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

Good afternoon, everyone. This is Brandt Montour with JPMorgan. I'm excited to have with me up here, Ryman Hospitality Properties, Todd Siefert, SVP, Corporate Finance and Treasurer; as well as Jennifer Hutcheson, Chief Accounting Officer. What I'd like to do is just kick things off here by letting maybe, Todd, just maybe boil down the main message from the slide deck that you guys probably put up a week -- no, a few days ago, last week. Just the main message from that to get a start, if you don't mind.

Sure. Thanks, Brandt, and definitely happy to be here in person, see live folks out here and reconnect with people we haven't seen in a while in person. So thanks for hosting us. We put out an update like we have been doing throughout those last 18 months, really just updating folks what has kind of occurred since we had our earnings call in early August. Obviously, the big topic, [ du jour ] is just the impact of Delta kind of what we're seeing in our business. And so what you saw in there, just going back a little bit, we did see an inflection point in June with group, really picking up. You saw that in June, July and then in August. You look at the rooms revenue we had on the books from group, the amount of -- the percentage of occupancy, the -- of overall occupancy we had with group was getting above 60% of the business we're seeing. So we're seeing good momentum in. Obviously, with Delta picking up, we're starting to see a little bit higher cancellations. In July, we actually hit average about 600 room nights canceled per day, which is really kind of prepandemic levels. We started seeing that come down through the first part of this year with obviously the vaccinations out there, people feeling much more comfortable getting on in traveling. So we saw that come down pretty dramatically, and it hit the 600, like I said, prepandemic levels in July. We have seen that in August pick up. It's still below what we were experiencing at this time last year, which is good. There's a lot of fundamental reasons for that. So it is certainly elevated. We saw about 93,000 room nights canceled in August. About 80% of that was really focused on August, September and October. So we're seeing really from a group perspective, those cancellations really concentrated in next 3 months. So I guess the big takeaway and we can get into more questions was that Delta has obviously had an impact on us, which you would expect it would. But we're really seeing it kind of in the short run right now. And I think a lot of folks are really would like to hold meetings just like this in person and waiting until the last possible minute to kind of make that go/no-go decision. So we haven't seen it kind of bleed past going into later this year and in early next year.

Okay. That's really helpful. And so I guess, just to paraphrase right, 80% of those cancel -- that's planned cancellations for the next 3 months?

Yes.

And we're still living in a Delta world, and so a pessimist was okay, well, then what you could see an elevated cancellation activity rolling forward as long as Delta is a problem. Maybe take the flip side of that in a more positive way, how is this level of cancellations during Delta different than prior waves? Is it getting better -- is it better than before. And so there's no real question there, but I guess the point is like which side of the ledger should we look, how should be look at?

Well, I would say it's definitely elevated from what we've seen in recent history, and it's even -- it's lower than what we saw obviously last year. It's kind of a full stop, people just canceling rebookings. The things for us, I guess, on the positive side, like I said, it seems to be shorter term. People are waiting to the last possible moment to cancel because a lot of those meetings are mission-critical to whatever they're trying to get done, whether they're motivating their sales teams because they have a new product coming out. They just need to get from a culture perspective, get their people back together, associations who want to get their constituents together to continue getting them educated and whatever their mission is. But the other piece for us specifically is that unlike last year at this time, cancellation fees are coming a bigger part of the discussion. So we kind of start there and say, they're really into that -- our cancellations are on a sliding scale. So the closer to your travel date, the higher the cancellation fee is. And so with these groups canceling short term, they're kind of in that 100% they owe us that cancellation fees. Our hotels are still open. We're still holding meetings. So the context around force majeure or anything like that is really off the table. So what we're trying to do is work with those groups. So if it's a group that wants to rebook and say, "Well, I can't come in September because of Delta, but I want to get in the first quarter next year, we will work with them on that. So you may have a conversation where it's getting cash now, fees now and add future booking. So the cancellation fee may be less than what they owe us, but we're still made whole over the long term.

Because of the rebooking?

The rebookings, yes.

