Ryman Hospitality Properties, Inc. (NYSE:RHP) Q3 2023 Earnings Call Transcript
Ryman Hospitality Properties, Inc. (NYSE:RHP) Q3 2023 Earnings Call Transcript November 7, 2023
Operator: Welcome to Ryman Hospitality Properties Third Quarter 2023 Earnings Conference Call. Hosting the call today from Ryman Hospitality Properties is Mr. Colin Reed, Executive Chairman, Mr. Mark Fioravanti, President and Chief Executive Officer, Mr. Patrick Chaffin, Chief Operating Officer and Mr. Patrick Moore, Chief Executive Officer, Opry Entertainment Group. This call will be available for digital replay. The number is 800-839-3516. 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 Mr. Mark Fioravanti. Sir, you may begin.
Mark Fioravanti: Good morning, and thank you, everyone, for joining us today. Unfortunately, due to a death in the family, our Chief Financial Officer, Jennifer Hutchison, will not be joining us on the call 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 comparable GAAP measure in exhibits to today's release. I'll now turn the call over to Colin.
Colin Reed: Thank you, Mark, and good morning, everyone. Let me start this morning's discussions about our earnings for the third quarter of 2023, by first reminding you what an incredible third quarter we had last year. Last year's third quarter was the best third quarter performance ever for total revenue, total adjusted EBITDAre, and total adjusted EBITDAre margin. Additionally, in the third quarter of last year, we had a very good group room night production again with record gross bookings in ADR. I pointed out last year how excited we were about the state of our business and how materially ahead we were of 2019 in terms of revenue and profit generation and what this trajectory signaled for the period ahead. So here we are reporting on the third quarter of 2023 and discussing how we see the full year playing out.
And yes, yet again, our third quarter delivered some very compelling results. Our forward booking production continues to accelerate. For our same-store hospitality portfolio, this was another record third quarter performance for total revenue, total ADR and group ADR. Our business continues to get stronger and stronger. And this is especially evident when we look how we are performing relative to 2019. Compared to the third quarter of 2019, total same-store hospitality revenue was up 20.7% total ADR, 22.4% and group ADR 16.5%. And these growth rates are higher sequentially than where they were in the second quarter of 2023. I noticed some of you we must sound like a broken record. But Gaylord Hotels actually does have a differentiated strategy that has consistently driven industry-leading shareholder returns.
We do this by building long-term group customer relationships through excellent system-wide service, great product and very targeted relationship-building endeavors with our customers. The consequence of which is they book contracts with us, and in many cases, years out. This is why our business is far less volatile than those companies you often compare us to. Now Mark will get into the production numbers in more detail, but our bookings for 2024 and 2025 continue to track solidly ahead of where they were a year ago for T1 and T2 periods. This momentum supports our confidence to continue investing capital in projects like the redesign of the Grand Lodge and the addition of the new group pavilion at the Gaylord Rockies, which are expected to reopen midyear next year.
In our Entertainment business, consistent demand trends at our core Nashville assets continue to highlight the popularity of our live entertainment offerings. Outside of Nashville, we remain excited about our progress towards the opening of Ole Red Las Vegas in January. In addition, we recently announced a $40 million of value-enhancing investments at Block 21 in Austin, which will include the full renovation of the W Hotel and additional public space enhancement at ACL Live. In early January, we'll begin our transformation of the Wildhorse Saloon to a multilevel multi-concept immersive entertainment experience in partnership with Luke Combs. I was with Luke a couple of weeks ago in London as he was wrapping up his very successful three-week tour of Northern Europe.
And I'm so excited about this new branding opportunity with him, particularly now that he has so rapidly become a global superstar. Finally, our partnership with Atairos and NBCUniversal is really starting to show value-enhancing results. During the last few weeks, we've been able to collaborate on some really, really exciting projects, which showcase why we chose Atairos and NBCUniversal as our partners. In September, the Opry House hosted the inaugural People's Choice Country Awards, which was broadcast on NBC. Just a few weeks ago, while Luke was on tour in the U.K., several episodes of Opry Live featuring some of his performances aired on Sky Arts in the U.K. and in Ireland. And in early December, Christmas of the Opry will hear on NBC.
