Earnings Call Transcript - RHP Q4 2023

Operator, Operator

Welcome to Ryman Hospitality Properties Fourth 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 of Opry Entertainment Group. This call will be available for digital replay. The number is 800-753-9197, and no conference ID is required. At this time, all participants have been placed on listen-only. It is now my pleasure to turn the floor over to Ms. Jennifer Hutcheson. Ma'am, you may begin.

Jennifer Hutcheson, CFO

Good morning, and thank you 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, further events or any other reason. We will also discuss non-GAAP financial measures today. We reconcile each non-GAAP measure to the most directly comparable GAAP measure in exhibits to today's release. I will now turn the call over to Colin.

Colin Reed, Executive Chairman

Thank you, Jen, and good morning, everyone. We had a very busy start to the year here, so I thought I'd start off our call today with some of those developments. In mid-January, we opened our newest and much-anticipated Ole Red in Las Vegas to a very encouraging early start. Super Bowl weekend generated strong results, including an impromptu visit and performance on stage by Blake and Gwen. Our operations continue to ramp there, and we will host our official grand opening celebration in April, which will be a very hot ticket. At the end of last month, we hosted many of you at our Investor Day here in Nashville, where we also announced the name of our new brand partnership with Luke Combs, Category 10. The response from Luke’s fans and the country music community has been extremely positive, and we look forward to reopening that venue in stages later this year. Both Mark and Jen will delve into the earnings discussion in a minute, but I thought I'd revisit some of the more salient points from our Investor Day to help frame how we think about our fourth quarter results, the 2024 outlook, and why we're so excited as we look forward to the years 2025 and beyond. For 20 years, our management team has executed a unique strategy built on our employee-centric model that delivers long-term customer satisfaction, with a particular focus on the group customer. We've built and continue to enhance an industry-leading portfolio of hotels to serve that customer, and our service model continues to drive high customer retention, rotation, and loyalty. Furthermore, group demand has surpassed prior peak levels and is very robust, especially against the backdrop of limited new supply under construction and structural constraints to new ground-up development. As a result, we have significant visibility into the future, a meaningful recurring revenue stream, strong pricing power, and ample high-return investment opportunities to sustain our growth trajectory. This has been our formula for industry-leading shareholder returns, which I think speak for themselves. Through building great relationships with our customers, we've fostered loyalty, and the byproduct is retention that drives overall demand. This, in turn, allows us to expand our product offerings—restaurants, hotel rooms, convention space, pool complexes, etc. This is an incredibly efficient way to generate very high returns on investments that drive our superior shareholder returns. As the team explained in great detail at our Investor Day, the demand we're building in the coming years will lead to some very exciting new projects at our existing hotels, thus stimulating further growth in our company. On top of all of that, we have an incredibly valuable entertainment business built on some of the most iconic brands in the music industry. Recent events, such as Luke Combs' performance with Tracy Chapman at the Grammy Awards and Beyonce's recently released country singles, continue to highlight the growing popularity of the country music and lifestyle category. For those of you who were fortunate to be at the Investor Day dinner that we hosted on the stage of the Grand Ole Opry, I hope you were as thrilled as I was to see Luke up close previewing the incredible Grammys performance of Bhasker. He's an exceptional artist and friend, someone we are proud to be in business with. Both of our businesses have generated sector-leading returns for our shareholders, and we think this will continue to be the case going forward. I've said this many times before—our business is not based on hope—hope that citywides return to a particular market, hope that a particular city cleans up its image. Our strategy is grounded in the things we know well and can control: extensive knowledge of our customers and delivering what our customers want, thus driving loyalty. With that, let me turn it over to Mark to review our fourth quarter results and 2024 outlook in more detail. Mark?