Okay. And just so we understand, when you say near-term booking, i.e., 100% of fees are probably due is everything between August and October for an August booking considered short term?

Yes.

Okay. All right. Got it. So like all 80% is we're talking like full fee. And when you -- and back -- and this is my later question, but I'll ask you now. Back in early COVID, it was very -- it was not conventional for what -- to do what you guys were doing, which is basically retain these bookings and win -- and give these guys their fees back to retain the loyalty and build a book. And so my question later was going to be, are you going to gain share on the backside of of this. But the second part of that question is now, is that still the balancing act of letting -- waiving some of the fees if it's a really important client? Or are we taking all these fees in?

Yes. So to answer your question about last year, obviously, it was -- everybody understood the situation we're in, both from our end as well as the customer. And it was one of the learnings that we've had through going back through what's great financial crisis, the flood we had in Nashville, we had to rebook. It was really retaining those customers. And so working with them to book their next available date that was certainly to gain share, retain those customers and that paid off and will pay off in the future. And actually, if you look at the -- we have a slide in there that has the amount of room nights we have on the books for all future years. We're not pacing that much further behind 2019 kind of levels. And a lot of that is dealing with the pace of rebookings that we had and the business we had on the books coming into this. So that was a conscious decision strategically to make sure we gain share there. The conversation that we're having now is still that. It's working through that meeting the needs of the client, but also meeting our needs. We've got real costs that we've got in the business. And so we may take part of the cancellation fee for cash in the door today, credit that towards their deposit they may have on a rebook going forward. And that seems to be a more of a win-win situation all around. Now if a group comes in and says, "Hey, it's full stop, it's cancel. We just can't have it. We don't know when we're going to have it, then it's owe us 100% of the cancellation fee.

Okay. That's helpful. Maybe you could just talk about your individual markets. I know that there's no travel restrictions or mass mandates at any of your properties or any of your markets that your properties are in. But obviously, certain markets have higher prevalence rates of the virus. And so maybe just which markets are doing better than other markets right now? Is there any Delta going -- or sorry, Delta bad word, is there a differentiation between the markets?

Yes. The markets have all held up pretty well. I'd see the markets that's probably getting impacted probably more so out of the 5 hotels we have is the Orlando market. Obviously, with, I think, the overall COVID situation you're seeing in the state of Florida, I think it is put in the damper. I know Park has mentioned that on their last update. I think Disney has also mentioned about the amount of visitation they're having coming into that market. So we're certainly not immune to that. Texan still does tremendously well. It's been very resilient throughout this. I think they've done a tremendous job. Orlando -- I'm sorry, Nashville is holding its own. We -- in fact, we've had full house groups over the last several weeks, people coming in. So it's really group by group. And if you walk through downtown Nashville entertainment side, it's as busy as I've ever seen it. So it's doing quite well. We did open the national DC, opened July 1. That was -- it's that group -- or that hotel is unique in our portfolio for 2 reasons. One, it over-indexes on group. So it doesn't have as much of a leisure draw as our other hotels do with the pool amenities and some of the other features we have in it. But what's been surprising is that hotel is done, given the environment, really well. We've been pleased with how well that's performed. It's got a little bit higher cost structure because it's our only union hotel within the group. So we wanted to make sure that when we did open it, it was going to open profitably. And that's certainly, the 2 months that we've had so far has been good. And then the Rockies, they've done a tremendous job there. It's got a good leisure draw. So during the summer, it's been doing very well. We've been pleased with that. And then on the group front, it certainly held its own.

And on the National, which I have a couple of questions on that. The ramp, is it -- would you say it's similar to how the other properties ramped in May opened? Or is it better because it's opening later in a better environment?

I would just say it's different. Again, it's more group heavy there. So it's got obviously a lot more prevalence with group. That's kind of had to carry the water a little bit. It's done a decent job on the transient side, but again, it doesn't have the same leisure transient draw that our other hotels.

Got it.

So it's a little bit...

