Ryman Hospitality Properties, Inc. (REIT)

Please stand by. Your program is about to begin. If you need audio assistance during today's program, please press star zero. Welcome to Ryman Hospitality Properties Third Quarter 2021 Earnings Conference Call. Hosting the call today from Ryman Hospitality's properties are Mr. Colin Reed, Chairman and Chief Executive Officer, and Mr. Mark Fiovante, President and Chief Financial Officer, Mr. Patrick Chaffin, Chief Operating Officer, and Scott Bailey, President, Opry Entertainment Group. This call will be available for digital replay. The number is 800-938-2113, with no conference ID required. 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 Biovanti. Sir, you may begin.

Good morning, and 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, future events, or any other reasons. We will also discuss non-GAAP financial measures today. We reconcile each non-GAAP measure to the most comparable GAAP measure and exhibit to today's release. I'll now turn the call over to Colin.

Thank you, Mark, and good morning, everyone. When we last spoke on August 3rd, we were on the front slope of a rising wave of COVID-19 Delta variant cases and bombarded by headlines about the potential return of the restrictive measures we saw last year. Today, three months later, we are past the peak of that wave and now clearly on a downward slope. As of the end of last week, the national seven-day average of new COVID-19 cases had fallen over 59% from its peak on September 13th and about 19% in the last two weeks. And hospitalizations have followed the same trend. And I'm happy to report that despite the impact of the Delta variant in the third quarter, It's remarkable that our business performed in the upper end of our expectations, which we originally set and communicated before the Delta wave began. On a consolidated basis, we generated over $18 million of positive cash flow per month in the third quarter, which we define as adjusted EBITDA, less cash interest and debt service. This is compared to our expected range, again determined pre-Delta, of 16 to 19 million of positive cash flow per month. This is an impressive performance and I want to quantify the impact of the Delta variant on our business during the third quarter because from the headlines we all read and from the media in general in August and September, you sometimes got the impression that the sky was falling and we would be returning to government mandated lockdowns and gathering restrictions. In the third quarter, we saw about 160,000 room nights lost related to concerns over this Delta variant. However, let me give you some important context around this figure. First, 160,000 room nights is about 5% of the total cancellations we have experienced since the start of the pandemic. So in scale, the impact of the Delta wave was and is nothing like what we went through last year or earlier this year. In addition, 93% of these third quarter cancellations were for travel dates this year, or roughly 40% for the third quarter and 53% for the fourth quarter, with only a handful spilling into 2022. This means the cancellation window we experienced in the third quarter was shorter, about 50 days on average, compared to the roughly 90-day window for cancellations during the first phase of this pandemic. What this demonstrates to us and what we are hearing from the meeting planners themselves is that there continues to be a strong need and desire to hold their meetings. So many of these gatherings are mission critical to their organizations and they are waiting until the last possible moment as they watch the data before making any cancellation decisions. As a result, as the Delta variant wave subsides, the cancellation window has been shrinking, which is good news for us as we look towards next year. As of the end of the third quarter, we had 44 points of net group occupancy on the books for 2022, compared to 47 points at the end of the third quarter of 2018 for 2019, our last pre-COVID year. These group room nights for next year also contracted at a 6.5% higher rate than our T1 rooms at the same time in 2018. Therefore, in total, we have more group rooms revenue on the books for next year than we had at the same point in time headed into 2019, which turned out to be a record year for our business. And, of course, it's important to highlight that even with these recent cancellations, we still traveled over 300,000 group room nights in the third quarter. That is more than double the number of group room nights that travel with us in the first half of the year before the Delta wave. For the quarter, our hotel portfolio reached 54.5% occupancy with a peak of 63.4 in the month of July just before the Delta variant took hold. In fact, for the peak month of July, excluding the just reopened Gaylord National, which only reopened on the 1st of July, the other four Gaylord hotels reached 69 points of occupancy for that month. Now, think about that for a moment. We reached nearly 70 points of occupancy in hotels of our size, including the additional inventory of 300 new rooms at the Gaylord Palms. Again, this is a clear signal of the pent-up demand among both group and leisure travelers for what our hotels have to offer. I would add, that we've already seen cancellations materially decline in recent weeks after it became more apparent that the Delta wave had subsided in mid-September, which brings us to another very important dynamic to note in agribusiness, which is that we collected over $10 million in cancellation and attrition fees for the third quarter. For context, through the end of the third quarter, we have collected $28 million in cancellation and attrition fees year-to-date, which is the same level of fees we collected in 2009 during the great financial crisis. As you know, the contractual nature of our business provides a level of downside protection which we have highlighted