Mark Fioravanti, President and CEO

Thanks, Colin. Good morning, everyone. Our record fourth quarter results were in line with the preliminary results we reported in mid-January. For today's call, I'll simply highlight a few key metrics that drove our financial performance in the quarter. In the fourth quarter, led by the strength of the group segment, our same-store hospitality portfolio generated a record ADR of $260, up 2% compared to last year. Banquet revenue increased 13.5%, driven primarily by higher contribution per group room night, evidence of our continued success in attracting higher-quality groups. Gaylord National and Gaylord Palms achieved particularly strong results in October, with National setting a brand record for monthly banquet revenue, and The Palms achieving record monthly banquet revenue for the property. Our proprietary holiday programming continued to induce leisure demand during the seasonally low period for groups. In the fourth quarter, ICE admissions equaled last year's record levels, while higher per caps yielded revenues above last year's high watermark, with particularly strong results at Gaylord Opryland and Gaylord Texan. The success of our holiday programming initiatives, combined with the strength of banqueting results I just mentioned, resulted in record quarterly same-store total revenue in the fourth quarter. Furthermore, for December, Gaylord Opryland set an all-time monthly brand record for total revenue, and Gaylord Texan set an all-time monthly brand record for total RevPAR. Early results from our initial holiday programming at the JW Hill Country were encouraging, and we look forward to activating the full slate of ICE programming there this year. Finally, we continue to command strong pricing power, evident both in the fourth quarter ADR as well as in our group revenue pace. At the beginning of 2024, group rooms revenue on the books for 2024 is pacing up 8% compared to the same time last year for the T+0 period, and booking trends through January have remained on pace. This underscores the demand we continue to see in the group meeting segment for the quality meeting experiences we provide. Demand for live entertainment and country music continues to drive growth in our entertainment business. In the fourth quarter, driven by strong show calendars and higher per caps across the portfolio, revenue grew 4.1% and adjusted EBITDA grew 15.8%, translating into margin expansion of 340 basis points compared to last year. Taken together, the momentum we're seeing in both our business segments supports our confidence to continue investing in our assets, and as we laid out in our Investor Day presentation, we have ample opportunities to pull capital into high-return projects. In our hospitality business for 2024, we expect to invest approximately $290 million to $360 million in several major projects, including the repositioning of the Grand Lodge and a new group pavilion at Gaylord Rockies, which are already underway and are expected to open in phases beginning this summer. We will also be transforming the Governors and Presidential Ballrooms and pre-function spaces at Gaylord Opryland, and renovating the lobby and the remaining 1,416 rooms at the Gaylord Palms. Additionally, we're analyzing and designing a rooms expansion at SoundWaves at Gaylord Rockies, a meeting space expansion, a new sports bar, and a wet lawn at Gaylord Opryland, in addition to a rooms renovation at JW Hill Country and Gaylord Texan. We look forward to providing more details on these rollouts later in the year. In our Entertainment business in 2024, we expect to spend approximately $70 million to $80 million on major projects already underway, including the opening of Ole Red Las Vegas, the renovation of the W Austin Hotel, and other enhancements of Block 21, and the redevelopment of the Wildhorse Saloon into Category 10 at Downtown Nashville. Now, turning to our outlook for 2024. We are reiterating the full-year guidance ranges we presented at our Investor Day, including same-store hospitality RevPAR growth of 3.5% to 5.5%, reflecting approximately 215 basis points of disruption from 2024 capital projects. Same-store hospitality total RevPAR growth of 3.25% to 5.25%, which reflects approximately 160 basis points of disruption. Furthermore, consolidated adjusted EBITDA for $740.5 million to $785 million, reflecting $10 million to $11 million of disruption within the same-store hospitality portfolio, and $8 million to $10 million of disruption within the Entertainment business. Below the line, we expect to generate adjusted funds from operations, or AFFO, of $484.3 million to $527 million, with an AFFO per diluted share of $7.60 to $8.20. Let me provide some color on how we expect the quarterly cadence to play out, which will differ somewhat from what we saw in 2023, but will largely align with our historical trends. In this first quarter, we expect same-store hospitality RevPAR and total RevPAR to decline low single digits compared to last year, due primarily to the timing of Easter, which falls on March 31 this year compared to April 9 last year, shifting group business out of the first quarter and into the second. We expect same-store hospitality adjusted EBITDA margin in the first quarter to decline 150 to 200 basis points year-over-year, due primarily to the Easter shift and the continued normalization of attrition and cancellation fees. As a reminder, the first quarter of 2023 was the highest first quarter adjusted EBITDA margin on record. We expect the remaining three quarters to show positive same-store RevPAR and total RevPAR growth and adjusted EBITDA margin expansion with high single-digit RevPAR and total RevPAR growth in the second and third quarters, followed by low to mid-single-digit growth in the fourth quarter. In our entertainment business, we expect first quarter revenue growth to be modestly tempered by the severe winter weather we experienced in Nashville in January. Consistent with historical trends, we expect the strongest growth in the second and fourth quarters. The third quarter will be heavily impacted by construction disruption. As Colin discussed at the outset, we are incredibly well-positioned. We have significant visibility into future bookings, a meaningful recurring revenue stream, strong pricing power, and ample high-return investment opportunities. These investments we're making, though disruptive in 2024, will sustain our long-term growth trajectory. Importantly, we can fund this growth plus our dividend from our balance sheet and free cash flow generation. To that end, I'll turn it over to Jennifer to discuss our balance sheet, liquidity, free cash flow, and dividend.

