Earnings Call Transcript - RHP Q1 2024

Operator, Operator

Welcome to Ryman Hospitality Properties' First Quarter 2024 Earnings Conference Call. Hosting the call today are Colin Reed, Executive Chairman; Mark Fioravanti, President and Chief Executive Officer; Jennifer Hutcheson, Chief Financial Officer; Patrick Chaffin, Chief Operating Officer; and Patrick Moore, Chief Executive Officer of Opry Entertainment Group. It is now my pleasure to turn the floor over to Jennifer Hutcheson. You may begin.

Jennifer Hutcheson, CFO

Good morning. 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 financial measure to the most comparable GAAP measure in exhibits to today's release. I'll now turn the call over to Colin.

Colin Reed, Executive Chairman

Thank you, Jen, and good afternoon, everyone. Let me start this afternoon's discussion about our first quarter results by reminding you what an incredible first quarter we had in 2023. Last year's first quarter was the best first quarter for same-store hospitality ADR revenue and adjusted EBITDAre, and same-store Hospitality banquet and AV revenue was the highest on record of any quarter. Production was also strong with record first quarter gross group ADR booked for all future years. On the entertainment side of our business, we also achieved record first quarter revenue and adjusted EBITDAre. Now against that strong backdrop in the first quarter of 2024, we achieved some very compelling results. Yet again, we set first quarter records for same-store Hospitality ADR traveled and gross group ADR booked for all future periods. Same-store Hospitality banquet and AV revenue was the second highest on record behind only last year's first quarter, and several properties set monthly revenue records in February, including Gaylord Palms and JW Hill Country. Equally impressive, our entertainment business set a new first quarter record for adjusted EBITDAre despite significant weather and construction disruption during the quarter. The first quarter was not without its challenges, and Mark will speak to the impact of the Easter timing shift and some transient softness we saw in our same-store Hospitality portfolio results in a moment. But we have also dealt with considerable construction disruption across our portfolio. For example, at the Gaylord Palms, we are completely reconfiguring our lobby, and at the Rockies, we're almost finished transforming the Great Lodge. Our Entertainment business is also undergoing a significant transformation with the public spaces at the W Hotel under construction. The Wildhorse is shut as we transform it to a Category 10. As you know from our Investor Day, we've been quite bold with our capital plans as we believe that the transformation of our physical assets will support the very good growth we anticipate over the next few years. However, as Mark and Jen will outline, our primary focus on the group segment remains very robust. For more than 20 years, our management team has executed a differentiated strategy that delivers long-term customer satisfaction with a particular focus on group customers. We have built and continue to enhance an industry-leading portfolio of hotels to serve that customer, and our service model continues to drive high customer loyalty, which translates to retention. As a result, we have significant visibility into future bookings and a meaningful recurring revenue stream, strong pricing power, and multiple high-return investment opportunities to sustain our growth trajectory. On top of all that, we own an incredibly valuable entertainment business built on some of the most iconic brands in the music industry, which we believe will demonstrate very strong growth in the period ahead. I've said this before, our business is not based on hope. Our strategy is grounded in things we know well and can control, specifically our extensive knowledge of our customers and delivering what our customers want, thus driving quality. This is evident as ever in our first quarter results. And with that, let me turn it over to Mark to provide some detail.