And then you mentioned the union, and this goes into one of the questions I had for you later on cost, but everybody knows about the labor shortage within hospitality right now, it's obviously industry-wide. Are you having the same problems on the portfolio? But also as for the DC, does the union structuration make it easier for you to get labor back in that hotel?

Labor in the DC one, the honest answer is I don't -- honestly, I don't know.

Okay.

They have not heard talking to our asset management team that, that's been an issue. What we have heard is kind of across the board, you've heard it in the industry, labor is tight in some areas, more so than others, particularly like skilled culinary has been an issue. But the thing that gives us comfort is the hotel management teams have done a good job of managing through that. I think that Marriott has done a good job to be an employer of choice as far as the quality when you come in, the benefits we have, the wages are competitive, the friction costs as far as getting to and from where you're working, sometimes if you're going into maybe a city center like a Manhattan or somewhere else that can be tough. So we -- they've done a good job. It's certainly something that we've dealt with there. I think Marriott's had a good plan in place.

Okay. And on costs and margins, and I don't know if you guys have given any -- I don't think you've given any specific guidance to this, some of your peers have. What is Ryman's margin structure look like on the other side of this at similar demand and mix levels of 2019, look it qualitatively?

Yes, sure. We've said that we think on a long-term basis, it's about 1 point to 1.5 points benefit on the margin side from prepandemic levels. The one thing, I guess, the silver lining is when businesses are as -- obviously, you're shutting your hotel and you're kind of rebuilding it back up. You can really rightsize the cost structure before when the demand levels were such when you're running at 80% occupancy over and over, a lot of times, you're just throwing labor at the issue. And I think you can be -- as much as you can be in a tight labor market is to do it in a really thoughtful way as far as how you structure that. But also can you implement technology to make things a little bit easier, increase guest satisfaction, decrease cost. The other thing we're looking at F&B at offerings, we're providing a lot more grab-and-go type offerings, reconcepting those. Those seem to be one of those high-customer service guest satisfaction, things that also lower cost. People get in the meeting -- they fly in late. I just want to -- instead of going and sit down restaurant, I just want to go in and grab sandwich and a drink, can get back to my room. So those have been very well received something that we're rolling out to all of our hotels.

Okay. I want to get back to the demand side and ask about leisure versus corporate or leisure versus corporate group. I guess I could kind of bunch those together, the second two. But when you talk about Delta impact and a little bit of softening, is that mostly group-oriented comment? Have you seen any impact on the leisure side or transient, I guess, you'd call it.

We haven't seen it thus far. I mean, transient -- leisure transient has done tremendous. I think that now that we're past Labor Day, a lot of kids are back in school, so families -- you see a natural decline as far as in leisure transient. I think what will be interesting is on that front is really when you get to the fall breaks, the Thanksgiving holidays coming up, how does leisure transient do that? And I think that's going to be a good barometer. You're seeing mostly on the group side. I think it's less about an unwillingness of attendees really want to go, more corporates or whoever the organization being a little bit more cautious.

And you guys have had to pivot toward leisure and you've come up with all kinds of new entertainment and things to build into the schedules and agendas of your transient guests and we heard a lot about that last year. When we go to the other side is even by winter, I mean, do you feel like some of your leisure occupancy will -- or some of your group and business occupancy will permanently be sort of sold to leisure transient because you've done it well. Do you think that's going to be a permanent mix shift for you?

I don't think so. We're always going to lead on group. And the one thing I would say is we didn't really pivot to leisure.

COVID generalization.

Yes. No, it's just the -- it's obviously a bigger component given that, that was the business out there to be had, so you're seeing it a lot more prominently. But what I would tell you is that -- we've always done programming in our hotels, particularly around the period between Thanksgiving and New Year's. That's why you've seen it more prominent. But what we're seeing is that those other periods post that period, whether it's around spring break times, during the summer is really doing a lot more programming to entice leisure demands. We've spent -- if you look at the capital we spent over the last several years, a lot of them is around our pool products to drive leisure demand, reconcepting some of the F&B to help drive that leisure demand. So I think we've seen a higher uptake on leisure there, and I think that, that can probably hold, but it's not going to necessarily displace group. A lot of those demand patterns are complementary. So they don't -- it's not like you're going to have a leisure -- a big leisure influx on a Tuesday in April. And all of a sudden, you're going to displace a group.