Jennifer Hutcheson, CFO

Thanks, Mark. We ended the year with $592 million of unrestricted cash on hand, and our $700 million revolving credit facility remained undrawn. OEG's $65 million revolving credit facility had a balance of $5 million outstanding. Taken together, our total available liquidity was approximately $1.3 billion, net of approximately $15 million of outstanding letters of credit. We retained an additional $109 million of restricted cash available for FF&E and other maintenance projects. Our net leverage ratio based on total consolidated net debt to adjusted EBITDA was 4.1 times, below where we ended the year in 2019 and at the low end of our targeted range of 4 to 4.5 times. On a pro forma basis, assuming a full year contribution of adjusted EBITDA from the JW Hill Country, our net leverage ratio was 3.9 times. In 2024, we expect to generate free cash flow before the payment of dividends and capital expenditures of between $500 million to $550 million, which, together with our unrestricted cash balance of $592 million at year-end and funds available in our FF&E escrow accounts, will be more than sufficient to fund the dividend and the capital investment priorities that Mark outlined. At the end of 2024, we expect our total available liquidity to remain above $1 billion and our net leverage ratio to remain well within our target range. As our projections demonstrate, our balance sheet and liquidity position continue to be in excellent shape to support the capital deployment opportunities available to us and the continued growth of our businesses. Finally, we are pleased to announce the declaration of our first-quarter dividend of $1.10, payable to shareholders of record as of March 29, 2024. It remains our intention to continue to pay 100% of our taxable income through dividends. With that, we can open it up for questions.

Operator, Operator

Thank you. We'll take our first question today from Chris Woronka with Deutsche Bank.

Chris Woronka, Analyst

Hey, good morning, everyone, and congratulations on another really great year. One of the things you mentioned throughout the course of 2023 was that you saw almost all the groups performing in excess of the contract on both tenants and out-of-room spend. I'm curious as to whether you're still seeing that and also whether you're able to, as you're renegotiating or negotiating new group contracts every quarter, if you're continuing to bring up those minimums on things like out-of-room spend?

Colin Reed, Executive Chairman

You want to take that, Patrick?

Patrick Chaffin, COO

Sure. Hey, Chris, this is Patrick Chaffin. Good to hear from you this morning. To your question about how we're pacing in the first quarter. Like the entertainment business, we had a little bit of a setback just from the weather in Nashville in January. But overall, the group trends continue to be encouraging. We are seeing groups showing up and signing up for a lot more food and beverage outside the room than they originally anticipated. I don't know that we'll see quite the outsized performance that we saw last year, but thus far, we are encouraged by what we've seen. As far as how we're contracting going forward, we continue to make sure that the inflationary pressures we've all been feeling across the industry get priced into our food and beverage in real-time. We are making sure that the pricing is appropriate and always trying to move folks to a higher food and beverage minimum. I would say, there's been no material change in how contracting has gone forward thus far.