Mark Fioravanti, President and CEO

Thanks, Colin, and good afternoon, everyone. I'll start with some segment highlights from the quarter, first, focusing on our Hospitality portfolio, which continues to show strong group performance. Then I'll take you through the results of our Entertainment business, which benefited from growth in our Ole Red brand. Finally, I'll review our guidance before handing over to Jennifer to discuss our balance sheet, recent financing activities, liquidity, and capital expenditures outlook. Our same-store Hospitality results reflected the impact of the Easter shift and a challenging comparison to the first quarter of 2023, as Colin detailed at the outset. Accordingly, compared to the first quarter of 2023, same-store Hospitality RevPAR and total RevPAR declined 4.6% and 4.1%, respectively, and adjusted EBITDAre margin declined 210 basis points. Despite a strong start in the first half of the quarter, the second half came in modestly below our expectations due to some transient softness in the Nashville, Orlando, and Denver markets. In fact, all the markets in which our Gaylord Hotels operate experienced challenging year-over-year comparisons, with four out of the five markets experiencing RevPAR declines. These trends reflect the normalization of transient demand. Despite the tough comps, there were plenty of bright spots in the quarter. First, our rate strategy is working. The first quarter of 2024 was the best first quarter performance ever for same-store Hospitality ADR, eclipsing the prior best performance in 2023. Both group and transient rates increased year-over-year. Second, outside-the-room spending remains resilient. This quarter marked the second best quarterly performance ever for same-store Hospitality banquet and AV revenue, trailing only the first quarter of last year. Banquet and AV contribution per group room night increased year-over-year, indicating that our value proposition and capital investments remain compelling, and groups are continuing to spend on property. These trends continued into April with Gaylord Opryland achieving all-time high monthly catering revenue across the same-store portfolio. Together, our rate strategy outcomes and continued robust outside-the-room spending have translated into higher RevPAR and total RevPAR index premiums versus our comp set. In the first quarter of 2024, our Gaylord Hotels portfolio RevPAR index and total RevPAR index increased 9% and 13%, respectively, relative to pre-pandemic levels. Third, the results at JW Hill Country performed in line with our expectations, demonstrating the value of our early integration efforts. We estimate first quarter RevPAR and total RevPAR increased approximately 26% and 28% from the same period in 2023, respectively, which we believe was driven primarily by increased group occupancy and strong outside-the-room spending, as group catering contribution per group room night improved approximately 22% from the same period in 2023. GOP margin for the first quarter of 2024 was 45.4%, approximately 500 basis points higher than the same period in 2023. Finally, our group focus provides visibility for our portfolio, allowing us to confidently reiterate our full-year guidance. As of March 31, same-store group room nights booked for the remainder of the year were up 2.4% compared to the same period last year and we're projecting to set a new full-year record for group room nights traveled in 2024, surpassing the prior record in 2019. Additionally, same-store group rooms revenue on the books for the rest of the year was up 8.4% compared to the same period last year. As a result, we're reiterating our full-year guidance ranges for same-store Hospitality RevPAR and total RevPAR growth, as well as same-store Hospitality and JW Hill Country adjusted EBITDAre. Turning now to same-store production. In the first quarter of 2024, we booked nearly 288,000 gross group room nights for all future years at a record ADR of $265. Group room night production was down sequentially and year-over-year due to our record performance in the fourth quarter of 2023. Recall that in the fourth quarter of 2023, we booked a record 1.2 million gross group room nights for all future years, which was an increase of 19% compared to the fourth quarter of 2022. Therefore, having closed a large portion of the late-stage funnel in the fourth quarter, our focus in the first quarter was on replenishing the sales funnel. Lead volumes now sit at record high levels, giving us confidence in the continued strength of the group segment and our positioning. We continue to be encouraged by production results at JW Hill Country. In the first quarter of 2024, we booked nearly 42,000 gross group room nights for all future years at an ADR of $315. Turning to the Entertainment segment, another bright spot in the quarter. This business delivered a record first quarter adjusted EBITDAre of $15.5 million, up 8.3% despite the impact of severe winter weather in Nashville and construction disruption at the W Austin and the Wildhorse Saloon. Our Ole Red brand performed well and our newest venue, Ole Red Las Vegas, which opened in mid-January, is off to an encouraging start. Our Entertainment business continues to perform in line with our expectations, and as a result, we're reiterating our entertainment adjusted EBITDAre guidance. Turning to our consolidated outlook for 2024, we're also reiterating our full-year guidance range for Corporate and Other consolidated adjusted EBITDAre. We're raising our full-year guidance ranges for adjusted funds from operations, or AFFO, by $7 million to $489.8 million to $535.5 million and for AFFO per share by $0.11 to $7.69 to $8.33 to reflect the net interest expense savings associated with our recent refinancing transactions, which Jennifer will discuss in a moment. Note that the fully diluted share count used in our AFFO per share calculation reflects the put rights held by Atairos as part of their Opry Entertainment Group investment. Although those rights are not exercisable, and we retain the option to settle any exercise of those rights in cash, any exercise of the put rights would also result in Atairos' 30% ownership in OEG reverting back to Ryman. To provide some context on the second quarter, we now expect mid-single-digit same-store Hospitality RevPAR growth year-over-year, which assumes continued transient normalization in the second quarter. We continue to expect high-single-digit year-over-year growth in same-store Hospitality total RevPAR, along with year-over-year adjusted EBITDAre margin expansion driven by group strength and robust out-of-room spending. As Colin discussed at the outset, we remain incredibly well-positioned. We have significant visibility into future bookings, a meaningful recurring revenue stream, strong pricing power, and ample high-return investment opportunities available to us. The 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. Following the refinancing transactions we undertook in March, our balance sheet has never been better positioned, so to that end, I'll turn it over to Jennifer to discuss our balance sheet, liquidity, and capital.

