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

Welcome to the next session this morning at Citi's 2022 Global Property CEO Conference. I'm Smedes Rose with Citi Research. We're pleased to have with us Ryman Hospitality and CEO, Colin Reed. 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 and at the AV desk. For those of you joining us here today in person to ask management any questions, please step up to one of the mics that are located in the central aisle of the room. If you're joining us remotely, simply type in your questions into the question box on your screen. They'll come to us directly, and we'll do our best to ask them during the session. Colin, I'm going to turn it over to you to just quickly introduce who you're with from Ryman today. Give us just a very quick overview of the company, and then we'll jump into some Q&A. And thanks for being here.

Yes. Smedes, it's good to be here in person. It seems like a lifetime ago, we were last year, 2 years ago, getting tepid about this thing called COVID. So our company is Ryman Hospitality. Before I give you a quick overview on the company, let me introduce Jen Hutcheson. Jen is our new Chief Financial Officer. Mark Fioravanti ceded the title to Jen last week. Mark is President of our company, and we've given him more operational experience. And Todd Siefert is our Treasurer -- Senior VP and Treasurer. So we're a strange real estate investment trust. We own big hotels, really big ones -- bigger than this, this hotel here. Our smallest hotel is about 1,500 rooms, our largest 2,880, mainly group. Those hotels, up to COVID, were pretty dominant in the group space, and we're very, very excited about the next 12 to 24 months because of the amount of business we've got on the books, the way we've treated the meeting planners through the debacle of COVID. And also because of the way in which our manager has listened to us around the organizing of the labor force. So I feel our margins coming out of all of this will be very good in the hotel side. We also own an entertainment business. This entertainment business focuses on Country. It is -- we call it, OEG, Opry Entertainment Group. It's a business, up to COVID, that have been growing very, very aggressively. Through COVID, it's done actually very, very well. Live music has essentially been really appreciated, I think, through COVID. And we have some very exciting plans for this entertainment business that we believe will be forthcoming over the next 12 to 18 months, tremendous growth here. So that's our company. We've -- I think we've navigated COVID pretty well. And our stock has recovered. Sitting here 2 years ago, we were trading at about $80 a share. Stock went all the way down to $14 in May. It was quite extraordinary, quite a ride. And -- but the stock has come all the way back, trading in the mid-$80s. The irony is that a couple of months just before Christmas, we did something that hasn't been done in our sector, which is we hit all-time highs, which is very good. We hit $96 a share. Our stock is, I think, primed to do very well here over the course of the next 2 years.

Great. Thanks. We're starting out with a question for each CEO this morning for all of these sessions. And if you could just give us the 3 reasons why you think investors should buy your stock today instead of other listed hotel REITs.

Yes. So 2 years -- this is like Groundhog Day. You asked that question 2 years ago, and I'm going to pretty much give you the same answer I did then. I used this analogy, I said back in March, 2 years ago, the Kentucky Derby was 2 months away, and it's the same thing. And if you're a shrewd better of horses, when you go to the track, when you look at the horses in the race, you look at their pedigree, you look at the way they have performed. And I think the primary reason why I would suggest that our company is worth investing in is because if you go back over the last 10 years, our company has outperformed the sector basically on every metric. And that would be the first reason, that the pedigree of the organization is such that we're not promising returns, we've done it in the past. Second is the assets that we own are really, frankly, one of a kind. If you look at some of the hotels that have traded recently anywhere from, pick it, $800,000 a key to $1 million a key to $1.5 million a key, we own about 10,000 rooms. These assets -- frankly, you can't rebuild what we own because the cost in this environment today is just astronomical to build hotels, the likes of which we own. And if you look at the performance of our hotels pre-COVID, the EBITDA per room is far superior to any other hospitality company in our space. So that would be the second reason. And the third reason is that our entertainment business is a very valuable jewel. Live entertainment assets that create content, the likes of which we -- our assets do are extremely valuable. So it's track record, the quality of our hotel business, the quality of our entertainment business. The other thing I would say about our hotel business is that you may get into this, Smedes, when you ask some of the other questions downstream, but when you look at the book of business that we have on the books for this year, the back end of this year, third quarter, fourth quarter, right now, we've got more revenue on the books for the back end of this year, third and fourth quarter than we did at the same time in '19 -- to the back end of '19 and '19 was a record year for our company. So this is the reason why I would recommend the company's stock, and it's frankly one of the reasons why I've been purchasing stock over the course of the last 2 years in this pandemic.

