Ryman Hospitality Properties, Inc. (NYSE:RHP) Q4 2022 Earnings Call Transcript
Ryman Hospitality Properties, Inc. (NYSE:RHP) Q4 2022 Earnings Call Transcript February 24, 2023
Operator: Welcome to Ryman Hospitality Properties Fourth Quarter 2022 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) 839-9881 with no conference ID required. 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 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 facts may be deemed to be forward-looking statements. Words such as believes or expects are intended to identify these statements, which may be affected by many factors, including those listed in the company's SEC filings and in today's release. The company's actual results may differ materially from the results we discuss or project today. We will not update any forward-looking statements, whether as a result of new information, future events or any other reason.
We will also discuss non-GAAP financial metrics today. We reconcile each non-GAAP measure to the most comparable GAAP measure in exhibit to today's release. I will now turn the call over to Colin.
Colin Reed: Thank you, Jen, and good morning, everyone. Well, the fourth quarter was an appropriate exclamation point to close out an extraordinary year for our company. I don't think in all of my years in this industry, I've seen anything like the last 12 months, going from just under 33 points of occupancy and $1.85 of total RevPAR in January of '22 during the worst of the Omicron wave and yet ending the year in December with just over 73 points of occupancy and a whopping $612 of total RevPAR. I really believe the results of this past quarter and our ability to recover so quickly from the last stage of the pandemic highlights the exceptional nature of our assets and our strategy compared to the wider industry. Of course, we've always talked about these attributes since well before the pandemic, about our dedication to studying and understanding our core group customer and delivering the highest quality experiences to our guests.
About our rotational system for world-class assets in top markets, which makes that customers planning decisions so much easier by booking multiyear, multisite meetings all at once. About our belief in investing significant capital into expanding and upgrading our assets against the backdrop of very limited new supply. And about our strategy, to induce our own transient demand with innovative and compelling programs around the calendar. By 2019, we were just starting to really reap the dividends literally and figuratively of this strategy. As our newest property, the Gaylord Rockies just opened that year with an unheard of 1.2 million room nights on the books and generated over $85 million of adjusted EBITDA in its full first full year of operation.
And the other cylinders of our hotels were firing as well with the opening of SoundWaves and the expansion of the Texan and groundbreaking underway at the Palms. And of course, our Entertainment business was riding high on the back of Nashville's exponential growth. We found ourselves at the end of '19 sitting on then record performances across so many metrics. And we felt like we were just getting started as we gave in February for what, by all signs were going to be a bond burner of a year on the heels of these investments. But within weeks, it all came to a halt. And the last three years since then have been a whirlwind. But now here we are three years and three COVID waves later at last prepared to give you all a complete set of annual guidance once again.
And what we are planning for 2023 is already well beyond those figures we'd anticipated back in early 2020. Our lower group customers are back in droves and spending healthily on property. Thanks greatly to our emphasis on rebooking over fee collection during these start days. Our assets themselves are transformed compared to this time in 2020, thanks to our commitment to invest capital. This includes the 300 new rooms at the Palms, the beautifully renovated rooms at the National and a host of new ballrooms, meeting spaces, event launch, pavilions and atriums either complete or now underway across the portfolio. And not to mention the entirely reconcepted food and beverage outlets with innovative new socialization and gathering opportunities for groups, new technologies in place, new staffing models in many areas of our hotel.
The list goes on. And our entertainment business is equally transformed. We have opened already in Orlando, broken ground on Already in Las Vegas, closed the acquisition of Block 21, which brings Austin's iconic ACL Live at the Moody Theater into the fold. And to cap it all off in June, we sold 30% of the Entertainment business to the impressive team at Atairos, bringing NBCUniversal in the temp and valuing the business at over $1.4 billion. It's not a stretch by any means to say that our entire company has not simply recovered from the pandemic but has undergone a complete transformation and with our new understandings of our customers, both group and measure and all of the levers available to us now and in the future through our ongoing investments.
And looking at the tremendous book of business we have on the books for all future years, I believe we're capable of delivering exceptional results well into the post-pandemic era. As Mark and Jen will report, notwithstanding the significant impact of Omicron in the first quarter, but almost all measurements, 2022 was a record for us. And as you will see from our guidance in '23, more records are likely to follow. Needless to say, I'm truly excited for this next chapter of our company. And it is a perfect moment for Mark to take over for me in the CEO role as I move to Executive Chairman. So I'll now let you -- now turn over to Mark to let him give you more details of the quarter and our results and how we're thinking about the coming year.
Mark?
