Ryman Hospitality Properties, Inc. (NYSE:RHP) Q1 2023 Earnings Call Transcript May 6, 2023

Operator: Welcome to Ryman Hospitality Properties First 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; and Mr. Patrick Chaffin, Chief Operating Officer. This call will be available for digital replay. The number is 800-757-4768 with no conference ID required. [Operator Instructions] It is now my pleasure to turn the floor over to Ms. Jennifer Hutcheson. Ma’am, you may begin.

Jennifer Hutcheson: 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 any new information, future events, or any other reason.

We will also discuss non-GAAP financial measures today. We reconcile each non-GAAP measure to the most comparable GAAP measure in an exhibit to today’s release. I’ll now turn over the call over to Colin.

Colin Reed: Thanks Jen and good morning everyone. As you recall, we exited 2022 on a high note, led by a fantastic fourth quarter response to our holiday programming. Well, I’m pleased to report today that in the first quarter of 2023 our momentum continued with our group business off to a tremendous start. For the quarter, our consolidated hospitality portfolio achieved 72.3% occupancy and first quarter records for group transient and total ADR as well as total revenue and total adjusted EBITDAre. This is quite a feat and something the overall industry cannot yet boast. It’s a testament to our differentiated group focus. The strategies we have employed and the capital we have invested over the last 3 years, whether it was strengthening our customer relationships, rebooking pandemic cancellations, capturing new group and leisure demand with expanded programming and offerings or improving our operating efficiencies and technology, altogether our strategies and investments elevated our value proposition for group and leisure customers.

And this is really what you’re witnessing in these results. Our hotels finished the first quarter strongly with the month of March being the best non-December month for total revenue of all time and March adjusted EBITDAre being the all-time highest of any month, including December. On that note, we are pleased to substantially increase our guidance range for the Hospitality segment for the year, as Mark and Jen will detail. Our strategy over the last 3 years is clearly paying dividends figuratively and literally as I’m also happy to announce our Board has authorized an increase in our quarterly dividend to $1 per share from $0.75. In our Entertainment business, we’re off to an equally impressive start to the New Year. Excluding our acquisition of Block 21 on a same-store basis compared to last year’s first quarter, our Entertainment portfolio delivered 33% revenue growth and more than doubled same-store adjusted EBITDAre.

Nashville continues to flourish as a destination for all things music and entertainment. Our assets here set a number of records of their own in the first quarter besides simply total revenue and adjusted EBITDAre. These include record total attendance for the Opry show and record tour attendance for the Opry House as well. The Ryman auditorium also set a record for the number of events. And just as the groups in our hotels are spending well on property, we saw a record per-cap food and beverage revenue at the Opry and the Ryman. I could go on, but I will stop here and remind you that the work is not finished for this business either. In fact, quite the contrary. We’re in the early stages of new growth as illustrated by the progress we’re making on building out our new and latest and biggest Ole Red venue in Las Vegas.

And we’ve begun to transform operations on the ground at Block 21 in Austin. And hopefully, you will see our latest announcement that we did a couple of weeks back when we unveiled our new partnership with country music’s biggest sensation today and my buddy Luke Combs. Together with Luke, we will completely reinvent the Wildhorse Saloon in Downtown Nashville convert it into a multi-level, multi-concept immersive entertainment experience capped by the best-situated rooftop venue in Nashville, all with themes inspired by Luke’s music and his passions. Fun times ahead, so stay tuned. Now, Mark, why don’t you give the folks an update on the numbers for the quarter?

Mark Fioravanti: Thanks, Colin. The first quarter was a great way to start a new year especially relative to the last 3. The strong performance we saw across our businesses was more affirming then it was surprising for us given the strategic investments and the work we’ve done over the last 3 years. We were pleased to see both group and transient contributed to the strong occupancy ADR and total RevPAR results we reported last night. On the group side, we traveled just over 4% more group room nights in the first quarter of 2019. The occupancy comparison to 2019 was helped by the Rockies as it was in its first quarter of operation after opening in December of 2018. On the other hand, we also have 300 additional rooms in inventory compared to the first quarter of 2019 due to the Palms expansion opening in 2021.