Okay.

But what has been, I think, beneficial for us is the rate. If you see the rate on leisure, we've done -- I think the hotels have done a good job of maintaining and increasing rates because there is a value proposition there. When you come into our hotels, we have these big, beautiful atriums. We have these pool amenities. We have great food and beverage offerings and entertainment offerings there that I think people are willing to pay for. I can just go there and park my car or take -- just get to the hotel and not necessarily have to leave. And I think there's a lot of value in that.

Yes. The rate story, right, for the industry as a whole, I think, is shocked us all in terms of how fast and steep the rate recovery was. And I know you guys have good rate metrics on your forward group bookings when you benchmark to '19. Before we talk about the group bookings, but just what do you think drove -- take us into the revenue manager's room back in COVID and when we were starting to increase rate without occupancies necessarily being that high. How do you think you as well as the industry were able to get that recovery rate?

Yes. I'll start and Jen -- sorry, jump in if I miss anything. So really, there was a lot of learnings coming out of the great financial crisis. I think a lot of -- across the industry, us included, people were slashing rates to drive volume, right, heads and beds. And that didn't necessarily translate, and that was a big learning, I think, for us, in particular. So when we got to the situation, maintain rate integrity is super important. And what we saw early on is not only maintaining rate but able to obviously increase it because that demand was there and doing a better job of describing the value proposition to people. So for us, what's a little bit unique that maybe some hotels in the markets that we're in is that people are coming to our hotel for the destination. They're coming there because we have those pool products, because we have these atriums. They're not -- we're not trying to entice people that are coming into Nashville and get our "fair share." People are making -- they're going to Nashville and they're staying at Opryland because of what Opryland has to offer. It's the same at the Palms and the Texan. They do a great job of really attracting and understanding what the value proposition is there. So that was the rationale of not -- because once you start cutting rate, it's really hard later on to really drive that up in a meaningful way. And we found out, like I said in the past, that it did not drive that meaningfully more volume into the hotels. I don't know, if Jen, if you have any...

And I think the other point to make here is the unique footprint of our properties. I mean you've touched on it a couple of times, and we have these. And as you made these recent investments in a product that isn't replicatable and isn't available to the leisure transient guest. In a period of a pandemic when you're wanting to be in a socially distant space in a beautiful pool area, a product like SoundWaves that just opened very recently, caters to that group, and they're willing to pay for that experience when there's no other options available. So coupling that and packaging with the programming that we do that's unique, again, to our properties that we've developed over the years, I think, is what's helped us be able to sustain and drive that rate improvement.

Okay. That's helpful. And speaking of the big box hotels, when you look at supply coming over the next 2 to 5 years, what does the landscape look like pipeline, I guess, for hotels of your stature and size?

There's literally -- I mean there's something that I'm not seeing, but there's little to no new competitive supply coming in. I think there's a lot of fundamental reasons for that. One is, obviously, from a financing standpoint, I think that it's a lot tougher to finance these types of construction projects that take years to develop. I think that to really make the returns work, you have to have the economic incentive package with the municipalities that you're working in. I think municipalities are less willingness to kind of -- to work with you there. And I think that just before the REIT conversion, we were a little bit of a dines where we're an owner-operator and developer -- greenfield developer of these hotels, you don't have those out there. So you really provide -- relying on private developers to develop them and then eventually you'll have a REIT. You've come in and eventually own it and you get the management companies obviously out there. So I think those industry dynamics over the last 15 to 20 years is what's leading to less full-service competitive supply that you're seeing outside of Las Vegas. I mean, obviously, Las Vegas is a different dynamic because of the gaming and things there. But outside of Las Vegas, I don't -- you just don't see those in the markets that we're looking at.

What's different about this dynamic?

Well, you've got the...

They've got the same -- something exact same with you're guys is. That was a joke.

Yes, exactly, exactly. So yes, that's right. So you don't have the entertainment qualities.