Jennifer Hutcheson, CFO

Thanks, Mark. We ended the first quarter with $455 million of unrestricted cash on hand, and our $700 million revolving credit facility was undrawn. OEG's $65 million revolving credit facility had a balance of $22 million outstanding. Taken together, our total available liquidity was approximately $1.2 billion, net of approximately $4.3 million of outstanding letters of credit. We retained an additional $82 million of restricted cash available for FF&E and other maintenance projects. During the quarter, we took advantage of favorable market conditions and completed transactions to address our nearest term maturity, reduce our weighted average interest rate, and further unencumber our asset base. In March, we completed the private placement of $1 billion of aggregate principal amount of 6.5% unsecured senior notes due 2032, the proceeds of which were used to repay the Gaylord Rockies secured term loan in full, along with $200 million of the corporate Term Loan B. The transaction was very well-received by the market, generating demand for $800 million to $1 billion of securities. In addition, in April, we repriced the remaining outstanding corporate Term Loan B from SOFR plus 275 basis points to SOFR plus 225 basis points. As a result, we are raising our full-year guidance for AFFO and AFFO per share, as Mark outlined. Acknowledging the actions we've taken to strengthen the balance sheet, as well as the merits of our group-focused business model, S&P Ratings upgraded our corporate credit rating from B to B+ while maintaining a positive outlook, and Fitch Ratings revised our outlook from stable to positive. Our net leverage ratio at the end of the quarter based on total consolidated net debt to adjusted EBITDAre was 4.3x, within our targeted 4 to 4.5x range. On a pro forma basis, assuming a full-year contribution of adjusted EBITDAre from the JW Hill Country, our net leverage ratio was 4.1x. In 2024, we expect to generate free cash flow before payment of dividends and capital expenditures of $500 million to $550 million, which together with our unrestricted cash reserves and funds available in our FF&E escrow account will be more than sufficient to fund our dividend and capital investment priorities. Regarding our dividend, it remains our intention to continue to pay 100% of our REIT taxable income through dividends. For our capital investment priorities in 2024, we continue to expect to invest approximately $290 million to $360 million in our Hospitality business and $70 million to $80 million in our Entertainment business. On our last earnings call, we detailed the major projects, so today, I'll provide some highlights on our progress year-to-date. At the Gaylord Rockies, the first phase of the Grand Lodge repositioning, including Embers, the new lobby bar, is now open. Remaining work includes repositioning of several additional F&B outlets in the lobby, scheduled to open in the fourth quarter. Construction of the new recreation area at Gaylord Rockies is also progressing quickly and is expected to open in June, with both projects ahead of schedule and on budget. At the Gaylord Palms, renovation of the lobby and remaining 1,416 rooms is underway, and we expect this work to be completed by the end of the year. At Gaylord Opryland, transformation of the Governor's Ballroom and pre-function space is set to begin in June. Construction will be managed to limit disruption. At Block 21, the W Austin rooms and public space renovation is underway, and we expect to complete this work by the end of the year. Finally, the transformation of the Wildhorse Saloon in downtown Nashville to Category 10 continues, with plans for the venue to reopen in phases beginning in the third quarter. Our projections indicate that 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 business. With that, let's open it up for questions.

