Ryman Hospitality Properties, Inc. (REIT)

Welcome to Ryman Hospitality Properties' fourth quarter 2020 earnings conference call. Hosting the call today from Ryman Hospitality Properties are Mr. Colin Reed, Chairman and Chief Executive Officer, Mr. Mark Fiovedante, President and Chief Financial Officer, Mr. Patrick Chaffins, Chief Operating Officer, and Mr. Scott Bailey, President of Free Entertainment Group. This call will be available for digital replay. The number is 800-585-8367, and the conference ID number is 7189-891. At this time, all participants have been placed in a listen-only mode. It is now my pleasure to turn the floor over to Mr. Mark Fiovaranti. Sir, you may begin.

Thank you, Maria. Good morning, everyone. Thanks 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, future 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 the exhibits to today's release. And I'll now turn the call over to Colin.

Thank you, Mark, and good morning, everyone. Before I begin, I want to express my own and our company's deepest sorrow at the passing of our friend Arnie Sorensen. Arnie was a magnificent CEO and a great man, and I was honored to get to know him beginning at the time of our reconversion. Through that transition and the years that followed, we got to know each other pretty well, and I had tremendous respect for Arnie. My thoughts are with Arnie's family at this time, and he will be sorely missed by myself, my team, and the entire lodging industry. When we spoke back on November 3rd, I must have qualified my remarks at least a half a dozen times with something to the effect of when we have a vaccine. At that time, I was confident that we would see a vaccine announced either by the end of 2020 or perhaps early this year. It turned out to be less than a week later on November 9th when the vaccine data from Pfizer was published. And that was quickly followed by more positive news from another manufacturer. Today, we have two FDA-approved vaccines in distribution, and it looks like there'll be others in the pipeline. This is tremendous news for our world, our country, and of course, our industry. Now, as we turn our attention to the progress of distribution rather than discovery, I believe the anticipation amongst Ryman and the Marriott teams and amongst our customers and meeting planners is truly palpable. I've been in the hospitality business for over 40 years, and I've seen a lot of cycles, several national and global crises, and many other ups and downs. But I've never seen a situation like this. If you go around and talk to people from all walks of life and all occupations, young and old, they've all been to one degree or another locked down, cooped up, or otherwise have had their normal way of life disrupted for almost a full year now. And I'm not just talking about here in the United States, but across the world. This situation we're in at the moment is nothing like the financial crisis of 2009 or any other previous recession or crisis. Back in 2009, we didn't have millions of people at home looking out of the window wondering whether they were going to go on vacation again or when they could attend a conference and see their colleagues again. And when would they be able to see their children compete in their favorite dance or sporting competition? And while a handful of industries related to travel or restaurant have certainly been hit quite hard over these past 12 months, so many other aspects of our economy have continued to thrive, which is also very unlike 2009. As such, conditions are ripe for very healthy recovery. It is our belief that we'll begin to see these first cracks in the ice in the coming weeks and months. That is because every day in this country, we're now administering about 1.8 million vaccine doses. As of February 21st, over 63 million doses have been administered here in the United States, and almost 19 million individuals have received their full two-dose regime. It has been projected that sometime in April, at least one vaccine will be available to everyone, regardless of age or health categories, by that time. If this progress continues and if the COVID-19 case numbers continue to fall, as they have since the seven-day average peaked back on January the 11th, then I believe that pent-up demand will begin to surge. And let me assure you, our company will be ready. But first, let me talk about some of what we've achieved in the fourth quarter. and what we've learned about our business from this period, which we will apply going forward. And then I'll review how we are positioned for the rest of the year and beyond, and finally share some of the encouraging data we've seen more recently for the month of January. We are very pleased with how our fourth quarter went for us. We came into the quarter thinking that with group travel still largely suspended and the national closed, we might burn somewhere between 22 and 24 million of cash per month on a consolidated basis. Remember, this was at the time that COVID-19 was surging again, and many communities were thinking about further lockdowns. Therefore, we focused our efforts intensely on what we have always done well in the fourth quarter, and that is driving leisure transient with our seasonal programming at the core of this strategy. If you're skeptical of what I've just said earlier about pent-up demand and specifically about families looking to get out and experience some normalcy again, just look at the million-plus tickets we sold across our holiday programs in our four hotels in the fourth quarter. We achieved 24.5% occupancy in the fourth quarter across our open hotels, which excludes national. Now, that sounds low. for your average hotel, but when you are talking about hotels of 1,800 to 2,800 rooms at a Gaylord hotel designed primarily for groups, that is quite a few leisure customers. And while leisure, leisure, sorry, I forget my, in fact, I've lived here for 40 years. And while leisure was the lion's share of the fourth quarter room nights at 88% of rooms sold. We also sold over 17,000 group room nights in the quarter as well. We paired this transient influx with extremely careful expense control as we rethink many of our processes and operating models and run leaner, more efficiently, and with better utilization of technology. We