I actually have a question about Las Vegas because if you think about what Las Vegas is doing, which is adding tons of new -- like new offerings, right? They have -- they now have an NFL team. They have the sphere coming with [ MS Sushan ] of all these live shows that are in state of the art big sphere thing. And I guess the question is when you talk to your big corporate customers that have annually -- every year, huge events, is the draw to Las Vegas from -- are they getting calls from meeting planners in Las Vegas that every year, they have another thing that can offer them. Is that something that's pulling your customers more towards Las Vegas because in terms of supply growth, yes, there is supply growth there. And there's also a network effect of other things that your competitor here would be able to offer the convention guests.

Yes. And I think those things you just mentioned, when you're a meeting planner, a lot of the meetings we're having are not incentive-type travel or their leisure in disguise, trade shows, those are leisure in disguise, right? These big -- whether it's electronics shows or builders shows or things like that, they use as it's used to kind of come to Vegas. If you're a corporate or an association, you have to get something done, you will lose people in the second day. I'm interested to see how many people show up tomorrow morning at 8:00.

There's a lot of work can be done...

Exactly. Well, I know all the JPMorgan guys will be, for sure -- yes, exactly. But you kind of lose your attendees after the first day to the whiles of what Vegas has to offer. So there are certain things and certain groups want to be here. They have to come through here. I know NAREIT's coming here in the fall. So it is certainly a market that's maybe in the rotation for some groups, but some corporates, they -- if you come in a hotel, you kind of want to own the hotel and put that in. You come in to hear sometimes depending on what's going on in the market, you could be secondary citizen in that regard. So it just depends.

I want to take a quick pause and make sure that anyone on the webcast or in the audience knows they can submit a question really easily through the website, the conference website. And I've been hitting refresh every 10 seconds up here. So I will see it. If you want to ask a question. Anyone in the audience have a question? Okay. Great. So everyone's -- well, my favorite question, entertainment business. Solid grower, obviously, consistently, 10% of 2019 EBITDA, I think, roughly. What is the future of this business? What does it look like? And how do you unlock the value -- the full value of that?

Jen, why don't you take this, and I'll comment.

Sure. The Grand Ole Opry is the flagship of that business and the Ryman,and they're unreplicatable assets, right? They're unique. There -- it's the home of country music. And that consumer segment is one that we believe still has a lot of runway to grow. It's a growing audience, and it's one that we can cater to. And we have a unique relationship with our artists that we believe that we can capitalize on like no one else to really bring the value and grow that music lifestyle consumer through not only the Grand Ole Opry, but then the additional brands we started to develop, like Ole Red. There's avenues there for developing new artists that we have access to. We believe we have connections with develop that and connect with our consumers that others won't be able to. So certainly, there's some capacity restrictions on being able to grow attendance and occupancy, so to speak, at the Grand Ole Opry Ryman. But there's still room there on the rate side, especially and packaging and additional unit locations that we can look at Ole Reds.

Got it. Okay. And in the past, I think you guys have said that the Entertainment business does ultimately should exist outside of the company. And so I guess the question is, how big is critical mass? And at what point does -- is there no synergy from that business being part of your portfolio?

Yes, I'd say what Colin's talked about in the past, and he's right, the Entertainment business does not need to reside in a hospitality REIT. It's obviously where the company started. It's the foundation. And obviously, we feel a huge stewardship. I mean it's a great brand. It's been around -- I think the Opry is over 100 years old. It's going to celebrate its 5,000 Saturday Night Show...

Next month.

Next month. And then as Jen said, we're spot on. It's -- we have a very unique privileged position between the artist community consumer. And so we think there's tremendous value there. So longer term, it probably will be on its own at some point. And when that is, will really dictate, like I said, the size and scale for it to be honest, and you want to make sure it can stand on its own. And so that's going to have to have a certain amount of scale, both from a revenue per share and EBITDA perspective, but also what is the growth trajectory. So when it's out on its own, what is that investment thesis going forward there that's going to have to be laid out for investors. The underlying infrastructure to be a stand-alone public company, which I know Jen can talk to you. There's -- you have to have that infrastructure in place. And so all that's we've been working on. And so whenever the environment is right, you could see something in a little bit comes in.

