediment to the meetings business.

So idea generation, problem solving, learning on fly because all these are...

Yes. I mean to your point, yes, having people together, I think, is important. If for no other reason, to be kind of aligned as it relates to the mission of the business.

Great. Perfect. I think that if we talk about the supply demand dynamics in group hotels and large 1,000-plus room hotels, and you've obviously had tremendous success in rebooking rooms further out in the future, which I think are positives for the business. Do you think you can make the case that group hotels today may be more valuable than they were pre-pandemic given that success? And I guess, can you talk about that supply-demand dynamic and the disconnect between there from your point of view?

Yes. I mean -- so we came into the pandemic, this segment of the business, with very little new supply in the pipeline. And as you know, these are big chunky assets. They take 5, 7, 8 years to put together and build. So we had a really positive runway pre-pandemic as it relates to new supply. Clearly what's happened last year does nothing but lengthen that runway. In addition to that, what you're seeing is that in a number of markets, a number of these big hotels are closing. And there's still a question as to whether many of them will reopen if they'll be repurposed in some of these urban markets. I mean, the case in point is Marriott Wardman Park, which is a 1,100 room hotel that we compete against in Washington, D.C., that hotel is closed and will not be reopened. And so we're seeing -- there's the potential to see more of that contraction in supply post-pandemic. And when you couple that supply dynamic with the fact that in many of these large urban markets, there is a number of political and social issues, which, frankly, in the near term, make those locations less desirable for it to hold a meeting. We do think that there is an opportunity for some of those meetings that would have traditionally gone to those markets to migrate to some of the markets that we're in, the Denvers and the Dallas', the Nashvilles, Orlando, these are markets that they have great airlift, affordable airlift, and on a relative basis, maybe don't have some of the issues that you're seeing in places like San Francisco, Portland, Seattle, Chicago, et cetera?

I have to ask about balance sheet and capital. And we talked about the Gaylord National renovation and the on-hold Rockies renovation that's ready to go when you guys choose to, hopefully, when things recover. But what's sort of priorities for capital leverage targets and use of balance sheet going forward?

Yes. So I mean, our focus certainly in the near term is to reduce debt. We don't -- we won't have an obligation in the near term to pay a dividend. We have very limited new capital projects on the horizon. We have maintenance and then we have a $20 million or so left to finish the Palms, I think about $19 million left to finish the National rooms renovation. So beyond that, we have no obligations. So the near-term focus is to delever and some of that will naturally occur with the recovery of the business, obviously. We were fortunate in a strange way, in that we did an equity raise in the mid-80s in December of '19 to use that capital to purchase Block 21. And obviously, that project did not close. But what it did do is it did provide us with the capability to work through last year without either really blowing up our leverage levels on the balance sheet or having to issue equity at a point in the cycle that wouldn't have been as advantageous to shareholders. So we feel like we've navigated this pretty well. We can manage our leverage down effectively as the business recovers. And if -- we've heard some talk about acquisition opportunities, and I think people's hopes that there are going to be opportunities to buy things at good prices. I'm not sure how much of that you'll actually see trade. It's a little tougher for us because we do have very specific desires in terms of the types of assets we want and the types of returns we'd like to see in an acquisition. But if we were fortunate enough to find something like that, that was accretive to shareholders, we would likely do that on at least a leverage-neutral basis. And assuming that our equity price is at a reasonable level, we would probably raise equity to do that.

So is it fair to say that, I guess, most of the difference are what's hindering these deals is best price. There's assets out there, but not at prices that sellers and buyers can agree on?

Yes. I just -- I kind of harken back to '09 and '10, where there was this thought that there was going to be this tremendous opportunity to buy things. And particularly for us, that just didn't materialize because we're not -- we have a very limited view of what we want to bring into this portfolio. We like the big high-quality group-oriented hotel product. We think that, that's a really strong competitive advantage in an economic moat that's very difficult for people to replicate. And so when those types of assets are available, they're typically not trading at fire sale prices, and there's typically a number of buyers who are interested in. Our experience has been that the return potential for those, because of the pricing, was such that it was much more attractive from a return perspective and a risk perspective to continue to invest in our existing assets. And that's why you saw us pre-pandemic doing room expansions, meeting space expansions, transient amenity expansions because we know those properties well. We have all the lead and turndown information about those assets. And when you're leveraging your fixed costs, right, the returns are much better on that capital deployment. So we have some of those opportunities when you think about the Rockies. And really, with -- we have the ability to expand all of our properties, I guess, with maybe the exception of it would be a little tougher at the Palms post this expansion because we have a land lease there, but opportunities to create returns through expansions as well. It's just the use of capital and where can we generate the best risk-adjusted return for shareholders.

Okay. Okay. Makes sense. And I guess now is a good tend to remind the audience, if there's any question they can submit them through the website. But while that happens, I have to ask about the one part of the business that we haven't really spoken about, which is your Entertainment segment. And it's not one that's a massive part of EBITDA. It was -- what was it, roughly 10% of your 2019 EBITDA. What do you think the future of that looks like? And what the opportunity in home for that is? I think that Colin in the past had talked about potentially or ideally being able to spin-off and be its own entity as being the healthiest way for that business itself to grow. Would be curious to hear your thoughts.

Yes. So that business has performed admirably through COVID. Obviously, it was shut down, reopened. We're operating under restrictions. Those restrictions continue to get lifted. But what we have found is a couple of things. There is a dramatic thirst in the marketplace for live entertainment. And I think that as we've reopened, we've consistently seen very strong demand for tickets. If you look at the back half of -- if you look at August and December of this year, we have -- we only have too fewer bookings that are committed at the Ryman than we did for August to December 2019. So the back half of this year at the Ryman is essentially nearly fully booked with concerts. So that's been extremely encouraging. We're seeing the same thing with Opry. We are functioning now with limited, social distanced crowds at the Opry. That has -- that's continued to sell very well. And our Circle product, which we launched in January of 2020, while we've had some delays there in content creation, it's very difficult to create content during COVID, what we have seen is a dramatic growth in distribution. We now have a monthly reach of about 150 million households with circle television. You may not have seen it yesterday, but we announced that Circle is now available on Peacock to the Peacock consumer. And it's also become -- our streaming has also grown dramatically during COVID. We were Pollstar's #1 live stream provider in 2020, the Opry live show was. And we've had over, I think, over 52 million streams in over 100 countries. So the distribution of our brands and products through Circle has grown dramatically through this. And we think that long term, that has a dramatic impact on how these assets continue to scale and the value of the brands and the relationships that we have with consumers.

So -- well, with that, it brings us to 12:20, 35 minutes. Mark, Todd, I appreciate you guys taking the time.

No, thank you. Thanks for including us, and we appreciate the time.

Absolutely. I hope to see you in person soon.

Yes. Thank you.