To reach this level of occupancy across the portfolio of our size less than a year after Omicron was impressive and something you still won’t find more broadly in our industry. But to post these levels of RevPAR and total RevPAR while not yet exceeding 2019 on occupancy is remarkable. Our ADR and RevPAR posted over 18% growth compared to the first quarter of 2019 and our total RevPAR grew 24.5% against the same period. By segment, group ADR was up 12.7% and transient ADR was up 39.3%, again compared to the first quarter of 2019 as both segments reached new all-time first quarter records for ADR. This performance came against the not-so-easy macroeconomic backdrop with record inflation and a difficult wage environment compared to 2019. Yet we executed sharply on our improved operating model delivering over $151 million of adjusted EBITDAre in our Hospitality segment or 33% growth over the first quarter of 2019.

This is over 180 basis points of margin improvement to a record first quarter adjusted EBITDAre margin of 35.6% for the segment. Group outside-the-room spend truly shined this quarter, notably in terms of catering, driven by a favorable mix of corporate group room nights and group spending freely on property. Several hotels set individual monthly catering revenue records in March. In total, food and beverage revenue grew over $44 million or 26% compared to the first quarter of 2019. And the operational improvements and reconceptings we have accomplished across many of our outlets drove excellent flow through on this revenue stream of close to 47%. Excluding higher cancellation and attrition fee revenues and the lower contribution from Gaylord National bond interest, we drove a total of $79.5 million of incremental operating revenue at 40% flow through over the first quarter of 2019.

This is despite being back in the incentive management fee with Marriott and the material labor expense differential compared to that year. On the strength of this quarter and as we move into the year and gain further visibility, we’re pleased to increase our full year guidance ranges for RevPAR and total RevPAR growth as well as adjusted EBITDAre for the Hospitality segment. We now expect RevPAR growth on a year-over-year basis to be in the range of 11% to 13.5% and total RevPAR growth to be in the range of 8.5% to 10.5%. This is an increase of 175 and 150 basis points at the midpoint respectively compared to our initial guidance in February. We expect full year adjusted EBITDAre for the Hospitality segment to be in the range of $570 million to $600 million, an increase of $20 million at the midpoint.

By quarter, we expect the last three quarters of the year should each contribute about the same share to their three quarter total as the last three quarters of both 2019 and 2022 did to theirs. That is the second and fourth quarters should contribute a bit more than one-third of the total and the third quarter a bit less. We continue to see no deterioration in the key leading indicators we track. But of course, we read the same headlines as everyone else, and so we believe we’ve had an appropriate amount of caution in our near-term views. Looking beyond 2023, we were also pleased with the group’s sales production in the quarter. We booked over 348,000 gross group room nights in the quarter, which while down compared to the first quarter of last year, was up 9% when you back out the Omicron-related re-bookings in last year’s first quarter.

As we frequently emphasized, we continue to prioritize ADR in our sales production to capitalize on the favorable supply-demand backdrop in our space. On that front, we were successful yet again in the first quarter with an average rate across all new group bookings of $252, an all-time high for the first quarter, and up 9% to the first quarter of 2022 and 23% to the first quarter of 2019. This ongoing strength in production continues to bolster our confidence for the remainder of 2023 as well as future years. As of April 1, we had more net group rooms’ revenue on our books for the balance of the current year as well as each of the next 4 calendar years from 2024 to 2027 as we did back on April 1 of 2019 for the balance of that year and for the period 2020 through 2023.

In short, our hotel business is in the best position it’s ever been in terms of total group rooms revenue on the books for all future years, which sets us up to continue driving the profitability of these assets in the years to come. In addition to our on the books revenue, we also look forward to our current and planned growth capital investments making their own contributions in the years ahead, led by our latest project, the renovation of the Gaylord Rockies Grand Lodge and the construction of a new group pavilion, which we expect to open next year. These types of investments will further differentiate our portfolio compared to the industry as we emerge in the post-pandemic era. As we finally lap the Omicron impact of the first quarter of last year, we look forward to demonstrating the full year earnings power and growth potential of this great one-of-a-kind portfolio, including the contributions to come from these high-return investments.

In our Entertainment segment, the first quarter performance of our same-store assets that Colin highlighted was another great storyline with the city of Nashville continuing to outdo itself. Adding to the incremental contribution of Block 21 on a consolidated basis, the business generated $67.3 million of revenue and $14.3 million of adjusted EBITDAre compared to $32.8 million and $8.1 million in the first quarter of 2019, respectively. Given this performance and our current pace for the remainder of the year, we’re increasing our guidance for the Entertainment segment profitability to a range of $94 million to $104 million of adjusted EBITDAre, an increase of $7 million at the midpoint compared to our range in February. This represents $41 million more in profitability at the midpoint than this business delivered in full year 2019.

