Ryman Hospitality Properties : Q2 2023 Ryman Hospitality Properties Inc Earnings Conference Call Transcript

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RHP.N - Q2 2023 Ryman Hospitality Properties Inc Earnings Call

EVENT DATE/TIME: AUGUST 04, 2023 / 3:00PM GMT

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AUGUST 04, 2023 / 3:00PM, RHP.N - Q2 2023 Ryman Hospitality Properties Inc Earnings Call

C O R P O R A T E P A R T I C I P A N T S

Colin V. Reed Ryman Hospitality Properties, Inc. - Executive Chairman

Jennifer L. Hutcheson Ryman Hospitality Properties, Inc. - Executive VP & CFO

Mark Fioravanti Ryman Hospitality Properties, Inc. - President, CEO & Director

Patrick Chaffin Ryman Hospitality Properties, Inc. - Executive VP & COO - Hotels

C O N F E R E N C E C A L L P A R T I C I P A N T S

Charles Patrick Scholes Truist Securities, Inc., Research Division - MD of Lodging, Gaming and Leisure Equity Research & Analyst Chris Jon Woronka Deutsche Bank AG, Research Division - Research Analyst

Dori Lynn Kesten Wells Fargo Securities, LLC, Research Division - Senior Analyst

Shaun Clisby Kelley BofA Securities, Research Division - MD in Americas Equity Research & Research Analyst

Smedes Rose Citigroup Inc. Exchange Research - Research Analyst

William Andrew Crow Raymond James & Associates, Inc., Research Division - Analyst

P R E S E N T A T I O N

Operator

Welcome to Ryman Hospitality Properties Second Quarter 2023 Earnings Conference Call. Hosting the call today from Ryman Hospitality Properties are Mr. Colin Reed, Executive Chairman; Mr. Mark Fioravanti, President and Chief Executive Officer; Ms. Jennifer Hutcheson, Chief Financial Officer; Mr. Patrick Chaffin, Chief Operating Officer and Mr. Patrick Moore, Chief Executive Officer, Opry Entertainment Group, this call will be available for digital replay. The number is [phone] with no conference ID required. At this time, all participants have been placed on a listen-only mode. It is now my pleasure to turn the conference over to Ms. Jennifer Hutcheson. Please go ahead, ma'am.

Jennifer L. Hutcheson - Ryman Hospitality Properties, Inc. - Executive VP & CFO

Good morning. Thank you all for joining us today. This call may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, including statements about the company's expected financial performance. Any statements we make today that are not statements of historical fact may be deemed to be forward-looking statements.

Words such as believes or expects are intended to identify these statements, which may be affected by many factors, including those listed in the company's SEC filings and in today's release. The company's actual results may differ materially from the results we discuss or project today. We will not update any forward-looking statements, whether as a result of new information, future events or any other reason. We will also discuss non-GAAP financial measures today. We reconcile each non-GAAP DIP measure to the most comparable GAAP measure and exhibit to today's release. I will now turn the call over to Colin.

Colin V. Reed - Ryman Hospitality Properties, Inc. - Executive Chairman

Thank you, Jennifer, and good morning, everyone. I want to start off this morning's earnings call by somewhat breaking from the tradition of spending time talking about the last quarter. Of course, we're very pleased with the last quarter, but it's the future that really excites us. So let me tell you why, 20 years ago, we decided to build a hospitality brand primarily focused on the group segment.

We did this because we had discovered that there were tens of thousands of large groups that rotate market to market year-by-year. We built world-class physical assets backed up by a people-focused culture that over time built loyalty amongst our customers. The consequence was that

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AUGUST 04, 2023 / 3:00PM, RHP.N - Q2 2023 Ryman Hospitality Properties Inc Earnings Call

we gained market share, and for those investors who have been with us for this journey will know we've expanded and refined most of our hotels over the last decade as we grew demand.

