Conference Transcript - RHP 2026-03-02

R.J. Milligan, Analyst — Raymond James Equity Research

Okay, good afternoon, everybody. I'm R.J. Milligan with Raymond James Equity Research, and we're very happy to have Ryman Hospitality Properties. We're going to start out with Mark Firavani, the CEO, who's going to run through the overview of the company, and then we're going to open it up to Q&A, and hopefully it's as interactive as possible. And with that, I'm going to turn it over to Mark. Thanks for being here.

Mark Fioravanti, CEO

Thank you, R.J. Hey, good afternoon, everybody. I am joined today by Jennifer Hutchison, our chief financial officer, and Sarah Martin, who runs IR for us. So thanks for being here. As RJ said, I'm going to just flip through a quick overview, and then we can get to questions. So for those of you who don't know anything about Ryman Hospitality, we are a hospitality-based REIT, and we are focused on the large group meeting segment. This is a significantly different business model than most of our peers. We have a single brand and a single manager, and we have relationships with customers across all of our hotels, and we'll talk a little bit about the importance of that as we go through this presentation. But just a couple of things that we like about the group business is, number one, it's a very sticky customer base. About 66% of our customers are retention customers, so we see them multiple years either at the same property or rotate them market to market year by year. Because of the nature of the group business, the contractual nature of it and the size of the group business we have very long booking windows so our average booking window is over three years so we have terrific visibility into our business and how that book of business is building out as far as 10 or 12 years and as we approach a year we'll enter a year typically with about 50 points of occupancy already on the books in contract form and we did that in 2026 as well And then the nature of our assets, because they're everything under one roof, we capture an outsized share of the customer's wallet. So we generate about one and a half times the room revenue outside the room for every dollar of room rate, which gives us a tremendous advantage. And we ultimately flow that through and generate about 70% more EBITDA per available room than our peers. So it's a terrific business model. Tremendous competitive advantages given the scale of these and the difficulty to build them. And between these advantages and the way that we allocate capital, we've generated industry-leading AFFO per share growth as well as dividend per share growth. So we're very, very proud of those facts. And then finally, and we'll talk about this just for a minute at the end, we also own and operate an entertainment business within a REIT and a taxable REIT subsidiary. And that is a very fast-growing business with some terrific brands in the country music space, and we're very excited about the potential of that business longer term. Just a quick snapshot of our portfolio. We have seven large hotels, about 12,000 rooms, five of the ten. We have five of the ten largest non-gaming hotels in the U.S., and you can see the geographic distribution there. We're in some really terrific markets, both in terms of being top meetings markets, but also very strong markets from an economic perspective, whether that's Nashville, Orlando, Dallas, San Antonio, Phoenix, or Denver. So really terrific distribution in our hotel business. As I said, we've, through capital allocation and the unique nature of our model, we've done a very nice job, our management team, of generating returns for shareholders. You can see that since we converted from a C-Corp to a REIT on January 1st of 2013, we've delivered significant shareholder returns and a significant premium relative to both the REIT index as well as our peers. And then from an AFFO per share growth rate, we've generated about a 7.6% CAGR on AFFO per share, and we've grown our dividend about 7.3%. So in all cases, significantly outperforming our peer set, depending on how you want to measure them. Just a moment on the group meetings segment itself. It's a large, diverse customer segment. It's about 19% of total room nights in the hotel business. You can see there on the right, while we're the largest group participant of our peer set, we have a very, very modest share of the market. It's a large market, and it's a market that continually grows. It's grown over the last 15 to 20 years, you know, 1% to 2% a year fairly consistently. So just a breakdown of our business that we service, about 70% of our business is group. The remaining 30% is leisure transient. We do not serve business transient consumers. And then if you break down that group business, that 70%, a little over half of it is corporate. The remainder is association and Smurf business. And what you'll typically find is that associations, they book closer in in their higher premium groups. Associations and SMRF groups are larger groups and therefore book farther in advance. But they average out to about three years, our weighted average booking window. So a lot of visibility into the portfolio and into future business. and you can see there on that last donut about 70 percent of our business is 600 rooms on peak so the peak night of the event we have over 600 rooms