As a result of our collaboration, our brands and the artists who we work with are benefiting from this accelerated media distribution, reaching more country music lifestyle consumers globally. At the highest level, we are really excited, we're exactly where we thought we'd be. And as we've talked about in the past, our performance in both our businesses comes back to our sustainable competitive advantage, which is grounded in our iconic brands and in our extensive knowledge that the unique customer segments we serve. Just as we've done for the past 20 years, we continue to prioritize our customer relationships and invest in our assets to consistently enhance our value proposition, which ultimately translates to stronger customer loyalty and best-in-class shareholder returns.
Our business model is not based on hope or things we have little control over. We've built a loyalty-based rotational strategy within our hotel business that is not reliant on citywide conventions or how popular or unpopular a city may be. And our entertainment business is pretty unique, backed up by legendary brands that cannot be replicated. We look forward to hosting the investment community at our upcoming Investor Day in mid-January of next year to discuss in detail our differentiated strategy and the exciting growth priorities that will drive returns in the years to come. And with that, let me turn over to Mark to now discuss the quarter in more detail. Mark?
Mark Fioravanti: Thanks, Colin. I'll start with some segment highlights from the quarter. First, focusing on our same-store hospitality portfolio before discussing the results for JW Hill Country and our Entertainment business. Then I'll review our consolidated guidance and balance sheet. For the same-store portfolio, group strength continued evidenced by approximately 513,000 group room nights traveled in the quarter, a 3.1% increase to the comparable period of 2022 and back to 2019 levels. As Colin mentioned, for our same-store hospitality portfolio, this was the best third quarter performance ever for total revenue, total ADR and group ADR, eclipsing the prior best-ever third quarter performance in 2022. Similar to the dynamics we saw in the second quarter, the third quarter was another very tough year-over-year comparison as we saw a rapid recovery after the Omnicron impact in the first quarter of 2022 with some of those rebooking's traveling in the back half of the year.
This comparison was particularly challenging at Gaylord Rockies, which in the third quarter of 2022 posted the highest quarterly occupancy in the history of the Gaylord Hotels brand at 86.9%. Furthermore, in the third quarter of last year, banquet revenue across the portfolio set an all-time quarterly record. Compared to these high watermarks, the third quarter of 2023 saw a shift in group mix to a more normalized level of corporate group room nights and banquet spend. Attrition and cancellation fees were $11.3 million, an increase of $1.3 million to the comparable period in 2022 due to the timing of collections. Actualized cancellations in the year for the year, a better indicator of current group behavior, continued to decline to approximately 11,000 room nights down from 21,000 a year ago and essentially in line with 2019 levels.
During the quarter, we also collected approximately $1.7 million as part of our ongoing business interruption claim related to the indoor pool closure at the Gaylord Rockies. We're pleased that the indoor pool has reopened as of November 3, ahead of the peak holiday season. We anticipate collecting the remainder of the business interruption proceeds through the first quarter of 2024. The same-store hospitality portfolio delivered adjusted EBITDAre of $135.2 million in the third quarter, a year-over-year decline of $1.5 million. The 90 basis point decline in adjusted EBITDAre margin was due to the recognition of approximately $3.6 million of additional incentive management fee expense year-over-year. Looking to the fourth quarter of 2023, we see momentum in our group business continuing, and we remain excited about our holiday programming.
The fourth quarter will be a challenging comparison for the leisure side of our business as last year, we sold a record 1.2 million tickets to ICE, which helped drive a record transient ADR of $317. While we're early in the booking cycle, we're optimistic about this year's holiday season demand as early ticket sales are pacing ahead of last year. As a result, we're tightening our full year guidance range for same-store RevPAR growth such that the midpoint is unchanged. We're raising our full year guidance range for same-store total RevPAR growth to 11.5% to 12.5%, a 2.5 point increase at the midpoint, and we're tightening our guidance range for same-store hospitality adjusted EBITDAre, which results in a $5 million increase at the midpoint of $590 million.