Mark Fioravanti: Thanks, Colin. Good morning, everyone. The fourth quarter was a terrific quarter for us as most -- as our most leisure-focused quarter, we were really looking forward to having our Signature ICE! show back after a two year hiatus due to COVID and travel restrictions on our master carvers from China. And we're happy to report this year's ICE! show surpassed our expectations, selling 1.2 million tickets or 115,000 more than the last time we presented ICE! in December of 2019. The renewed attraction of ICE! helped increase transient room nights above the fourth quarter of 2019 and transient ADR in the quarter was $317 a 43% increase over the fourth quarter of 2019. That's a record for the Gaylord brand, surpassing the third quarter of 2022 by $29.
On top of this holiday strength, group performed well with group room nights traveling only 2.5% below the fourth quarter of 2019 levels, more than offset by group ADR up almost 10% over the same period. While our reported total occupancy was three points below the fourth quarter of 2019, when you consider the new 300 rooms at the Palms we added in 2020, our total room nights traveled were only 1% less than the fourth quarter of 2019. Hospitality margin in the fourth quarter was 31.1% was 30 basis points less than our fourth quarter of 2019 but was flat to that period when excluding the decline in interest income on the Gaylord National bonds. This is despite inflationary pressures we're all aware of in the broader economy and an average wage rate increase of 24% across the portfolio compared to 2019.
At the bottom line, our Hospitality segment delivered $150.1 million of adjusted EBITDAre, which put the full year profitability of the segment $12.7 million above the high end of our last upperly revised guidance range for 2022. The quarter was an all-time record for both total revenue and total adjusted EBITDAre for our Hotel segment in the month of December set a single-month record for both metrics as well. And what should be the last earnings call in which we use 2019 as a full year comparison, 2022 finished up 7.8% in hospitality revenue and 6.3% in hospitality adjusted EBITDAre compared to that last pre-pandemic year, even with the material impact of Omicron in the first quarter. So just a tremendous holiday season to close out what proved to be a great recovery year throughout 2022.
Photo by Nathan Dumlao on Unsplash
In terms of production, we booked over 1 million gross group room nights in the quarter, a 4.4% increase over the fourth quarter of 2021 and the average ADR of $254 on new bookings was 11% higher than the fourth quarter of '21 and 13.3% higher than the fourth quarter of 2019. New group rooms revenue booked in the quarter and in the month of December alone were both new quarterly and monthly sales records for the Gaylord brand. This level of production sets us up well for 2023 and beyond. On December 31, we entered this year with 49.8% net group occupancy points on the books for 2023, 4 points more than we entered 2022 and an ADR of $222 or 5% higher than the start of 2022. This equates to over $53 million or 14.5% more net group rooms revenue on our books to start this year than we had 12 months ago to start 2022.
You will see in our guidance, which we are bringing back in full according to our past practice, that we translate this into an expectation for RevPAR growth this year of 9% to 12% and total RevPAR growth of 6.5% to 9.5% over full year 2022. In terms of profitability, while we expect inflation will remain elevated in higher margin attrition and cancellation fees will return to more normalized run rates, the transformation of our business, which Colin described, including efficiencies across management ranks, staffing models, technology and food and beverage outlet strategy, among others, is expected to deliver stable to modestly improved margins compared to 2022 or in an adjusted EBITDA range for the year of $550 million to $580 million in our Hospitality segment.
At the midpoint of $565 million, this represents over 10% growth from 2022. I'll remind you that the first quarter of this year will be by far the strongest in terms of percentage growth in RevPAR and total RevPAR simply due to the Omicron impact in the first quarter of 2022, creating a materially lower comp in the remaining three quarters. From an adjusted EBITDA perspective, we anticipate quarterly contributions similar to 2019 on a percentage basis. Looking further, beyond 2023, we see a similar favorable setup for our Hospitality business for the foreseeable future. As of December 31, once again, we have 9.6%, 6.8% and 3% more net group rooms revenue on our books for T+2 through T+4, respectively, or 2024, '25 and '26 than we did one year ago.
And as we continue to add new production at increasingly healthy ADRs, such as we did in the fourth quarter, we expect to see our rooms revenue pace for future years pull further ahead. We believe our 2023 guidance and our on the book position for our Hospitality segment for future years, plainly evidences Colin's opening remarks about the transformation of our business from pre to post pandemic and the relative performance capability of our assets against the broader industry. But to emphasize it, we believe these levels of operating and sales performance are made possible by our unique strategy and its attributes of strong customer loyalty, broad customer exposure with very little concentration in any one industry, high-quality purpose-built assets, fortified by high-return recent capital investments and all of this in some of the most attractive, rapidly growing markets in the U.S. Note that three of our five markets, Orlando, Nashville and Dallas were in the top 7 large metro areas for population growth over the last five years, and also in the top five for job growth in 2022.