Financially, our performance has been substantially different from our peers. In fact, our company has significantly outperformed the FTSE NAREIT Lodging sector index over the last 20 years, and when you look at the average returns of the same index, whether it's on a year-to-date basis, a 1-year,3-year,5-year,10-year, we've substantially outperformed this index in each period of measurement. Now this is not by luck. This is because we have a differentiated strategy that enters into contracts with our large group customers and provide really exciting experiences to the leisure customers, and they, in turn, reward us with their loyalty. The consequence of which has resulted in lower annualized earnings volatility and higher annualized growth than our peers. So we are, after a once in a lifetime pandemic posting results that are mostly across the board records, and as Mark will describe, bookings and lead volumes that are really quite impressive and revenue on the books for next year and the years following at levels that exceed historical performance. COVID decimated many families and created extraordinary damage to humanity. But in some ways, it made us a stronger company. We went out of our way to nurture and care for the meeting planner, evidenced by the tremendous re-bookings we achieved from the canceled room nights. We reengineered our organization and deployed almost $500 million in new capital while others shut up shop. We have emerged from COVID a stronger company as our quarterly earnings illustrate. But the thing that excites me is what we can do with our businesses over the years ahead.

Next week, we will be with our Board, and I suspect most of the conversation will be focused on the years ahead of us. Our hotel business has and is showing strong rate growth as a consequence of the attributes of our product and the strength of demand. Look, forward bookings and lead volumes have us very excited and we've been sharing with our Board the many options we have to grow our business. We're working on rooms expansions of certain hotels, convention space expansion, replicating SoundWaves in several markets, sports bar expansions as well as food and beverage repositioning all at our existing hotels as we expand and refine supply to accommodate the demand we are building.

So as I said, next week, we will preview these opportunities with our Board. And between now and early December, we will be refining proformas and prioritization, and then we will share this plan in some detail at an Investor Day that we plan to hold sometime mid-first quarter of next year so that we can lay out our growth plans primarily for our hotel business, but also give you a glimpse of what we expect to do with our exciting entertainment business. Now right now, we've identified about somewhere between 15 and 20 projects that we believe will materially grow profitability that we estimate that we'll acquire about $1 billion of new capital, and by the way, that number I've just explained to you excludes the plans that we're developing for the JW Marriott Hill Country.

Unlike most of the hospitality REIT sector, we have a very strong record of creating value for our shareholders and the plans that we are developing and the strategy that we have in place leads us to the conclusion that the future looks extremely exciting. Now for the quarter. As Mark and Jen will discuss, our quarter came in almost exactly as our operating plan called for despite the shocking accident at our Colorado hotel, and we set records in many areas of our business. The quarter was highlighted by the acquisition of the JW Marriott Hill Country, which we're very excited about, and Mark will talk about that in a minute.

Candidly, we've tried to buy this hotel several times over the last 8 years, and we are pleased that we were able to move quickly to facilitate this purchase. And I'd like to thank the investors and bondholders who came into our company at the time of purchase for having the confidence in us. San Antonio is a large city with incredible growth characteristics. In fact, from 2020 to '21, San Antonio experienced the largest population growth in absolute terms of any city in the United States and during that time, the GDP of San Antonio grew at the fifth highest rate in the country.

There's a lot of upside potential for this hotel, and even though the hotel is performing extremely well, and we look forward to really Rymanizing this hotel in the coming period. Over the last several days, we've gone under contract to purchase an adjacent 41 acres of real estate that significantly helps us to be able to expand this hotel over time and then introduce this asset into the rotational offering for our group customers, and Patrick and his high-quality team are currently building the growth thesis for this world-class asset, which we'll share with you in a few months.

Now finally, let me just tell you what excites me about our entertainment business. First of all, the core business continues to get stronger, and if you exclude our new Block 21 assets, which delivered very good results in the second quarter, adjusted EBITDA increased year-over-year by 21% on an 11% increase in revenue. The Ole Red brand also delivered record results as did the Grand Ole Opry and the Ryman. From a growth perspective, we're making headway in Las Vegas with our all red that we're building on the strip. But it looks like opening will occur in very early in 2024, which

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AUGUST 04, 2023 / 3:00PM, RHP.N - Q2 2023 Ryman Hospitality Properties Inc Earnings Call

is a modest shift in the schedule due to a permit delay that we fortunately now have completely resolved. As you all know, we also announced a long-term branding deal with Luke Combs.