Chris Woronka, Analyst

Okay. Super helpful. And then just a quick follow-up. You mentioned it also at the Investor Day, a lot of capital projects on the horizon. How are you thinking about prioritizing those based on whether it's an ROI or just expected performance at a given property or market?

Colin Reed, Executive Chairman

Yeah. You want to take that, Mark?

Mark Fioravanti, President and CEO

Yeah. So the way that we're looking at these, Chris, is based on ROI. The other aspect is based on customer feedback regarding what's important to the meeting planner and the attendee, the feedback we've gotten through primary research and the customer satisfaction scores that we receive. Ultimately, we also manage construction disruption as we look at the various hotels, room renovations, etc., and the timing of the best time to undertake those projects.

Chris Woronka, Analyst

Okay. Very helpful. Thanks.

Operator, Operator

Our next question will come from Dori Kesten with Wells Fargo.

Dori Kesten, Analyst

Hey, good morning. Given the phasing of renovations over the next few years, would you expect this year to be the most disruptive to earnings?

Colin Reed, Executive Chairman

If you look at the next couple of years, the level of disruption will be about the same, I think, with the various room renovations. We've got three slated for the next two years. I think this year or next year will be the two years with the most disruption, and I would estimate about the same dollar amount.

Mark Fioravanti, President and CEO

Let me add to this. We can look at disruption as half-empty, but the half-full part of this is that we are showing enormous growth in our hotel business. I suspect that we will see in 2025 and 2026 as some of these projects start to come online, very robust growth. It's part of the price we have to pay for building superior demand into our business. We have this ability to grow our business materially, and we'll manage disruption just as we have over the last decade.

Patrick Moore, CEO of Opry Entertainment Group

Yeah, Dori, this is Patrick. I would tell you that even on the Palms renovation, which is a 1,400 room renovation slated for this year, that'll start in a few weeks. We're continuing to adjust that schedule to ensure that when we see high demand opportunities, we can manage the design construction process so that the tail does not wag the dog and that we're putting value creation first even amidst this disruption.

Mark Fioravanti, President and CEO

Yes, many times this year, our hotel with its contracted book of business will be fully booked, and we'll manage around that. This has been our operational strategy over the last decade, and we know how to do this. But the really exciting thing is the underlying business that we have on the books for T+1, T+2. Patrick, when we look at lead volumes and bookings, I feel encouraged about the good growth we expect over the next few years, but disruption will happen because we are undertaking these projects.

Colin Reed, Executive Chairman

Dori, just one other point. On the entertainment side, the projects that are creating disruption this year will be completed this year, so we shouldn't have any next year in that business.

Dori Kesten, Analyst

Right. And I probably should have said disruption. And then on Austin City Limits, can you walk through what best practices from your national assets you've been able to instill there to drive results?

Patrick Moore, CEO of Opry Entertainment Group

Sure, this is Patrick Moore speaking. So in the Investor Day meeting, we outlined our value creation program that we deploy across all of the venues. When you look at Austin City Limits, there are several factors that we are enhancing both at the top and bottom line. For example, we have brought food and beverage in-house. We are taking over some of the frontline staff that was previously outsourced. We are improving the overall show count and driving demand relative to pricing and dynamic pricing. We are exploring block booking and routing from some of our national base assets into Austin. Additionally, we are redeveloping areas between the hotel and Austin City Limits to accommodate private events and other events before shows. Lastly, as we have done in other assets, we are launching a tour business that we expect to kick off at the end of this year.

Dori Kesten, Analyst

Okay. If I can keep you, Patrick. Would you expect the majority of growth that OEG will see over the next few years will come more from your internal growth drivers, what you just talked about, and then just the projects that are ongoing? Or is there a likelihood of external growth there?

Patrick Moore, CEO of Opry Entertainment Group

Overall, for OEG, we're putting three major projects online—Vegas, Category 10, which is, as Colin outlined, a significant upgrade to that property. Given what we've planned with the W Hotel in Austin and Austin City Limits, our short answer is we are focusing predominantly on organic growth based on the investments we are making in service. However, we are always looking for unit growth of our existing brands and other investment opportunities.