Operator, Operator

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

Chris Woronka, Analyst

Perhaps we should take a moment to consider the temporary weakness you mentioned. Is there a common theme to it? Colin or Mark, do you believe it's connected to price sensitivity, or is it simply a result of a difficult comparison or other factors? I'm trying to determine if it's a overarching issue or just related to the comparisons we've been discussing.

Colin Reed, Executive Chairman

Do you want to take it, Mark?

Mark Fioravanti, President and CEO

Yes. I would say if you look at how the markets have performed in terms of the top 25, it appears that there's a normalization occurring in transient demand. Those markets that recovered quickly from COVID, like Nashville, Dallas, Orlando, et cetera, have seen a little bit of softness in the first quarter. Conversely, places like Boston, Seattle, Chicago, and New York City have had quite strong performance. I don't think that there’s anything from an economic standpoint indicating a weakening consumer. Those who are traveling are spending outside the room, and so we feel confident about that. I think it's just a matter of consumers making different choices and markets performing a little differently than they did during the COVID recovery.

Colin Reed, Executive Chairman

On the pricing front, Pat, you may want to dive in on this one, but, Chris, we've been very focused on driving rates in our business, both on the group side and the transient side. I was reviewing the average daily rate of transient business on a same-store basis in this first quarter compared to pre-COVID-19, which was our best year. Our rate is up $90 in transient during this period. We've been aggressive on transient pricing. We've got the pricing issue under scrutiny to ensure we haven't pushed it too hard. I don't think we have. Pat, do you want to contribute on transient pricing?

Patrick Chaffin, COO

Absolutely. As Colin mentioned, we achieved $292.63 in transient ADR in the first quarter, which is a 2.5% increase over 2023. Even with some softness and normalization, we're still driving rates successfully. We are up about 41% over 2019. Hence, we see this as purely a volume issue related to the markets catching up to lead pack post-COVID. What continues to give us optimism is strong performance in the group segment, where we are 34,000 room nights ahead compared to the same time last year for the remainder of the year. Our catering numbers have also been very promising and have remained so for the past two years while continuing into 2024. So we feel good despite the transient normalization.

Chris Woronka, Analyst

If I could ask a quick follow-up on Hill Country, it sounds like things are off to a really good start there. Can you provide some context on the timing of your forecasting? Will you get further ahead this year, or is it more of a multiyear process?

Mark Fioravanti, President and CEO

Let me provide an overview, and then Patrick can elaborate on our findings and actions. We've looked at this hotel several times over the past eight years because we love the San Antonio market and Texas generally. The growth in this market, particularly 60 miles from Austin, is remarkable. With this perspective, we believe we can transform this asset over time to become the #2 convention resort in Texas, right after Gaylord Texan. As we continue to explore the business, we discover incremental opportunities. Patrick, can you provide Chris with some specific examples?

Patrick Chaffin, COO

Absolutely. As mentioned at Investor Day, we manage our portfolio as a single unit, and we are starting to see strength from JW Hill Country. We have driven additional revenue through vendor contracts impacting resort fees and parking. These immediate benefits are evident in the first 12 to 24 months. We are also deeply engaged in master planning to add more rooms, meeting space, and aquatics. Extensive research has informed us about what our JW customer seeks specifically at this property. We are conducting further research to understand the Gaylord customer’s needs to enhance their interests and drive business toward us. Since we took over this transaction last June, we've booked about 12,000 room nights tied to multi-year business from Gaylord Hotels and vice versa, leading to significant generation of bookings. We anticipate continued growth and refinement as we undergo the master planning process.

Mark Fioravanti, President and CEO

And cost efficiencies too, Patrick.

Patrick Chaffin, COO

Absolutely. Yes, because we take a portfolio approach, we can capitalize on synergies not typically seen in portfolios managed as individual assets.

Operator, Operator

And our next question comes from Bill Crow with Raymond James.