Or to go to a different company?

True.

Right, that could -- for the growth and grow it. So on the physical asset side, on the hotel side, Rockies obviously worked out really well, right? That was a multistage deal for you. Talk about the next -- the markets on the short list of where you would want to be in the next 10 to 20 years, right, to extend the Gaylord brand, what would make the most sense? And what type of partnership structure would probably make the more sense?

From a hotel perspective, it's the usual suspects. You've got markets like Phoenix is great, Miami is great, San Diego, San Antonio, Seattle, you see something like that. There's -- some of the markets are going to be a little bit tougher than others. Obviously, from a union perspective, the Northeast gets challenging real estate. Any sort of ground-up development is going to be challenging. So you may look at new unit growth as far as acquiring assets there. But it will be interesting to see over the next, like you said, 20 years, how things will kind of evolve. We think there's a lot of untapped potential, particularly in the Rockies. Colin's talked about in the past, making that operating into the West. We've got the land to do it. You got the -- obviously, the airlift into. It's got all of the traits that you would want to have in a successful meetings market. So there's enough growth that we have organically, while still keeping an eye on those markets and seeing comes.

Okay. And in terms of the structure, the JV structure that the Rockies -- the way you did with Rockies, did that turn out as ideal as you'd want it to? Is there things you would have done differently about that once we think about the way that you might do the next one?

No, I think it turned out as well as it could have there. I think that it's given us probably a little bit more confidence that we could do something maybe on our own, where it's greenfield development. I think it probably makes, from a balance sheet perspective, more since to partner with a private developer and do it like we kind of had over the past. I think it's an existing asset that may be something obviously you would just do it on our own.

I know you were probably very excited about that Austin deal. And obviously, you stepped away from it in the middle of COVID. Do you still think that was the right choice? Would you -- or I guess it's a pretty unanswerable question, but what -- I mean, is that the market still on your short list of places you'd want to be?

Yes. No, we -- I mean, it's a great asset. It's a great market. It's really a hand-in-glove acquisition from our end, both from a market perspective as well as the asset. So yes, unfortunately, with the COVID situation coming in and nobody knew how that was going to play out in -- it was the right decision at that time. We still have a good working relationship with the owners there. And so that would be an asset we would look at.

Okay. Great. And then just in terms of leverage and capital allocation, maybe remind us where the balance sheet is today? When do you see it getting back to your target leverage levels, and sort of what's on your mind in terms of capital allocation when you sort get into that primary range eventually?

Yes. So we've -- our stated goals that we had prepandemic is 3.5 to 4.5x, and that is where we would ideally like to get back to. We think we can get back to there over the next 18 to 24 months. It's going to come through a combination of obviously -- we have no big major capital projects. We finished the Palms expansion. We did increase leverage a little bit to take out our partners at the Rockies. So you'll probably see us spend any free cash flow to kind of delever there. And obviously, the EBITDA perspective of that equation, we expect to increase. And if you look at the things that we didn't have back in 2018, the Palms expansion, the full -- the Rockies, full Rockies, the maturation of sound waves, the maturation of some of our Entertainment brands and businesses, we think we can delever relatively quickly. I don't think we're going to be in a position from a REIT taxable income standpoint to have to pay a dividend. Now we may elect to at some point, but we think we have some runway there that we won't be compelled to do a dividend, but could use that to either reinvest back in the business or delever.

In that period of time where you don't have to pay the -- do you have the sense of that length of time? Is that something you could share in terms of how long you think get that...

Yes. We certainly don't expect to be required to pay a dividend in '21 -- remainder of '21 or 2022.

Okay. Perfect. Anymore questions from inside the room? Okay. I think that's it. Todd, Jennifer, thanks so much for being with us today. Hope you enjoy Las Vegas.

We'll do. Thank you very much.

It's the same is here as it is on your property.

That's right.

Thank you.