Mark Fioravanti, President and CEO

Yes, Patrick, in conversations with our Board, we discussed focusing on new opportunities that are not embedded into our business today. We anticipate good growth over the next year and the following year, based on what we are doing with existing assets, but we are exploring multiple avenues for growth.

Dori Kesten, Analyst

Great. Thank you.

Mark Fioravanti, President and CEO

Thanks, Dori.

Operator, Operator

Our next question will come from Bill Crow with Raymond James.

Bill Crow, Analyst

Hey, good morning. Congrats on another year. Mark, I was wondering if you could address the National. It's just been slower to ramp post-pandemic. We don’t spend a lot of time discussing that asset on these calls. I'm just wondering, from a momentum perspective, how is that asset doing relative to the rest of the portfolio?

Mark Fioravanti, President and CEO

I would say relative to the rest of the portfolio, it has indeed been slower to ramp. However, what's really driving that, Bill, is the market. The D.C. market has not bounced back as quickly as the other markets we are participating in. When you compare the National to itself and its pre-pandemic performance, that hotel has never performed better. Whether you're looking at group participation, food and beverage revenues, food and beverage margins, or customer satisfaction scores, that team has done an outstanding job. The investments we made during the pandemic in renovations and food and beverage have paid dividends. We are actively working to drive better results, and we are pleased with where the National is positioned as that market recovers.

Colin Reed, Executive Chairman

The other thing I've noticed with the National, Patrick, you may want to elaborate, is that just the pace of bookings we've seen over the past year has been very encouraging. We had a strong 2023 at that hotel in terms of bookings for future years, and lead volumes are very attractive.

Patrick Moore, CEO of Opry Entertainment Group

Yes, I agree. While the market is responding more slowly, we've seen tremendous growth across the board. The hotel team was tasked a few years ago with improving certain areas that had lagged behind its sister properties, and they've done an outstanding job of getting everything competitive. We have now reached a point where we can discuss stimulating further growth at Gaylord National involving additional investments.

Colin Reed, Executive Chairman

Patrick, unlike all our competitors in the market, we likely invested almost $100 million. If you consider room refurbishments, food and beverage, and repositioning.

Patrick Moore, CEO of Opry Entertainment Group

Food and Beverage.

Colin Reed, Executive Chairman

Food and beverage and repositioning—we invested about $100 million there. I believe that this year, with our internal operations, we are going to achieve record performance for this hotel. This is a direct result of that investment, and I have been very encouraged by recent booking trends at this hotel.

Bill Crow, Analyst

That's great color, exactly what I was looking for. If I could just do a follow-up. I can't remember if this was covered at the Investor Day or not. I know when you went into Austin, there was initially talk about selling the JW. It’s now part of the Stratus deal. Does that change the outlook for sale? Or does the closure of the convention center make a sale less likely, at least for the next few years?

Mark Fioravanti, President and CEO

I don't think that the convention center renovation and closure will influence that decision. We were undertaking a full renovation there. The asset is terrific. The question for us is how we want to operate that Block 21 complex and the relationships we can create between the hotel and the venue. If we choose to, we have the opportunity to monetize that asset in the future. It is not encumbered by management or branding on sale. In terms of value creation, we have an opportunity to reposition that hotel if someone wanted to build a luxury product there. So there is optionality with that hotel. At this point, we do not have a clear plan regarding that asset.

Patrick Moore, CEO of Opry Entertainment Group

We want to complete the refurbishment and evaluate the consequences, which we are excited about.

Mark Fioravanti, President and CEO

Yes.

Bill Crow, Analyst

All right. Thanks. That’s it for me. Appreciate it.

Mark Fioravanti, President and CEO

Thanks, Bill.

Operator, Operator

We'll hear from Jay Kornreich with Wedbush Securities.

Jay Kornreich, Analyst

Hi. Thank you. Good morning. Looks like your future room bookings in the fourth quarter came in at a VDR 8.5% above the prior year. I'm curious now, as we think about 2024 bookings, what kind of rate increases do you expect over 2023? Please also remind us what percentage of the total bookings typically represents coming from the fourth quarter?