That's great. I wanted to come back to a couple of something you said in your opening remarks that you think you can come out of this with better margin than pre-COVID levels, and maybe sort of juxtapose that against what you're seeing on the inflation and cost side, either wages or food costs. And so how are you able to grow margin with prices going up as well?

Sure. Now we promoted Jen last week. So I'm going to put Jen, this is a baptism of fire, go for it, Jen, on this one.

All right. Jen, make sure to speak into the microphone.

Sure. What we'd say on inflation is that we have a couple of levers to manage that on the pricing side. And we were able to see that in the fourth quarter managing wage pressures. We did come into the fourth quarter with a little bit of higher staffing before we realized the impacts of Delta and Omicron. But really, we've been working with Marriott behind the scenes to really be creative about how we manage inflation and supply chain pressures.

So what would you say is either the absolute dollar cost savings opportunity or the margin expansion opportunity, sort of try to quantify it a little bit.

Well, what we've said over the long term is about 1 point, 1.5 points in terms of improvement over the long run.

Yes. And if I may, I know I said go for it, but let me add to this. I've been in the hotel business a long, long time. And there are some paradigms in this industry that, frankly, when you go through a period like this, you [ can bust ]. And one of them is that when you look at the organization -- the management organization of a large hotel like ours, it is like the army. You've got generals, you've got colonels, you've got majors, you've got captains and so on and so on. And one of the things that we have suggested to our friends at Marriott a while back, back 3, 6 months into the pandemic when we had shut all of our hotels is now is a time to step back and don't look at quantity, look at quality. And so what we have been doing forcing the organization -- and Marriott has been a willing participant with us, we have gone from, in our big hotels, when you aggregate the amount of people that would be supervisor, manager and above, about 2,400 of those positions down to 2,000. We've streamlined the management ranks of these businesses, and that has gone a long way to offset the frontline wage pressure that we have seen right across our business.

And so maybe just picking up on that, what do you think is the biggest growth opportunity for Ryman that you maybe think the market is not really giving you credit for right now?

The biggest growth opportunities? We could sit here for an hour. We had a Board meeting last week and laid out to our Board the opportunities that we have. And our growth -- and one of -- this is one of the reasons why we have outperformed in terms of TSR. Our growth has been what I would characterize as a higher-quality growth. We do not invest in assets that generate 8%, 8.5%, 9% return, marginally above our weighted cost of capital. We -- what we do is we go and invest 300 more rooms at the Texan and 80,000 square feet of meeting space. We've done the same thing at the Palms. We built this massive water facility at Opryland called SoundWaves, $90 million that we had some very healthy communication with our manager, Marriott, about the size and the scale of this. We wanted to do it bigger, better. These are the types of things that drive really high rates of return, 14%, 16% unlevered rates of return. And so as we have experienced, what we've gone through here pre-COVID, through COVID, it's clear to us that we can go deploy capital in things like more SoundWaves. Could we build one in our hotel in Aurora? Yes. Can we build one in our hotel at Texas? Yes. Do we have the land in Orlando to do it? We're trying to figure that out. So those are the types of things that we can do. And given the way I think our business is loaded in terms of demand, I think we can build more rooms. I know that sounds crazy, but Opryland is the largest convention resort outside of Las Vegas in America. We have 2,880 rooms, 650,000 square feet. Before COVID, Opryland in the year 2000, was planned to do over 80 points of occupancy, generating over $150 million of EBITDA. I believe that hotel, because of the performance of the leisure sector, how group is building, I think that hotel, we can look at more rooms capacity in that hotel and probably need more convention space. So we've got the opportunity of growing in our hotel business in many, many ways as well as we do in our entertainment business. The opportunity for growth in our entertainment business, I know this is going to sound cavalier, is almost unlimited. It is limited by our own imagination in the area of Country lifestyle. There's 120 million consumers in this country and probably the same overseas that love the Country music, Country lifestyle. And we are main and main in this. And so therefore, the opportunities are tremendous. So there's lots of opportunity here.

On entertainment, just remind us, pre-pandemic, what sort of EBITDA did the entertainment business generate? And you've talked in the past about spinning it out, what sort of critical mass would you want to see? What sort of EBITDA range would you want to see before you did something in terms of a spinout or a sale or something?

Sure. I think the first part of your question might have been EBITDA for the entertainment business before COVID times. We were looking at about mid-50s in terms of adjusted EBITDA and profitability in that business. And what we saw in the fourth quarter, if you look at the entertainment results was tremendous improvement compared to Q4 of 2019 on a same-store basis.