in house so these are these are large groups typically they're they're large annual meetings large sales meetings strategy meetings etc and so they're very sticky meetings they have less likelihood of of canceling in a downturn because these are to discuss strategy, to launch new products, to train on new pharmaceuticals, et cetera. So these are key meetings for these various organizations, and so they're less likely to cancel. When they do cancel, we have contractual attrition and cancellation fees that we do collect. If you look back at the last, probably the two most significant downturns, The financial crisis in 2009, we collected about $43 million worth of fees. And during the pandemic, we captured just a little over $180 million in attrition and cancellation fees. So those fees help buffer our profitability in a downturn. As I said, about a third of our business is leisure. It's primarily regional drive-in, so it does have some stickiness in a downturn. Oftentimes people will select a staycation with us versus doing a larger family vacation when things are tight. We've invested capital into this part of our business over the last five or six years, pool products, holiday products, et cetera, to drive incremental and higher-rated leisure business. We see most of this business in the summer and in the holiday period. It bolsters when groups aren't traveling. It's how we are able to drive occupancies in the mid to high 70s across these large hotels. It is a shorter booking window. And it is, these are trips that aren't easily substitutable with other forms of vacation, either because of the type of infrastructure that we've built. For example, we have a $90 million water park in Nashville or because of the unique programming that we put in our hotels during the holidays. We have a program called ICE, which is a large holiday program where we bring artisans in from China who carve a couple million pounds of ice at each of our hotels. And this past year, we put a record 1.5 million people through that event. So just a couple of points to differentiate our business model. As we talked about, this focused segmentation on the group customer, very, very important. Our assets are purpose-built, all large, with at least 450,000 to 500,000 square feet of meeting space. There are very few options for large meetings in terms of choices beyond our hotels. I guess the exception to that would be Las Vegas, but a significant portion of our customer base does not want to take groups to Las Vegas because of just some of the natural characteristics of that market. As I said, we have attractive distribution. And then we do have a very unique owner-operator alignment in that all of our hotels are Marriott branded and Marriott managed. So we view that as an incredible strength because we can manage customers across our portfolio. And when you have the natural rotation of large groups that we capture in these multi-year contracts, having alignment across properties with the owner and having alignment across properties with the operators is very, very important. And we think that that's a unique strength of our business. As I mentioned, in terms of retention, we retain 66% of our customers, and you can see on the right there that over half are multi-year, either single property or multi-year rotational customers. While we've purchased a couple of hotels in the last few years, two JWs, one in San Antonio and one in Phoenix, we've primarily been a builder of these hotels and then enhancing these hotels. So we've deployed a tremendous amount of capital over the last five or six years into high return projects, enhancing these hotels based on the feedback we get from our customers. They not only drive very high unlevered rates of return because you're leveraging all of the infrastructure that exists in that hotel, we also have as nearly perfect information as you can for an investment like this. You know, we talk with these customers. We understand what they're looking for, what they're missing. We know what our lead volumes, our turndowns are, the reason for the turndowns. And so it helps us tremendously in terms of determining what's the right capital to deploy into each market, how that incremental asset will be used, and what the returns will be. And what we typically do because of the nature of our portfolio is We will roll out a new product like a sports bar, for example, in an asset. If it performs well, then we will roll that through the rest of the portfolio. So it's a terrific way to generate high levels of return with significantly less investment risk. And as it says there, we target a mid-teens on levered return on these new projects. Just a couple that we have currently underway. We are finishing right now a large sports bar at Opryland, 550 seats. That's about a $40 million investment. Opryland is a hotel that we're investing in to raise the quality level, to drive higher quality corporate groups. It also is a hotel that lacks food and beverage capacity, given its business levels. We see that in the food and beverage per room spent versus our other hotels. So we think there's a real opportunity to drive incremental performance in that hotel with this sports bar. We're also in the process of building a 110,000-square-foot meeting space expansion. It's carpeted breakout space. Again, it's geared towards the premium