with you often over the years and sets us apart from the rest of our hospitality peers that are not as group-focused. With all of our hotels now open and operating and plenty of group meetings successfully, and given there were no further governmental restrictions on gathering sizes in our markets, the collectability of our contracted fees for groups who do choose to cancel has become much stronger. Now, switching over from group for a moment, the other area of momentum in our hospitality business, which was even less affected by Delta, is the powerful resurgence we've seen in our leisure demand. We sold over 215,000 transient room nights in the third quarter, which is over 11% more than in the third quarter of 19 before COVID-19. And our transient ADR in the quarter exceeded $250, which is almost 24% higher than the third quarter of 2019. This transient momentum has continued into the fourth quarter, which is very exciting for us as we head into our most leisure-heavy months of the year over the holiday season. We recently began publicizing our 2021 Christmas program for the Gaylord Hotels, which this year will be a completely new multi-century experience built around the Warner Brothers Elf franchise with several highly unique interactive challenges for families to complete. This program is generating great response, driving material leisure transient pickup compared to last year. The bottom line is that while the Delta wave took a bite out of our group business in the third quarter, which will also linger into the fourth, It did not stop the broader reawakening that we have been witnessing in our hotels since the beginning of this year when the vaccine rollout commenced. And when it comes to our entertainment business, the effect of Delta was barely noticeable. Indeed, our entertainment business was just a few percentage points from matching the levels of 2019's third quarter on a same-store basis. That is, excluding the contributions of both Old Red Orlando and our Circle Media joint venture, neither of which we had in the third quarter of 19, revenue and adjusted EBITDA RE in the third quarter were 92% and 95% respectively of 2019's third quarter. Live entertainment demand has clearly been reanimated post-pandemic. That is also why we're excited to have reached a new agreement with Stratus Properties announced last week to acquire Block 21, the one-of-a-kind mixed-use entertainment complex in the heart of downtown Austin. Block 21 is anchored by the iconic 2,750-seat ACL Live at the Moody Theater and accompanied by the 310 at ACL Live Club, the 251-room W Austin Hotel and over 50,000 square feet of premier Class A commercial space. We could spend quite a bit of time discussing the menu of exciting opportunities created by this marriage of Nashville, the music city, with Austin, the live music capital of the world. Those of you who have followed our company since before COVID-19 know the history of this transaction, which we had originally announced in December of 19, but were forced to cancel in the depths of the pandemic. We stayed in close contact with Stratus throughout the past year and a half, and we were delighted to bring this deal back to fruition. And as we said the first time we announced this acquisition, opportunities to own assets like this in an absolute fantastic growth market like Austin do not come around very often. The acquisition of Block 21 will be a transformational deal for entertainment segment providing not only a tremendous increase in scale and geographic diversification, but also a host of opportunities to leverage our existing capabilities, including our artist and audience relationships, to create value across our physical and digital platforms. For example, we see opportunities to further utilize the ACL live venue across all day parts, to cross-market our customer bases and cross-promote content and artists between ACL Live and our other venues and channels, to improve the W Austin hotel utilization, especially in our wheelhouse of group business, and finally, to enhance margins through shared services. And to be clear, we expect to be accretive. We expect this deal to be accretive to AFFO in its first full year. Therefore, as Delta fades into the fourth quarter, our focus is squarely on returning to growth. This includes the investments we are making in Block 21 to supercharge our live entertainment strategy and the significant amount of capital that we have deployed into our hospitality business in the last three years that we look forward to maturing in the years to come. These include the Texan and Palms expansions, sound waves at Opryland, the national renovation, and our full ownership stake in the Gaylord Rockies. And we take a full plate of further future investment opportunities under consideration across our businesses, from scouting new locations for Old Red to develop opportunities for the recently acquired land around the Gaylord Rockies, to further enhancements, renovations, and expansions across our hotel portfolio to continue to serve our group, and leisure customers and their involving needs as this long-awaited recovery continues to take hold. Now, before I hand it over to Mark, who will review our balance sheet and the financial details of the Block 21 transaction, let me just make one last comment. I've been in this business for a long time, and I've witnessed my share of crisis over that span, COVID-19 merely being the last. However, as I sit here today, I cannot overemphasize how excited I am about everything happening in our portfolio and the opportunity set in front of us. Our teams inside and out of our hotels and entertainment venues have done just a wonderful, tremendous job taking care of our customers and our assets through this extraordinary period of time. And I believe we as a company have emerged better for it given everything we've learned. So with that, let me hand over to Mark.