And we've got a lot of stuff coming. We're under contract to purchase what we call Block 21 in Austin, Texas, which is the Moody Theater, the W Hotel, a lot of retail that we want to convert into a music-based opportunity. We've announced things like building an Ole Red on the strip in Las Vegas. We have a deal with our friends at Caesars, literally right opposite the Bellagio fountains in front of Ballys. If you could go to a market like that, where basically there's no Country music entertainment day by day, obviously, a lot of the artists come through Las Vegas, but if you could go there and stick a pin in where you would like to be, it would be where we are. It is a wonderful location. So we've got good growth coming. We're putting an Ole Red in the airport in Nashville to accommodate the millions of consumers that are coming into the city, paying ungodly prices for hotels.

Remind us what is the investment in Las Vegas, and what's kind of the timeline from here to open?

We hope to go into the ground by the end of the year. We're in the permitting process right now, and we hope to have that place open late '23, and we're very excited about it, as is our partner, Mr. Shelton.

Great. Okay. One of the things that came up, I think, on the call, you ended the year with gross bookings about 2.5 million room nights on the books, which I assume stretches out for a few years. Could you talk about kind of pricing on those rooms as you -- as we move through the years -- in the next couple of years?

Yes. It's quite amazing, the experiences we've had through COVID, the emotional transformation of the consumer pre-Delta, [ main ]-Delta, and then after Delta and then Omicron. And we've seen this wave of engagement by the meeting planner. But what has happened over the course of the last couple of months is consumers have gotten comfortable that Omicron is not as bad as some of the previous strains is that we've seen our booking activity in our business change quite dramatically. We had a very, very strong January in terms of January bookings. I can tell you, we've -- the February numbers are equally as strong. We had the strongest February booking month than we've had since 2013. But the crazy thing about it is the -- in the year, for the year, we booked about 120,000 group room nights in the month of February, but the amount of room nights for -- in the year, for the year, was about half of that, 60,000 room nights. We've never had a February quite that strong in terms of in the year, for the year. So yes, we've got a very strong book of business. The interesting thing is, as I said in my preamble at the beginning, when you look at the back end of the year, we're slightly off in room nights on the books for the third and fourth quarter. But our rate -- against '19, but our rate is up. I think it's up almost 10% for the back end of the year. So in terms of revenue on the books -- and by the way, that was at the end of December, so you've got the short-term cancellations that we experienced with Omicron offset by really strong in the year, for the year bookings for January and February. So in the next few days, we'll have where things sit at the end of February for the rest of this year and next year but our forward book of business looks very, very good. And the interesting thing is when we look at our lead volume for this year for the -- in the year, for the year lead volume, our lead volume at the end of February was up 50% of where it was in February of 2019 -- for 2019. So we're pretty bullish. And the other thing, Smedes, that you haven't focused on and we haven't focused on is what has been going on, on leisure. Our leisure business is really, really strong. And I want to give you a statistic. We talked about it briefly in our earnings call we did very recently. But in the month of December, we fell short by $500,000 for having the best revenue -- rooms revenue month ever in our company's history. And here's the crazy thing. It was at 60 points of occupancy. And basically, it was all leisure -- not all leisure, mostly leisure. But the interesting thing is that the rate growth that we have forced our manager to keep pushing and pushing and pushing, our rate growth in the fourth quarter was extraordinary compared to where it was in '20 and where it was in '19. In '19, we're up over like $50. Now for a hotel, that doesn't sound a lot if you compare it to hotels like The Breakers that have increased their room rate by $500 a night. But when you've got 2,880 rooms at Opryland and you can increase your room rate by $40 to $50, that is really spectacular stuff. And that rate increase that we have seen last year is holding this year. Our volumes on leisure look good, our rate on leisure look good. And when you add that to the -- to where we are on group, it looks really good.

So do you see leisure as being a bigger piece of overall demand going forward? Will you purposely sort of mix the business to have more leisure at this point versus group?

I'm going to let Todd -- Todd is here.

Thanks, Smedes. What COVID has actually kind of shown is how much leisure business we have been able to drive in our hotels. And it's obviously been very good. I think it caught some investors by surprise a little bit. I think going forward, we will always, obviously, be a group house, group focus. Where I think you'll see leisure play maybe a bigger component is on the shoulder dates around typical periods like the Thanksgiving to New Year's timeframe. So can you extend the leisure starting in around Halloween? Can you extend it on the other side going out to President's Day? We're doing programing in the hotels. We just wrapped up Winterfest at our hotels. That was extremely well received by leisure customers. We look at our food and beverage offerings within the hotels. And so we -- even pre-COVID, we've spent a good deal of capital, as you know, on our pool amenities and things like that to drive leisure customers. So I think it will -- a point or 2 here or there, but to Colin's point, given the scale of our hotels, it's going to be meaningful going forward.