Bill Crow, Analyst

I want to focus on the shift from the first quarter to the second quarter, where you’re moving from nearly down 3% RevPAR growth to up, I think you mentioned mid-single digits. How much of that is simply driven by the Easter holiday shift? We’re also hearing that perhaps April is not as good, that the Passover holiday is affecting April. So, you've got both March and April impacted by holidays. How much of this has Hill Country benefitted from Easter's shift? Any context you can provide?

Mark Fioravanti, President and CEO

Patrick?

Patrick Chaffin, COO

To your point, yes, the comps are easier, Bill. The Easter shift does impact around 13,000 room nights between the two quarters, so there's a clear benefit there. However, our preliminary results for April indicate we expect it to be the best April on record for same-store basis in our portfolio. We also anticipate it will be the second-best EBITDA month in our entire history on a same-store basis. Our catering performance looks very strong, and Opryland is likely to achieve its best catering performance in any hotel in any single month during April. While the comps are favorable, we are seeing very strong group performance, particularly in catering. Hence, we feel optimistic about our trajectory, which offsets some of the transient normalization trends.

Mark Fioravanti, President and CEO

We're observing that same catering performance in the third quarter as well as we look ahead.

Patrick Chaffin, COO

Yes. We have more group room nights booked for the second and third quarters than we had at this time last year. We think we're well-positioned for the upcoming quarters. The fourth quarter, of course, heavily depends on transient demand, but our holiday programming enables us to implement strategies that may go against typical market trends.

Mark Fioravanti, President and CEO

We also have solid group business on the books for the fourth quarter, which boosts our confidence about that quarter.

Bill Crow, Analyst

If I could do a follow-up question, I know Marriott praised the forward bookings at the Gaylord Pacific. Are you seeing any rotational business moving from some of your properties to now include Pacific? I just wanted to revisit that topic.

Mark Fioravanti, President and CEO

Do you want to take it?

Patrick Chaffin, COO

Sure. Yes, Bill, we have seen substantial production from Pacific. It has driven about 82,000 room nights into the Gaylord Hotels through multi-rotational booking. However, the real benefit will arise after these groups new to the Gaylord brand experience what we have to offer and start rotating to other Gaylord locations. This is similar to what happened in 2008 with National and in 2018 with Gaylord Rockies. The best is yet to come as this property opens up and introduces new attendees to our brand.

Mark Fioravanti, President and CEO

Those groups are booking at a high rate, and they will be more likely to rotate to our other destinations.

Operator, Operator

Thank you. Our next question comes from Smedes Rose with Citi.

Bennett Rose, Analyst

I wanted to ask about the growth of definite room nights and net definite room nights booked in the quarter. I know you noted it was a tough year-over-year comp, and while the rate booked was at record highs, it was still lower than first quarter '19, '18, and '17. Can you provide more context about how you think that will trend and its implications?

Patrick Chaffin, COO

Hey Smedes, it's Patrick. I cannot emphasize enough how much clearing the funnel in the fourth quarter of 2023 impacted the early months of 2024. The sales team performed excellently and has been focused on replenishing that funnel. We are optimistic about our outlook because two primary factors are at play. First, we've previously mentioned the strong lead volume in the short-term bookings, and late last year we started to see association leads picking back up significantly. This allows us better opportunities for future years with large associations serving as the foundation of our business. Second, we’ve seen a material increase in corporate room nights in April, which is great for our 2025 booking prospects. Overall, we see a promising outlook as we rebuild that sales funnel.

Mark Fioravanti, President and CEO

That's the key point. It's about the activity of meeting planners in our system. Currently, that activity is better than ever, as Patrick just mentioned. In April, we booked 40,000 more room nights than we did in the same month last year. Lead volumes have surged back to healthy levels, so we're excited about group bookings moving forward.

Operator, Operator

And we'll take our next question from Shaun Kelley with Bank of America.

Shaun Kelley, Analyst

I want to revisit transient activity, and I know we've covered this. My inquiry focuses on your assumption now that it will continue into Q2. You've noted some trends observed through April, but could you elaborate further? What does this imply for the balance of the year, especially Q4, given its critical nature?

