Ryman Hospitality Properties, Inc. (REIT)

Welcome to Ryman Hospitality Properties first quarter 2021 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, and Mr. Patrick Chaffin, Chief Operating Officer. This call will be available for digital replay. The number is 800-585-8367. and the conference ID number is 7986514. At this time, all participants have been placed on listen-only mode. It is now my pleasure to turn the floor over to Mr. Mark Ferviganti. Sir, you may begin.

Thank you, Maria. Good morning, everyone. Thanks for joining us. 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 and exhibits to today's release. And with that, I'll turn the call over to Colin.

Thank you, Mark, and good morning, everyone. Well, another two months has passed since we last updated you, and I'm pleased to say The green shoots we observed in the fourth quarter of 2020 continue to grow in the first quarter of 21. But before I walk through some of our company's performance metrics during this period, I'd like to point out two other recent developments related to COVID-19 that are really important, particularly to our company. That is, as of May 2nd, more than 147 million Americans have received at least one COVID-19 vaccination dose. and 105 million have now been fully vaccinated. That is up significantly from the 63 million and 19 million totals when we last convened. Indeed, today, more than 40% of U.S. adults over the age of 18 are now fully vaccinated, and over 56% of the adult population has received at least one dose. And it was only recently in mid-April that the vaccine became available to all adults, regardless of age or health status. The vaccine rollout has always been one of the biggest variables outside of our control, so we're very pleased with how it has progressed so far and what this means for our industry. The positive impact of this rollout was observed last week here in Nashville when the city announced that it will be lifting all restrictions on indoor venues aside from a mask mandate. Now, this is good news for the Opry House, Ryman Auditorium, the All Red in Nashville here, the Wild Horse Saloon, and of course, Gaylord Opryland, which stands to gain most from the lifting of these restrictions than any other of our business units. Now, let's take a look at what's happening in our business. And there's a lot of good news to unpack in the trends that we are tracking. So we've also published an investor supplement this quarter that goes into more depth on many of the points I will mention. I urge you to obtain a copy of that supplement, as I will just touch on some of the highlights. Now first, our hotels continue to outperform our expectations in a rapidly evolving environment. For the first quarter, we achieved 20.4% occupancy in our hotels, excluding the Gaylord National, which remains closed during the quarter. Now this was down sequentially from the 24.5% percent open hotels achieved in the fourth quarter of 2020. However, given how strong our fourth quarter has always been from holiday leisure travel, we expected the first quarter to be a little bit more challenging for this customer segment. And I can add here, the second quarter is off to a great start as we surpassed 30% occupancy for the month of April, excluding in the Gaylord National. Now, while leisure has carried a lot of weight for us through this valley over the last 12 months, and we have learned a great deal about how to enhance this aspect of our business and target leisure in the future, at the end of the day, Gaylord Hotels are predominantly group houses. As we move now into the recovery phase, it is our group business where we are most happy to see trends and indicators continuing to move in the right direction. So, what are we seeing in groups? As we outlined last quarter, we expected the return of group in the early days of the vaccination rollout to be led by small organizations and what we call SMURF. And this is what we're witnessing. We accommodated over 26,000 group room nights in the first quarter, which is small by historical standards, but an increase of 50% sequentially from the fourth quarter of last year. Of these, about 70% were associations or other groups and about 30% were corporate. And the monthly trend was upward from January to March for group room nights with 12,000 traveling in the month of March alone. While we continue to experience group cancellations in the first quarter, we've seen a slow but steady deceleration in the pace of cancellations since the vaccine became available. We began 2021 averaging about 5,000 to 7,000 room nights canceled per day, but as of April 30th, the two-week moving average was down to 2,200 cancellations per day. Furthermore, the window for new cancellations continued to gradually shrink, whereas the average canceled room nights in the 30 days ended January 30th this year was about 107 days out, from arrival. Now, three months later, as of the end of April, that window is down to 92 days. This means, as time goes on, groups are waiting a little bit closer to their travel date to make the go-no-go decision, reflecting an interest, an increased anticipation of being able to hold their meetings. As of those groups that do still cancel, we continue to see, we continue to lead, should I