Turning now to same-store production. We booked approximately 695,000 group room nights in the third quarter for all future years, which is up 13.2% to the comparable period in 2022. Average rate across all new group bookings set another all-time record of $268, which was up $3 or 1.2% from the prior record last quarter and 32.8% from the third quarter of 2019. Looking into 2024 and 2025, group rooms revenue on the books is up nearly 10% and 12%, respectively, compared to the T+1 and T+2 time periods as of the third quarter of 2022, which is a continued improvement over our position at the end of last quarter. Note the full impact of our group rate strategy that we implemented in February of 2022 has yet to play out. Group business contracted prior to our focus on driving group ADR will burn off over the next several years, creating a tailwind for group rooms revenue.
Currently, the portion of group business contracted prior to our focus on ADR accounts for approximately 30 points of the 48 points of occupancy currently on the books for 2024. Occupancy on the books for this same subsegment is lower in 2025 and steps down in each of the following years. Accordingly, higher ADR bookings will become an increasing larger portion of our group business over the next several years. Shifting gears to the JW Hill country. Performance in our first quarter of ownership was in line with our expectations and reinforced our belief in the long-term value creation opportunity of this asset. Early integration efforts are progressing well, and we expect to close on the previously announced purchase of the additional adjacent acreage later this month.
For our partial year of ownership, we continue to expect the adjusted EBITDAre contribution from this hotel to be in the range of $27 million to $29 million. Turning to our Entertainment segment. This business delivered $82.3 million of revenue and $25.6 million of adjusted EBITDAre, up 6.7% and 21%, respectively, compared to the third quarter of 2022. Performance was driven by our core Nashville assets, which drove double-digit revenue growth year-over-year. The W Hotel results at Block 21 were impacted by softening business transient demand and extreme summer heat, which affected transient volumes in the Austin market. We remain confident in the long-term value creation opportunity with this asset and the long-term market outlook for Austin.
To that end, enhancement of the W Hotel and ACL Live are underway and are expected to be completed in phases by the end of next year. On the media side of the business, we made the decision to pivot our distribution strategy for Circle away from linear television, focusing our resources on streaming, fast and digital distribution. As a result, we agreed to wind down our joint venture partnership with Gray TV and our results for the quarter include a nonrecurring $10.6 million write-off of which $7.2 million is a noncash charge. Beginning in 2024, as part of this new distribution strategy, syndication of Opry Live will expand the major television network affiliates, allowing us to reach even more country music lifestyle consumers. Taken together, our entertainment business continues to perform in line with our expectations and as a result, we're tightening our entertainment adjusted EBITDAre guidance range to $97 million to $101 million, leaving the midpoint unchanged.
On a consolidated basis, our outlook accounts for the segment level adjustments I discussed as well as an updated guidance for corporate adjusted EBITDAre to a loss of $30 million to $32 million. Accordingly, we're updating our full year guidance range for consolidated adjusted EBITDAre to $672 million to $700 million, which at the midpoint of $686 million reflects an increase of $4.5 million. We're also updating our full year guidance range for adjusted funds from operations, or AFFO, to $448.5 million to $474.5 million. Please refer to our earnings release for full guidance tables and reconciliations. Turning to our balance sheet. We ended the third quarter with $543.1 million of unrestricted cash on hand and both our $700 million revolving credit facility and OEG's $65 million revolving credit facility undrawn.
As a result, our total available liquidity was approximately $1.3 billion. We retained an additional $112.9 million of restricted cash available to certain FF&E and other maintenance projects. On a trailing 12-month basis, our net leverage ratio of total consolidated net debt to adjusted EBITDAre was 4.3x below where we ended the year in 2019. On a pro forma basis, assuming a full year contribution from the JW Hill Country, our net leverage ratio was 4x. In terms of interest rate exposure, as of quarter end, approximately 80% of our outstanding debt was at fixed rates, either directly or with the benefit of swaps. 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.
And finally, subject to approval of our Board of Directors, it remains our intention to continue to pay 100% of our REIT taxable income through dividends. And with that, let's open it up for questions.
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