Luke is an extraordinary entertainer with international appeal, and we will be converting the Wildhorse into a 4-part multifaceted entertainment destination here in Nashville, which when complete, will be quite different from the bars you see in this town. So here we are, our consolidated business operating at record levels and a balance sheet that has delevered materially over the last year. For us, the dilemma is not how we grow, but what levers we pull first. And I want to just finish my section here by saying I'm extremely proud of the team we have here at Ryman and their collective professionalism and understanding of our business and the future looks awfully, awfully exciting. So Mark, let's talk about the second quarter.

Mark Fioravanti - Ryman Hospitality Properties, Inc. - President, CEO & Director

Thanks, Colin. The company had another excellent quarter with a continuation of the great momentum we saw in the first quarter, achieving record performances in a number of areas. In addition, we are excited about the value creation opportunities the JW Marriott Hill Country presents at both the property and portfolio levels. Starting with our hotel business, we continue to see strength in the group segment as we traveled approximately 528,000 group room nights in the quarter, 3.5% more than the comparable period in 2022 and nearly a 98% recovery versus 2019 pre-pandemic levels.

Across the board in both group and transient, we continue to see strong rate performance as group and transient ADR were both up 5% versus the prior year quarter and 16.7 and 37.9%, respectively, compared to the second quarter of 2019. Both segments set new all-time records for ADR, driving record second quarter hospitality revenue. Outside the room spending this quarter saw continued strength with an increase of over 5% compared to the year ago period. Despite an uncertain macro environment, we delivered hospitality adjusted EBITDAre of $152.7 million in the quarter, which was the second highest performance in the company's history, just 1.5% behind the year ago period.

While there was a 200 basis point margin decline compared to the same period last year, this quarter's performance was solid as we faced some tough comparisons to the prior year quarter. Coming off the Omnicron impacted first quarter, the second quarter of 2022 is the highest EBITDAre and margin quarter on record, driven in part by Omnicron-relatedre-bookings, attrition and cancellation fee collections and incentive management fee expense timing.

Attrition and cancellation fees in the most recent quarter were down by almost 1/3 or $5 million on a year-over-year basis, illustrating the continued return of the group customer. Likewise, as our portfolio has generated higher levels of profitability, management fee expenses increased commensurately. Our second quarter results included over $4 million more in recognized incentive management fees compared to the year ago period. While these dynamics have a negative impact on comparable margins, they are favorable signs for the group segment in our business. We anticipate a similarly challenging year-over-year comparison in the third quarter as well and then reaching more favorable comparisons in the fourth.

In addition to these year-over-year dynamics, the Gaylord Rockies performance in the quarter was negatively impacted by the tragic May 6 collapse of the HVAC system at the hotels indoor pool. Guest volumes, primarily in the transient segment were impacted in the weeks following the incident, but have continued to recover. We estimate this incident impacted the Rockies second quarter profitability by approximately $2 million, and we have an ongoing business interruption claim, which we hope to collect by year-end.

As we look to the remainder of the year, we're reiterating our hospitality EBITDAre and Entertainment segment EBITDA outlook with the addition of the JW Hill Country for the back half of the year, thus raising our adjusted EBITDAre guidance for the benefit of the new property. Jennifer will detail our outlook shortly. As we look beyond 2023, we continue to see no deterioration in the key leading indicators we track. We're again pleased with group sales production in the quarter as we booked nearly 652,000 gross group room nights, which is up 8.4% compared to the year ago period.

If you exclude Omnicron-relatedre-bookings from the second quarter production last year, production was up approximately 17% year-over-year. We continue to prioritize ADR in our sales production, leveraging the capital investments we've made in capitalizing on the favorable supply/demand

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AUGUST 04, 2023 / 3:00PM, RHP.N - Q2 2023 Ryman Hospitality Properties Inc Earnings Call

outlook for the group segment. For the second quarter, we achieved an average rate across all new group bookings of $265, an all-time high for any quarter in the company's history, up 8.7% compared to the second quarter of 2022 and 25.2% compared to the second quarter of '19.