say, the industry in rebooking rates, with 60.6% of room nights lost during the pandemic rebooked as of April 30th. And I think that number, Patrick, as of yesterday morning, grew to 61.8. And it is not only rebookings where we're seeing very encouraging activity. We are seeing it in our organic sales production as well. Of the 382,000 future group room nights we booked in the first quarter, organic bookings unrelated to COVID-19 cancellations represented 44%. Now, this was the highest contribution of organic new bookings to sales performance in the last four quarters. Our lead volumes for organic business are also accelerating, and in fact, we're being being led by short-term and in-the-year, for-the-year meetings rather than distant dates. We just received the fresh sales figures for the month of April, for example, and the in-the-year, for-the-year production, that is room nights booked for travel by the end of this year, that number was 52,000 room nights. And for context, that is up 28,000 room nights or 119% over our in-the-year, for-the-year production from April 2019, not April 2020, but over pre-COVID April of 19. In fact, that is an all-time record for in-the-year, for-the-year bookings for any month of April. Better still, only 11,000 of those room nights were associated with COVID-19 rebooking. Yes, that means we contracted 41,000 new organic non-rebooked room nights for travel this year just in the month of April alone. It appears April is also the first month since March of last year when the pandemic first hit that organic new sales production has exceeded COVID-19 rebooking production. Now, this type of short-term activity is very encouraging data to us, and let me explain why. Remember that despite all of the cancellations we've experienced, they continue to be concentrated into the year 2020. 2020 and 21. Further out, we have consistently maintained a nearly comparable pace of group occupancy on the books compared to typical pre-COVID-19 levels. In fact, for some years, such as 25 and 26, thanks to the rebookings, we have more net group occupancy on the books than we did for T5 and T6 at the same time two years ago. Overall in April, we booked 190,000 room nights, which was up 110,000 room nights we booked in 2019, with about 90% of this April's production falling in the years of T plus zero to T plus five. Now what that means is that with this base of business still in place for 22 and later, there is potential for 23 or even next year to be as good or better than the pre-COVID-19 levels if we can continue to book rooms at the same pace that we've experienced over the last couple of months. Now, the important takeaway here is that all the dominoes are falling in the right direction at this moment. And in some cases, they're even falling faster than we expected. The first domino was the vaccine. And from there, we have begun to see cancellations decelerate. cancellation windows coming in, new organic bookings accelerate, lead volumes increase, and finally, room nights traveled per month has grown sequentially throughout the first quarter. This is exactly the confluence of events you want to see as we return to normal. Now, let's talk about the future some more. Now, before the COVID-19 pandemic, Ryman distinguished itself among its peers, is not just a typical REIT, buying and selling assets or trying to find the next hot geographic market. We've always had a growth mindset at our company as long-term stewards of invested capital, reinvesting, innovating, and expanding around our assets in a supply-constrained industry to deliver outside returns to our shareholders. It is in this context, supported by the trends and data I've just walked through, that we announce today the acquisition of the 35% of the Gaylord Rockies that we do not own from our joint venture partner, Reeder Development. Those of you who have followed our company for many years know that we were the original architects of the Gaylord Rockies before we converted to a REIT in 2012. When we converted to a REIT, we transferred our development rights to Reeder, Over the subsequent five years, we partnered with Reeder in stages, initially as a minority equity and asset manager in the construction phase, then majority owner at 65% after we acquired the interest of Aerie's private equity funds. And now we're delighted to acquire Reeder's 35% share, bringing this hotel fully into the Ryman hospitality portfolio, along with 130 acres of adjacent land which is not part of the original JV, but owned separately by Rita and Aries. This transaction is an attractive financial proposition. At a purchase price of $210 million, we expect it will be accretive to AFFO in 2020. Now, Mark will provide more details on this transaction itself and how we view returns going forward. But this deal carries broad strategic benefits to our hospitality business, which I believe are very compelling. As 100% on Gaylord Hotels, we now have total control over the positioning of the Gaylord Rockies in sync with the rest of the portfolio. Combined with the adjacent land, this control gives us significant option value, whether that is a resumption of the suspended rooms expansion project or other investment concepts like a potential SoundWaves product or overflow hotels