also collected $16 million of cancellation fees in the quarter as part of our broader strategy around rebookings. The net result was our hotel segment came in profitable, posting a positive $1.8 million of adjusted EBITDA, and that's including the losses of the shutdown Gaylord National. This was a substantial sequential improvement from the adjusted EBITDA loss of $23.6 million the hotel segment suffered in the third quarter. Opryland, Texan, and Palms all contributed positive adjusted EBITRE, reflective of their location in more open markets, while the Rockies was a slightly negative contributor. Colorado has been one of the states to reopen at a more judicious pace, but we're optimistic and working closely with government and health authorities there to demonstrate our safe operating capabilities. Gaylord National remains closed, but we have had some productive conversations over the past few months with our union at this hotel, and together we've agreed upon a number of modifications to how that hotel operates, particularly around our F&B outlets. These changes will position National for a long-term success post-COVID-19, and we currently anticipate reopening it sometime near the middle of this year. Altogether, This performance was quite a feat for our hospitality segment. I'd like to commend our team here and all the stars in our hotels for the job they did under such unusual circumstances, which was so unlike any previous Gaylord holiday season. And our entertainment business also picked up additional steam in the fourth quarter. Our physical venues continued to optimize for state and local capacity constraints, with the Ryman and the Opry hosting shows at 25% seating capacity and our Allred locations operating at about 50%. Despite this, revenues for the segment were up over 17% sequentially from the third quarter, and we cut our segment adjusted EBITDA loss 33% to a loss of 4.3 million. Together, these improvements cut our consolidated adjusted EBITDA RE loss in the fourth quarter by over $28 million or 80% sequentially from the third quarter to only $6.6 million. This reduced our monthly cash burn as a company after including cash interest expense to $12 million per month compared to that initial expectation of $22 to $24 million as we entered the month. So we were pleased with how all of our assets performed And while we would expect the seasonal benefits of the holidays to be less strong in the first quarter, we think this enthusiasm from our leisure hotel customers and from our country lifestyle fans in our entertainment business are powerful indicators of that pent-up demand that I think we sense all around us. Now, let's spring forward to the future and what we see unfolding for our company, given that we're on the cusp of this national vaccination effort. Back in November, before the vaccine effectiveness became news, we hosted a gathering at the Gaylord Texan of a group called Meeting Planners International. Some of you may know them as MPI, one of the professional associations for folks in our industry. Now, while they were on property in Dallas, we surveyed these attendees on a range of topics around COVID-19 and its impact on the meeting's business. The key question that we asked was assuming a vaccine is widely distributed by the end of the first quarter of 21, how would your client organization feel comfortable about resuming in-person meetings? And over 75% of the answers were sometime before the fourth quarter of 2021. That data from meeting planners substantiates the mood I described earlier about eagerness of people companies, and associations to begin meeting again. If you want more data, look at our existing book business. At the last count, as of February 21st, while we have seen about 2.5 million room nights canceled since March of 2020, the start of the pandemic, over 59% of those have been rebooked with us for later dates. This exceeds even our most ambitious rebooking goal of 50%, which we set at the beginning of the pandemic. And thus far, the majority of cancellations have been heavily concentrated, of course, into 2020 and then into the first half of 21. As of December 31st, 2020, for example, we came into this year still having 28% group occupancy on the books, weighted mostly to the third and fourth quarter coming up. Now, that's obviously well below where we usually start a new year, which would typically be around 50%. but it is still a substantial volume of business, certainly for the back half of this year. And when you break it down by quarter, we started this year with 43 points and 33 points of occupancy for the third and fourth quarters, respectively, compared to 52 and 43 at the same time last year. In short, we started this year off-paced by only nine points of occupancy for the third quarter and 10 points of occupancy in the fourth quarter. If our country can reach its ambitious vaccination goals by April, as I outlined, then this implies a potential for a decent second half. But more importantly is the longer-term picture. Once you look past this year and peek into 2022, for example, our future book looks nearly identical to prior years. At the end of 2020, we had virtually the same group occupancy on the books for 22 as we did a year ago for 21. Those numbers are 40.9 now compared to 41.3 last year. And the trend looks similar down the line until 2025, where we have slightly more occupancy on the books now than we did a year ago for 24. And that's, of course, partly due to some of these rebookings that we have been undertaking. And that's just the occupancy points. When you look at the ADR for these on-the-books group room nights for each of the next several years, we see consistent growth in every year. To summarize the data, the cancellation horizon remains not too distant. And beyond that horizon, things continue to look pretty healthy. We don't see customers shifting their long-term preferences away from in-person meetings. Our lead volumes are, of course, down significantly from a year ago, but our expectation is that we will once again see lead volumes pick up for new bookings as the vaccine is more widely distributed. In fact, Patrick gave me some data yesterday about what we've seen in February, and maybe, Patrick, when we get to the Q&A, you can share that