corporate guest. that we are remixing this hotel with. That's $131 million that will open in 27. And then, as I mentioned earlier, we purchased the JW Marriott Desert Ridge last June, and we are in the process of integrating that hotel into our portfolio, as well as doing a modest meeting space expansion there, converting some existing office space, about 5,000 square feet, into, again, carpeted breakout space for premium groups. A few that have come online recently where we've had a great deal of success are Rock East property in Denver. We added about 685 net new seats to food and beverage there and took a significant amount of space that was not sellable and made it sellable. So we've seen we've seen a significant improvement in food and beverage capture in that hotel that that hotel so far is exceeding its its pro forma. During the pandemic, we were we had begun to expand the Gaylord Palms. We continued that project through through the pandemic and opened it in 2000, 2001. and then we just completed a full rooms and lobby renovation at the Palms. So that hotel here in Orlando looks like a brand-new hotel. It's a terrific product and is performing extremely well. And then lastly, the JW Hill Country. That's the sister property to Desert Ridge. That's in San Antonio, Texas. We bought that in mid-2023. We are doing – we will start a rooms renovation there. this summer that hotel has performed extremely well thus far and long term we will likely expand that hotel along with the they're currently doing a large expansion to the san antonio airport which will open in 28 or 29 which will significantly increase airlift into that market and so we'll look to probably expand that hotel to accommodate larger groups when that when that airport opens Just looking ahead, we are right now we have, we're at an all-time high in terms of room nights and revenue on the books for all future years. We entered this year about 6% ahead of where we entered 25, so 26 is set up well. But if you look out T2, T3, and beyond, we're driving mid-single-digit increases in terms of revenue on the books. as well as mid-single-digit ADRs. We've been able to drive future rooms rates through the capital investments that we've made so that we're not just raising rates, we're delivering value to the customer. And when we can show them that incremental value, we can command that higher rate. And obviously, a dollar of room rate flows through at a very high margin to the bottom line. The other thing that's been going on for the last five or six, seven years, certainly post-COVID, is our ability to drive share. We've dramatically increased our fare share versus our comp sets across our different markets. And this just shows you the aggregate fare share from Smith Travel. And this is REVPAR index, and we're, you know, almost at 130% of fair share, and we've moved that dramatically over the years, 15 points, or actually 15 points higher than pre-COVID. So a lot of progress there with these assets. I mentioned this a moment ago, but just quickly, for those of you who aren't familiar with Opry Entertainment Group, we call it OEG. This represents about 15% of our revenue and 15% of our profitability as a joint venture. We have a minority partner in a private equity firm called Ateros, which is affiliated with Comcast, NBC Universal. And we own and operate this business in a taxable REIT subsidiary. it's we we arguably own some of the some of the probably most important brands in country music including the grand old opry as well as the ryman auditorium this is a business that's grown considerably over the last five or six years and the the long-term plan here is to separate this business from the REIT. It's a business that the company has owned for many, many years, certainly prior to our conversion to a REIT. And strategically, having this business inside a lodging REIT doesn't make a lot of sense. It makes more sense for it to be on its own to attract capital and investors. We think that ultimately leads to a higher valuation, both for this business and for our hotel business. So that's the long-term thesis and our objective. In the meantime, we've been very aggressively and accretively growing this business through acquisitions as well as new builds with new concepts with a number of country artists, including Blake Shelton and Luke Combs. Last year, through an acquisition, we entered the festivals business. And then in the last four months or so, we have entered the amphitheater business. We've won two RFPs to manage amphitheaters, one in downtown Nashville and one in Simpsonville, South Carolina. So this is a business that is not only taking advantage of what's happening in country music and live entertainment in general, but we've also put our foot on the accelerator to aggressively scale this business and get it to the point where it can be a standalone company. And then finally, I'll just close with, you know, from a balance sheet perspective, we are in terrific shape. We're at about 4.3 times net leverage. We just refied last week $700 million of bonds, so we have no maturities until 28. Plenty of liquidity. We've got about $1.4 billion of liquidity, including our revolver. So terrific balance sheet. We're in terrific shape. and the business is performing extremely well. So, RJ, with that, do you want to use the last 10 and get some questions in?