or other future development at or around the site. In a short time, Gaylord Rockets has become the premier non-gaming convention resort in the West. And when you look at the possibilities in that market with the adjacent airlift from the tremendous airport there and the lack of competing product, There is a tremendous opportunity to grow not only the asset itself into an Opry land of the West, but also the surrounding area into something like National Harbor. National Harbor was essentially an empty riverbank before the Gaylord National arrived and has since become a thriving confluence of hospitality, food, beverage, and gaming, and tourism. And just to remind you, we're excited to be reopening the Gaylord National. on or around July 1. I see no reason why over time the area around the Gaylord Rockies couldn't evolve in a similar vision. Late last week, when we were finalizing our purchase agreement on the Rockies, Mark pointed out something to me which I really think is worth you all considering. As we entered the pandemic in March of 2020, the Gaylord Hotels brand was made up of 9,000 rooms, And since that time, we've increased the room count by 800 rooms with the Palms expansion and the Rockies purchase, or about a 9% increase. So as you think about the future growth in this sector, reflect on the fact that no other hospitality REIT comes close to what we have accomplished from a growth potential, and our positioning post-COVID should allow us to show greater growth in those companies who have stood still or have shared assets through this period. Now let's talk about our entertainment business, which in many ways has mirrored the progress we've seen at our hotels these last few months. That is, short-term trends are moving in the right direction and the underlying vision for growth is untouched. We continue to have a full slate of concerts on the books for the Ryman for the final five months of the year. And when we talk to the artists and their managers, They're all looking forward to resuming normal touring schedules later this year, though individual venues will likely vary across the country in terms of capacity and restrictions. That is why we are fortunate that our existing venues are in markets that are faring ahead of the curve in terms of COVID-19 prevalence and are seeing most of our restrictions and capacity restraints eased or removed. Our all red venues across Tennessee and Florida, for example, are currently at full capacity, aside from some minor limitations on dance floors or standing at bars. And as I've mentioned, things are about to change here in Tennessee. One thing that has stood out to us as this pandemic recovery process has unfolded is just how much live and in-person entertainment as a category really matters to people. Concerts and live entertainment are now viewed as among the most resilient out-of-home entertainment categories. And you see this in the market today, where premium live entertainment assets are in high demand, yet in short supply. There are very few public comparables, but if you look at some of the hardest-hit segments of COVID-19 shutdowns a year ago, you can pick companies like Live Nation and Madison Square Gardens. And it doesn't matter. All of these companies' values have since soared back in anticipation of recovery to levels even higher than pre-COVID-19. Now, what this tells me is investors expect these businesses to make an accelerated recovery, and we certainly agree with that. This phenomenon validates the view that we have long held, which is that the assets that we have in our entertainment group, especially the Ryman Auditorium and the Grand Ole Opry are not only valuable, but irreplaceable. And then we have layered in the Ole Red brand as an extension of the Opry and Ryman Live experience, adding a next-generation artist and consumer funnel and driving content creation capabilities beyond Nashville. We've woven them all together with a digital strategy anchored by our Country Lifestyle Network circles. And I'm happy to tell that Circle was named best streaming TV platform at the recent 2021 Digiday Video and TV Awards in March, head of major players like Samsung TV+, Tubi, Atmosphere, and Local Now. Circle is now available through NBC Universal's Peacock, Roku, Redbox Free Live TV, Samsung TV, Vizio, Smartcast, and Zumo. And that is on top of its linear distribution through Gray TV for total reach of nearly 150 million potential viewers. That is a tremendous reach in a very short time for a service, for a new service, and has excited. And, you know, we're very, very excited about what the next two to three years brings for this particular part of our business. To wrap up, Wherever we look in our portfolio, things are moving rapidly in the right direction, and we expect continued progress as more vaccine milestones are reached. So in the short term, we will stay focused on executing our recovery game and minimizing our cash burn, while longer term, we look to guide our company back to a path of sustained growth, such as we long experienced before COVID-19. And this is evidenced in our Rockies acquisition that we announced today. So now let me turn over to Mark for him to walk you through a little bit more details on the transaction and talk about cash funds.