Okay. I wanted to ask you, given the very strong bookings activity you've seen coming into the year, I think you've got occupancy on the books that's close to pre-pandemic levels. Do you think you're taking share from other U.S. -- more sort of "core U.S. cities" where there is large group hotels that are really struggling right now? Or do you think it's just a different clientele that's coming back faster to your markets relative to some of those other markets?

I sure as hell hope so.

On taking share?

Yes, taking share. And look, again, we're not REIT guys, okay? We're operators. We know the customer. And remember, the Gaylord Hotels brand, we created it. We built it and then we handed the management off to our friends at Marriott back in 2013. We understand the customer. And so what we've been doing all the way through forcing our friends at Marriott to take a au contraire approach to the meeting planner, we said to Marriott, this is a time, a year ago, that we should be going out and stealing some of the best salespeople in the country from our competitors. This is a time where when the world goes upside down, it's a time of opportunity. This is the reason why we went and took our partner out in Denver in the middle of this pandemic. It's because we believe long term, the group side of our business is going to be very, very strong, and we have essentially doubled down on that through this pandemic. So we've got many new salespeople in our organization. It was a time to upgrade to now the Jack Welch approach, out of your salespeople. 10% are superstars, 80% fall in the good category and 10% are the poor performers. And Mr. Welch would say, this is the time you move the poor performers out and you upgrade them with superstars. And that's what we've been doing here. So we didn't go into a nuclear winter through COVID. We have been on the front foot trying to be aggressive through this period. And I think that is going to pay dividends in the long term for our hotel business.

We talked about capital allocation earlier. One of the things that comes to the surface sort of periodically seems to be the development of a Gaylord Hotel in Chula Vista outside of San Diego. That seems to be gaining some traction again. What's your interest there? I mean, I'm asking because I think it's the same partner that you bought out the Gaylord Rockies from. Just maybe any updated thoughts there?

Buddy, I think you've asked that question of me over the last 2 to 3 years, I don't know, half a dozen times, and I'm going to give you basically the same answer. When we look at deals -- look, we're shareholders of the company. We look at deals through the eyes of the shareholder. Is this going to add value to our business, to our enterprise? And if it's a marginal deal, the answer is we're not going to do it. And right now, think about it. Is it more likely or less likely that a deal like Chula Vista has gone positive or gone negative? Look at the cost to construct today versus where it was a year, 2 years ago and particularly in a market like California, when you're going to do it all union and operated all union, okay? So the last time we looked at Chula Vista, the numbers were not, in our considered opinion, favorable for an investment from our company. We haven't looked at it over the last 6 months because we have been looking at the opportunities that we have today that we know are going to generate high returns. And if [indiscernible] comes back to us and says, "Hey, we'd like you to take a look at it," we'll look at it again. But I doubt very much that it's going to be attractive enough for us to invest in. And in terms of capital allocation, I'm going to repeat what I said earlier. We look at it based upon the quality of the return, and we do not invest in projects unless the minimum IRR is somewhere in -- the minimum is 10% unlevered, okay? And normally, our threshold is in the 12%, 14%. And basically, every project we do is going to be materially greater than somewhere between 12%-plus. And that's how we think about it. And then in terms of capital allocation, it's -- we look at the individual assets and the likelihood each asset can be a dominant asset within that market, should we invest capital in this one versus this one. But at the end of the day, it comes down to returns, and that's how we allocate couple, and that's one of the reasons why our TSR, candidly, has been where it's been.

We have a question coming in from the audience. You kind of touched on this before and maybe we'll throw this back to Jen. Can you discuss cost savings achieved during COVID? And how much of these savings will be permanent?

Well, as we mentioned earlier, and Colin reiterated this point about the concerted efforts, focused efforts that we've worked with Marriott on to reduce the level of people at management within Marriott, we're giving people more opportunities to increase their span of control and trying to minimize the impact really directly on the front line. We've increased productivity hours worked per room on the Marriott side. That, I think, is our biggest efforts on the labor side. And I know that our asset management team also works very closely with Marriott on the cost of sales side, managing and being creative with food and beverage, menu design, with selections and working with groups to work within their budget. So there's a lot of different levers that because our asset management team, in particular, our entire management team has a history of being operators, that we're able to influence a little bit more with our property managers than others will.