That’s a significant amount of growth over a 4-year period interrupted by a pandemic. And as Colin noted, we have more untapped. We’re working on some truly exciting opportunities in both our Hospitality and Entertainment businesses, and our balance sheet and liquidity is an important element in allowing us to execute on multiple opportunities at once. So I’ll turn it over to Jennifer to update you on where those stand as well as our dividend and consolidated guidance range.

Jennifer Hutcheson: Thank you, Mark. In the first quarter, the company generated total revenue of $491.7 million and net income to common shareholders of $61.3 million or $1.02 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 of the put rights would also result in Atairos’ 30% ownership in OEG reverting back to Ryman. Total consolidated adjusted EBITDAre for the first quarter was $157.7 million, led by the outperformance of both our Hospitality and Entertainment segments, while our Corporate segment remained within our expectations and we are reaffirming our Corporate segment guidance with this release.

Together with the operating segment guidance Mark outlined, this puts our new consolidated adjusted EBITDAre guidance range for the year at $632 million to $675 million or an increase of $27 million at the midpoint compared to our previous guidance. The midpoint also represents a 17.6% increase over 2022 and a 28% increase over 2019 actual results. We are also increasing our guidance for adjusted funds from operations, or AFFO, for the year to a range of $425 million to $454 million, primarily reflecting the flow-through of the increased adjusted EBITDAre. At the midpoint, this represents growth of 21% over 2022 and 23% over 2019 for AFFO. Turning to the balance sheet, we ended the quarter with $318.5 million of unrestricted cash on hand and our $700 million revolving credit facility remained undrawn.

Opry Entertainment Group’s $65 million revolver had a balance of $7 million outstanding. The combined capacity of our revolving credit facility and cash on hand give us total liquidity of approximately $1.1 billion after deducting $14 million of outstanding letters of credit. We retained an additional $95 million of restricted cash available for certain FF&E projects and other maintenance. On a trailing 12-month basis, our net leverage ratio of total consolidated net debt to adjusted EBITDAre stood at 4x. Based on the midpoint of our guidance, we anticipate we will end the year at approximately the same ratio, factoring in the resumption of the dividend at the newly declared $1 per share, which represents a 33% increase over our prior dividend level of $0.75 per share.

This is a significant accomplishment looking back at the losses we sustained during the pandemic as this leverage level is not only well within our target range, but also below our year-end 2019 level. This is another testament to the actions we took during the pandemic, rebooking loss business and investing for the recovery ahead to get us to this point. In terms of interest rate exposure maturities, as of quarter end, approximately 90% of our outstanding debt was at fixed rates either directly or with the benefit of swaps, with two swaps expiring in 2023 on the Gaylord Rockies term loan and our corporate term loan B. We have met all the requirements to exercise the first of our three 1-year extensions on the Gaylord Rockies term loan. And we today launched the recast of our corporate credit facility and Term Loan B with our bank group.

These actions address our maturities through 2024, and ultimately through 2026 when taking into account the remaining extension options on the Rockies. Any impact to interest expense as a result of these refinancings or extension has been incorporated into our guidance range. Our balance sheet and liquidity continue to be in excellent shape to not only support our capital deployment opportunities, but also to continue delivering meaningful dividend growth as our business continues to reach new levels. And it remains our intention to pay 100% of our REIT taxable income through dividends. And with that, I’ll turn it back over to Colin.

Colin Reed: Thanks, Jen. I think, Gretchen, we’ll open up the lines for questions, please.

Q&A Session

Operator: [Operator Instructions] We’ll take our first question from Smedes Rose from Citi.

Operator: Our next question comes from Shaun Kelley, Bank of America.

Operator: Our next question comes from Dori Kesten from Wells Fargo.

Operator: The next question comes from Chris Woronka from Deutsche Bank.

Operator: Your next question comes from Patrick Scholes from Truist Securities.

Operator: And our last question comes from Bill Crow from Raymond James.

Colin Reed: Thanks, Bill. Gretchen, thank you. I think that is end of this morning’s earnings call. And if anyone has any other questions that they want to pose, they know how to get hold of Mark, Jen, and the team. So, thank you everyone, more to follow.

Operator: Thank you, ladies and gentlemen. This concludes today’s conference. You may now disconnect.