This ongoing strength in production continues to drive our revenue on the books for future years and supports our confidence to continue investing to enhance our one-of-a-kind hotels to create stronger customer loyalty and build an even greater competitive advantage. As of the end of the second quarter, our group rooms revenue on the books for '24 and '25 are up 9.6% and 9.8%, respectively, compared to the T+1 and T+2 time periods as of the second quarter of 2022. Now turning to the acquisition of the JW Marriott Hill Country, Colin gave you a brief overview of some of the fundamentals of the compelling San Antonio market. Let me add a little bit more color about this hotel and the tremendous opportunity it presents for us.

Since closing the acquisition on June 30, our asset management team has been working with Marriott to quickly integrate the property into our portfolio to capitalize on economies of scale, improve contract terms and service levels from key vendors and leverage our portfolio-wideabove-property activities in finance, revenue management and group sales. In addition, we're working to create an initial introduction of holiday programming to drive incremental transient occupancy and outside the room spending for the 2023 holiday season. Due to its lead time, we will implement our full holiday programming, including ICE! in 2024.

Looking out further, the expansion potential for this hotel is substantial, while already a destination property at 1002 rooms when you compare it to the rest of our portfolio and consider the long-term economic growth of the Greater San Antonio, Austin region, the property represents an enormous opportunity to generate significant shareholder value through future capital investment. To this end, as Colin mentioned, we have signed a purchase agreement to acquire from Marriott 41 undeveloped acres immediately adjacent to the Hill Country property for $10.1 million. The purchase agreement is subject to customary closing conditions, including our due diligence efforts in the approval of Marriott's Investment Committee.

We believe this land and the associated development rights will allow us to create a compelling master plan for an expansion of the resort in future years. We anticipate closing this transaction by the end of the third quarter. Our Entertainment Group's performance this quarter was again another great storyline with our marquee Nashville assets leading the way. The consolidated Entertainment segment delivered $87.1 million of revenue and $29.4 million of adjusted EBITDA, which are both records, up 27.4% and 33.4%, respectively, versus the year ago period.

We also announced this quarter that former Ryman Board member, Patrick Moore, has been appointed Chief Executive Officer of the company's Opry Entertainment Group. Patrick brings decades of experience, leading brands through transformative growth and an addition to our management team is an important step in executing our long-term strategic growth plan. We've worked with Patrick first as a consultant and most recently as a Ryman Board member, and I have known him for more than 16 years. We're excited to have Patrick join us and for the leadership and strategic capabilities he brings, and with that, I'll turn it over to Jennifer to discuss our financial results in greater detail.

Jennifer L. Hutcheson - Ryman Hospitality Properties, Inc. - Executive VP & CFO

Thank you, Mark. In the second quarter, the company generated total revenue of $504.8 million and net income to common shareholders of $66.5 million or $1.15 per fully diluted share. Note as usual that our fully diluted share count in the quarter reflects the put rights held by Atairos as part of their Opry Entertainment Group investment. Although those rights are not yet exercisable and we retain the option to settle any exercise of these rights in cash, any exercise these put rights would also result in the Atairos' 30% ownership in OEG reverting back to Ryman. Additionally, this quarter, we completed a successful oversubscribed equity capital raise in June associated with our acquisition of the JW San Antonio Hill Country property.

We issued a total of 4.4 million shares in the quarter, which is reflected in our weighted average shares outstanding for the quarter and year-to-date. Total consolidated adjusted EBITDAre for the second quarter was $174.7 million, which is an all-time record and led by continued strength in both our hospitality and entertainment segments. With the JW Hill Country acquisition occurring on June 30, our second quarter balance sheet fully reflects the acquisition and the related financing transactions and future operating results starting next quarter will be fully reflected in our income statement. As Mark mentioned, our businesses are performing well, with strength and momentum moving forward. As such, we are reiterating

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