Patrick Chaffin, COO

Shaun, it's Patrick. Good question. We approached our projections for Q2 and Q3 based on our observations. We've predicted continued transient softness and adjusted our estimates accordingly. However, our Q4 outlook remains strong given the solid group business already in place, and we believe our holiday programming can help offset broader market trends. So we've adjusted our Q2 and Q3 forecasts while still feeling confident about maintaining our guidance. Our rate strategy offers us significant upside, even amid transient normalization.

Shaun Kelley, Analyst

It's intriguing to note that while you've observed some rate changes, it seems there wasn't a comparable impact observed on the entertainment side. Could you elaborate on customer behavior in entertainment and any noticeable changes in ticketing trends? Could transient patterns affect that segment as well?

Mark Fioravanti, President and CEO

In general, we haven’t observed any significant change in consumer behavior across our entertainment business. Some of these markets are drive-to markets and do not require an overnight stay. Overall, we've maintained fairly healthy trends across all our major venues. Although we did experience minor disruptions for 1 to 2 weeks in the Tennessee markets, to date, and considering the first quarter is the smallest quarter of the year, we have not seen any material changes in behavior.

Operator, Operator

And we'll take our next question from Dori Kesten with Wells Fargo.

Dori Kesten, Analyst

Can you provide a quick update on your rate growth for T+1, T+2, and T+3?

Patrick Chaffin, COO

As of the end of March, we are experiencing mid-to-high single-digit rate growth for each of those years based on our current bookings.

Dori Kesten, Analyst

Is there anything notable about the composition of your lead volumes between corporate, association, and SMERF? Are they generally normalized, and how might that impact your rate trajectory for Q2 and Q3 gross bookings?

Patrick Chaffin, COO

We have been carefully monitoring the association segment, which has shown a strong resurgence. We’ve focused on securing premium groups and expanding our corporate bookings in the meantime. This trend has reflected positively on our lead volume. We are optimistic about our rate trajectory as we work with the most valued groups and deploy targeted investments in attracting them.

Operator, Operator

We'll take our next question from Jay Kornreich with Wedbush Securities.

Jay Kornreich, Analyst

Thanks very much. Following up on the previous question, can you share how discussions are progressing with meeting planners, particularly from the corporate side? Are there any changes regarding booking windows or the appetite to gather corporate teams this year?

Patrick Chaffin, COO

We haven’t seen any changes in booking windows. I’m not sure I caught the first part of your question. Could you repeat that?

Jay Kornreich, Analyst

In the year, for the year.

Patrick Chaffin, COO

For the year, we are currently about 34,000 room nights ahead for what's already on the books. Our expectations for the remainder of the year are largely in line with last year's performance. We see no change in behavior regarding booking patterns or resistance to increasing group rates. Lead volumes have improved, and all short-term metrics are positive. Importantly, we have seen strong performance in April, particularly in the year for the year, where we've significantly outperformed last year’s figures.

Jay Kornreich, Analyst

Thank you, and one last quick follow-up. You provided updates on the hospitality and entertainment construction projects. Any adjustments to your initial expectations regarding ROI or EBITDA disruption?

Jennifer Hutcheson, CFO

We haven't changed the assumptions in our full-year guidance regarding the disruption impact from the outlined projects, estimated at about $10 million to $11 million for hospitality and $8 million to $10 million for entertainment for the entire year.

Patrick Chaffin, COO

The initial opening of Grand Lodge at Gaylord Rockies has been really encouraging regarding food and beverage capture. I'm feeling optimistic about our investment there.

Operator, Operator

Thank you. It appears that we have no further questions at this time. I will now turn the program back over to our presenters for any additional or closing remarks.

Mark Fioravanti, President and CEO

No, we are done and appreciate everyone’s time, particularly given the timing of this call. We know it’s mid-day in Central Time and 1:00 PM in Eastern Time, making it a bit challenging. There were several competing calls today, and we wanted to ensure we had your attention. Thank you for being on the call, and if you have any further questions, you know how to contact us.

Operator, Operator

That concludes today's teleconference. Thank you for your participation. You may now disconnect.