Denver was not far behind them as well in the top 25 for both metrics. It's no surprise then that all four of these markets, Dallas, Orlando, Nashville and Denver were in the top 9 for hotel occupancy recovery in 2022 compared to 2019 according to STAR. Against this backdrop of limited new supply growth in rapidly expanding markets, we see ample opportunities for our capital deployment strategy ahead of us. This includes over $69 million being spent right now to create an expansive indoor outdoor group pavilion and to completely reimagine the Grand Lodge Atrium at the Gaylord Rockies, increasing the volume of premium sellable group space and expanding food and beverage outlet selection capacity. And we see many more opportunities at the Rockies and elsewhere in the portfolio for additional rooms expansions, SoundWaves style water experiences and more to continue differentiating our hotels drive return group business and attract high-spending leisure guests.
Turning to our Entertainment segment. The fourth quarter performance of our same-store assets compared to '19 was equally impressive as our hotels. Same-store revenue for the segment was up 35%, and same-store adjusted EBITDAre was up 62% compared to the fourth quarter of 2019. On a consolidated basis, including Block 21, which we acquired midyear, adjusted EBITDAre of $26.1 million placed the full year results for Entertainment just above the midpoint of our most recent guidance range. For 2023, we're looking forward to a full year contribution from the ACL Live at the Moody Theater and other Block 21 assets. We have a slate of value-enhancing investments lined up in Austin for both the theater and the W Austin Hotel. We expect the acquisition plus steady growth in Nashville and across the Ole Red brand to help drive 2023 adjusted EBITDAre for this business to a range of $87 million to $97 million for 2023.
At the midpoint of $92 million, this is a full $30 million more than this business generated in 2019, but truly a significant transformation on par with our hotel segment. Now let me turn it over to Jennifer to update you on our balance sheet, liquidity, dividend and our consolidated guidance range.
Jennifer Hutcheson: Thank you, Mark. In the fourth quarter, the company generated total revenue of $568.9 million, and net income to common shareholders was $58.1 million or $1.03 per fully diluted share. Now once again, that our fully diluted share count in the quarter going forward will continue to reflect the put rights held by Atairos as part of their Opera Entertainment Group investment. Even though these rights are not yet exercisable, and we will also have the option to settle any rights exercise in cash. Any exercise of the put rights would also result in Atairos 30% ownership in Ole Red reverting back to Ryman to just keep this in mind when estimating future per share amounts. Total consolidated adjusted EBITDAre for the fourth quarter of $168.1 million, put our consolidated full year results over $17 million above the high end of our most recent guidance.
For 2023, in addition to the operating segment guidance provided by Mark, we are estimating for our Corporate segment and adjusted EBITDAre loss of $29 million to $32 million, which would be just slightly better than 2022 at the midpoint. This yields a total fully consolidated adjusted EBITDAre guidance range for the year of $605 million to $648 million, a 12.7% increase at the midpoint over 2022 and a 22.7% increase over 2019. We're estimating that adjusted funds from operations or AFFO for 2023 will be in the range of $392.5 million to $424 million. At the midpoint, this represents a growth of 12.3% over 2022 and 14.5% over 2019 and reflects the increased interest cost of our current debt portfolio compared to 2019, as well as the pro rata reduction in AFFO attributable to Atairos minority interest in Ole Red.
Turning to the balance sheet. We ended the quarter with $334.2 million of unrestricted cash on hand and our $700 million revolving credit facility remained undrawn. Together with the undrawn $65 million revolving credit facility at Opera Entertainment Group, this yields almost $1.1 billion of available liquidity after deducting $10 million of outstanding letters of credit. We retained an additional $119 million of restricted cash available for certain FF&E projects and other designated uses. On a trailing 12-month basis, our net leverage ratio of total consolidated net debt to adjusted EBITDAre stood at 4.6x, and based on the midpoint of our guidance, we anticipate we will end the year at approximately 4.1x, which is below our year-end 2019 leverage and comfortably within our target range.
We are pleased to declare a quarterly dividend this month of $0.75 per share, which is a substantial increase from our December declaration of $0.25 paid in January. That December declaration was targeted to achieve our goal of paying a minimum of 100% of REIT taxable income attributable to 2022. And our intention with the current declaration of $0.75 and subsequent dividends we made declared this year will remain to pay a minimum of 100% of REIT taxable income. Finally, in terms of interest rate exposure, as of quarter end, approximately 90% of our outstanding debt was at fixed rates, either directly or with the benefit of swaps, although we do have two swaps expiring in 2023 on both the Gaylord Rockies term loan and our corporate term loan B.
We will address the Rockies maturity this year, our only maturity in 2023, which carries three one-year extension options that are fully available to us. We were pleased to have officially exited the cash fee status of that loan based on the strong performance of the Gaylord Rockies property post pandemic. So our balance sheet and liquidity are in excellent shape to support all of our investment activity that Mark outlined, while also sustaining a meaningful dividend once again. And with that, I will turn it back over to Colin.
Colin Reed: Thanks, Jen. Chelsea, let's open up the lines for questions, please.
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