Patrick Chaffin, COO

Yes, hi, this is Patrick. Let's start with your questions. We typically enter the year with about 50% of occupancy booked from a group perspective, and we book somewhere between 15% to 20% for the year. We expect that this will be consistent with this year. Regarding rates, to provide clarity, our RevPAR for 2024 assumes that one-third of growth will come from occupancy and two-thirds will come from ADR growth. Looking at our total RevPAR guidance, about 45% of that is coming from group ADR growth alone. We entered the year with a solid position, and we believe we can enhance it further with group bookings. Our sales team is doing an excellent job of pushing group rates, and the investments we're making in the hotels further justify that we are not just raising prices but enhancing the value proposition, which has been well-received by groups.

Jay Kornreich, Analyst

That's very helpful. Thank you. Just one other follow-up. You referenced fully overlaying the ICE! program on the JW Marriott Hill Country later this year in the fourth quarter. Can you give any context as to the EBITDA contribution upside you believe that can provide?

Mark Fioravanti, President and CEO

When we introduce the ICE! program into a market for the first time, building a customer base typically takes a couple of years. However, given that Dallas is only about four hours away, our analysis indicates that this could be a strong performer for us. Therefore, while it might be better than our usual expectations, I would estimate there is a revenue and profitability opportunity of $3 million to $5 million from introducing ICE! at this property in the first year.

Jay Kornreich, Analyst

Okay. Thank you very much. That’s it for me.

Mark Fioravanti, President and CEO

Thank you.

Operator, Operator

Our next question will come from Smedes Rose with Citi.

Smedes Rose, Analyst

Hi, thanks. I wanted to circle back on the cadence of RevPAR growth over the year. Are we correct to think that the first quarter will be the weakest of the year, with the fourth quarter following, while the second and third quarters will be your last two quarters? Is that the right way to consider the seasonality of earnings?

Mark Fioravanti, President and CEO

Yes, that's correct, Smedes. You got that right.

Smedes Rose, Analyst

Additionally, I was curious about the capital projects. You’re undertaking significant work at the Rockies. I wonder if you could clarify—has there been a need to enhance group accommodations? Is it a recent finding that the market did not meet expectations? Or is it more of a live-and-learn situation that you have to course-correct?

Mark Fioravanti, President and CEO

It’s not a misunderstanding of the group needs. Keep in mind that we were minority partners during the construction period for the Rockies and then bought our partners out after opening. We are making adjustments to the Grand Lodge, which is the best real estate in the hotel, converting space not initially revenue-generating into sellable square footage for groups. This enables us to maximize profitability and service more groups. The grand pavilion expansion for meeting space speaks directly to the demand we are seeing relative to the original product design.

Patrick Moore, CEO of Opry Entertainment Group

Do you mind if I add to this? Our investors should note that before our hotel arrived in Colorado, there were no significant convention resorts driving group room nights to that state. Upon opening this hotel, we had over 1 million room nights on the books, with a majority of clients being first-time visitors to Colorado. We have discovered that this location near the airport is highly appealing to the group meeting planners, which is why we are investing capital to enhance this hotel. We are looking at potentially adding 300 to 400 hotel rooms here and possibly adding Sound Waves too. We want to create an asset that looks and operates similarly to Opryland, making it competitively superior.

Smedes Rose, Analyst

Great. Thanks for the answer.

Patrick Moore, CEO of Opry Entertainment Group

Thanks, Smedes.

Operator, Operator

That will conclude today's question-and-answer session. I will now turn the call over to our presenters for any additional or closing remarks.

Colin Reed, Executive Chairman

Hey, we don't. Look, we've conducted this earnings call this morning on the back of a day and a half of Investor Meetings we had just several weeks ago. If we continue to talk, we're just repeating everything we've said over the past month. I thank everyone for participating in the call this morning. If you have any additional questions, please feel free to reach out to our IR team, Jennifer, or Mark. We look forward to all the conferences our team will be attending in the upcoming months. Thank you, everyone.

Operator, Operator

This does conclude today's conference call. Thank you for your participation. You may now disconnect.