Are there any changes on the housekeeping side that must be a fairly large cost for you, given the size of your hotels and the occupancies you do that maybe have significant savings opportunities going forward?

Well, we have materially increased the pay for housekeepers. But we've also, as Jen said, increase the productivity for housekeepers. So I -- my personal view is if you can hold the cost per room -- the cleaning cost per room reasonably consistent year-over-year with the rate increases we're seeing, this is one of the reasons why we believe we're going to see margin expansion coming out of this downstream.

Okay. You touched on Block 21 earlier, but I did want to circle back for a moment. Are there like 2 or 3 things that you can point to where you think you can drive incremental returns out of that property relative to what it's been doing prior to your ownership?

Well, we think we can improve the overall -- I've missed that, 2 years, I've missed those bells, session will close in 5 minutes. So we believe we can improve the overall quality of the Moody Theater, not quality, but the profitability of the Moody Theater. As an example, the Moody Theater gets about 5,000 backstage tours a year. By contrast, the Ryman in Nashville gets about 300,000. So things like that. We -- it's just that part of the business, the hotel, we fundamentally believe we can sprinkle our pixie dust on that hotel and improve the performance of that hotel pretty meaningfully and then more effective use of the retail space and converting it more into a entertainment destination. So that's how we think about Block 21. It's -- if we can get this thing closed, we're going to have a lot of fun with that particular market. Austin is a vibrant market.

Okay. And then before we go into our closing questions, I did want to ask you a little bit about how you might think about the ramp-up of the Nashville. It was the last property to reopen. EBITDA was less of a contributor in the fourth quarter. How are you seeing that kind of ramp over the course of '22 and '23?

It's going as we expect. Look, the Washington market is a challenged market for many reasons. We could sit here and debate Washington for a long, long time. But it's going pretty much as we expected. Groups are booking, hotel has opened well. We're in the process. We have completely read on every single guest room in that hotel. I was up there about 4 weeks ago, it looks really, really good. We're building -- we are completely transforming the food and beverage operations, making them more labor friendly, more efficient. They should all be -- that should all be done within the next month, month and a bit. No, we're an optimist on Washington. I wish we had a little bit more land there to maybe put a SoundWaves in that hotel and really goose the leisure side of the business, but we'll see. We'll see where all that goes. But it's doing what we expect it to be doing.

Okay. And then, Colin, I want to finish up with 3 kind of quick questions and then one sort of slightly broader one. As we think about Ryman, when do you think the company can get back to 2019 EBITDA levels, what calendar year, this year, next year, the year after next?

Well, I'm hopeful in the third and fourth quarter of this year we're generating that level of EBITDA. I know what operating plan we presented to our Board of Directors a couple of weeks back. It's a pretty aggressive plan. And we're showing levels of profitability consistent with where we were in the third and fourth quarter of 2019. And I think 2023 is going to be a very good year for our company, simply because of the rooms we've got on the books, the -- what is going on, on leisure and the great opportunities we have on our entertainment side.

Okay. Where do you think the 10-year treasury yield will be a year from today? It's about 1.7%.

That question surprised me. It's a standard Smedes question. Lord knows. Think about it, a week and a half ago, the 10-year was trading at a fraction under 2%. This morning, I think it was like 1.75%. It's extremely volatile. But I would hazard a guess, this terrible thing that's going on in the Ukraine right now, one way shape or form, I think that will not be quite as intense 2, 3 months from now. And then I think we're going to see interest rates go up pretty aggressively because of the inflationary pressures. And I would suggest somewhere around 2.25%.

Okay, 2.25%. And will your property sector have more or fewer public companies a year from now?

I'm going to answer that the same way. What it should have is probably not what it will have. It will probably be there or thereabouts the same, but it should have less. Too many companies chasing too few deals.

And any -- what's your #1 ESG priority for '22? Last 20 seconds.

Oh, lord, ESG is so very different. We use that terminology. Environmental is so different from social. But on the social side, we've been working on our Board. We've been working on our management in terms of D&I. We've put -- last year, we put 25 black artists on the stage of the Grand Ole Opry, 6 made their --7 made their debut. So we're working a lot on D&I, and we've got some really interesting things we're working on, on the environmental. Thank you for having us.

Thanks, Colin. Thanks, Ryman team.