R.J. Milligan, Analyst — Raymond James Equity Research

We'll start and see if there's any questions right off the bat. I just have a couple of general business questions. Mark, you talked about the difficulty to build these assets. Can you talk about the competition? What other assets are you competing with? And then the difficulty in building these assets, where does that leave you for acquisition opportunities? I think in the slide deck it said there's about five to ten assets that you guys would look at. So, one, can you talk about the difficulty in building these assets, what your competition looks like, the possibility that that competition set increases, but then also on the flip side, your ability to go out there and continue to grow the portfolio?

Mark Fioravanti, CEO

Yeah, I mean, it's a two-edged sword in terms of development because they're extremely hard to grow through ground-up development. And the reason for that is that, number one, just the size of the equity check you have to write. You know, these are at least a billion dollars apiece when you build these Gaylord hotels ground-up. And typically they require a government subsidy to make your returns work. because you're essentially building a private convention center so finding a community that that's willing to do that finding an owner who's willing to take that level of risk it limits dramatically the number of of new build opportunities and like I said that's a double-edged sword because it makes it harder for us to grow in that manner but it's it's a positive because you know we own five of the ten largest and so for anyone to come in and take share is challenging with new product and with the investments we're making with rooms and other amenities pool products etc we're just we're widening that moat to make it harder and harder for people to compete with us our competition depending on the hotel is it's at least regional in Opryland's case it's a national competitive set we compete that's a hotel with almost 2,900 rooms 800,000 square feet of meeting space 9 acres of atrium under glass it really competes with Las Vegas in many ways and so there's just not if you look at I'm not aware of any new hotel supply with more than 100,000 square feet of meeting space that's under development right now so that you know and when when we do get one we see it coming four or five years in advance just given the size and scale so we like we like the setup limited competition you know there isn't it isn't there's a narrow number of acquisition targets we're interested in um but that's okay you know we're we're still you know we're right now we're contemplating another 450 rooms at the rockies we're contemplating another 300 rooms in texas um you know we can grow our hotel portfolio materially without adding geographic distribution so we're very we like the position that we're in and maybe you could just give us uh maybe a one or two minute overview on the desert red act was desert ridge acquisition what was attractive to you guys and um what have been sort of some of the early successes that you've guys seen yeah so um you know we closed uh on that mid-year last year um it is a terrific asset in in you know the the our our box our strategic boxes it really checks all of them you know it's 950 rooms it's about 60 50% group, 40% leisure, large pool product, has two golf courses, 250,000 square feet of meeting space, great food and beverage. That hotel was in very good physical condition. We bought it from Trinity. They just put $100 million in that asset. And it's an asset that, and it's in the Phoenix Scottsdale market which is a you know it's a top 10 meetings market in the US so it really checked everything that we're looking for and in fact we had tried to buy that hotel two times prior over the last 10 or 12 years we just weren't we weren't successful in those those other endeavors but it is it's exactly the type of hotel that we're looking for and it's like I said it's the sister property to Hill Country, which is 1,050 in a very similar layout in terms of amenities, golf course, meeting space, etc. We are, as I said, Desert Ridge is in terrific physical condition. They had about 5,000 square feet of empty timeshare sales offices that were vacant. We're converting that to breakout space right now. That'll be open here I think in April. And then we don't have, other than some maintenance capex and a few things like that, we don't have a lot of plans right now for that hotel. We'll do some master planning and think about what does that hotel look like in five and ten years. We're, in terms of acquisitions, we really focused right now on Hill Country with the rooms renovation there. We're going to do some work on the lobby there. That's a hotel that needed some capital. We are looking at some new events lawns in Hull Country, as well as we'll have the second year of ICE. That's the other investment we're making at Desert Ridge, I failed to mention. We'll launch our Christmas programming there this year, and so we've got about a $4 million or $5 million investment to make to bring ICE, that ICE programming, to that hotel.

R.J. Milligan, Analyst — Raymond James Equity Research

Great. We have time for just one or two questions. Sure. And I'll just repeat the question. The question was about maintenance CapEx, and it's grown over time as the portfolio has grown. So just what's the outlook and requirements for CapEx going forward?

Jennifer Hutcheson, CFO

Yeah, you have seen us with the higher total CapEx spend the last couple of years. It's been very intentional because we've identified all of these high-return opportunities. We outlined it at a January Investor Day presentation, which I know a few people here have seen, where we talked about over a four-year period being able to deploy capital within our existing portfolio using the customer data we have, leveraging the infrastructure, just like Mark was outlining, particularly at Opryland with all of the projects that we have going on there finishing up the work at the Gaylord Rockies atrium completing work renovating the Gaylord Palms we're underway with renovating the Gaylord Texan rooms that will wrap up this year and then we'll as Mark mentioned renovate the rooms at the JW Merritt Hill Country so all of that is kind of culminating in a rate of capex spend last year that was 358 million dollars and we're on track to be on par with that this year again really exciting to get all of those new growth projects above and beyond maintenance online so that we can continue to to generate the rev par and adr growth that uh that we uh out like i think is is is uh possible and so we we have a five percent ff and e reserve which is really kind of the pure maintenance that's where you that's where your rooms renovations and that come out of and then on top of that we probably have another i would suspect over time it probably averages between a half and another hundred base maybe a hundred basis points of of owner funded

Mark Fioravanti, CEO

maintenance that doesn't fall within that ff and e reserve so you know i would tell you over time it's five and a half six points of maintenance capex great and so that concludes our time but We will have a breakout session immediately following this, so thank you guys so much for being here, and thank you all for being here.