data. I want to say a word here on our customer mix because we field a lot of questions from investors and analysts about this, The group industry is incredibly diverse. COVID-19 aside, on any given day, if you walk around our hotels, it's rarely full of corporate attendees in business attire. And we're not a business transient brand at all, for that matter. We host everything from cheer and dance competitions to social, military, and fraternal groups to affinity and professional associations for everything from turkey hunting to comic books. The diversity is really something to behold in our hotels, and most of these types of groups greatly want to convene once again for social reasons or for personal reasons, and not least of all because so many associations, their meetings underpin their own organization's budget and the budgets of their sponsors and exhibitors and so on. So do we think there'll be a slower return for some customer types than others? Of course, we would expect that. There may very well be some corporate meetings that are pushed off for a period. But you must not confuse a small sample size with the entire meetings industry. But as I cautioned you on our last call not to equate Zoom video conferencing with the ability to gather 500 to 1,000 people for camaraderie and team building. Now, finally, what have we learned from all of this? It's great that we see a path for demand to come back to normal in the not-too-distant future, but how about us and the supply side of the equation? And what will we be doing differently? First, as you can see, in the fourth quarter with our manager, we truly reimagined the cost model of many aspects of our hotels. To reach profitability at these levels of occupancy was not something we initially projected, that we would be able to achieve. But we rolled up our sleeves. We identified several changes that we estimate can drive an increase of 100 to 125 basis points of adjusted EBITDA RE margin in a fully normalized post-COVID-19 world compared to our pre-COVID-19 margins. And then in our leisure business, which we've always put a lot of research and effort into, We are pleased with the way that we're able to drive additional transient business and extend the seasonal windows. You will see us applying many of these lessons in future years to sustain the success we've had this year in growing our target leisure demographic. We're working on a lot more than just these areas. We expect we will see supply changes in our space in the wake of this crisis, and we're working very closely with Marriott to talk about how we address market share going forward in the group business. We think this is an opportunity. We're thinking about how we align our business with the post-COVID world to make what was already the top brand for non-gaming group business, Gaylord Hotels, with all of our competitive advantages, including meeting space, amenities, service, asset quality, the desirable markets that we're in and so on, we've been looking at how we make this even better and our moat even wider in the future. And then in our entertainment business, we've made tremendous strides in our digital strategy over this pandemic period, from introducing paid live streams to driving audiences to our circle media network. In some ways, this crisis really accelerated the key part of our strategy for this segment, which is which was weaving together our physical and digital assets and creating and driving more content out to our fans wherever they are. And by the way, just as in our hotel business, we have a really good book of business on tap for the second half of 2020. In our entertainment segment, let me give you a quick example here. For the five months from August this year to year end, we currently have 129 days booked at the Ryman. That's clearly, let me say that, that's nearly the same number as the 132 concerts or events that we actualized at the Ryman for the same period in 19. And we've more than a dozen Ryman events in the works that are likely to be confirmed, and multiple holds on the remaining open days, with the only exceptions of Christmas and New Year. Now think about this for a moment. If it all goes well, with the vaccine to the point that our venues can be back to full capacity before August, then we could potentially fill more concert seats at the Ryman for the last five months of this year immediately post-COVID than we did in the last five months of 19 immediately pre-COVID. So to conclude, if you can't tell by now, we're very optimistic about our entire portfolio and 100% focused on making what we believe are the best businesses in their categories better. Now, finally, let me just give you a little bit of snippet of what went on in January, which continues to provide encouraging data. On the transient side, according to Star, the Gaylord brand performed at 152% REVPAR index for the month, a 96% increase from January of 2020. That is essentially a doubling of our transient market share compared to last year in the month of January. And on the group side, our sales production in the month of January of 99,000 group room nights represented an increase of 20% compared to January of 2020. And these room nights came in with a 7% higher ADR than we booked last January. And as I said, Patrick will share some data on the lead volume. So for now, things are trending in the right direction as we move into 21. And lastly, Regardless of precisely how long it may take to restore to pre-COVID levels, I want to assure you that we have the liquidity and runway ahead of us to get there. Earlier this month, we closed on a new senior notes issue to refinance our 400 million 5% notes due in 2023. I gave much of the same presentation that I have this morning to the bond investors on that deal. When the presentation was over, we had $2.6 billion of orders, a $400 million issue. We were able to upsize the deal to $600 million and still come in at 4.5%, the low end of our price expectations, all accomplished in about six hours. This was a great vote of confidence from the markets in our company and the continued value of our assets. which significantly boosted our already strong liquidity. And with that, let me turn over to Mark to talk about our balance sheet and cash burn rates for the rest of the year.